As filed with the Securities and Exchange Commission on December 20, 2005
An Exhibit List can be found on page II-11.
Registration No. 333-_______
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
-----------------------------
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------------------------
BRAVO! FOODS INTERNATIONAL CORP.
(Name of small business issuer in its charter)
Delaware 2020 62-1681831
(State or other (Primary Standard Industrial (I.R.S. Employer
Jurisdiction of Classification Code Number) Identification No.)
Incorporation or
Organization)
11300 US Highway 1
North Palm Beach, Florida 33408
(561) 625-1411
(Address and telephone number of principal executive offices and
principal place of business)
Roy G. Warren, Chief Executive Officer
BRAVO! FOODS INTERNATIONAL CORP.
11300 US Highway 1
North Palm Beach, Florida 33408
(561) 625-1411
(Name, address and telephone number of agent for service)
Copies to:
Marc Ross, Esq.
Stephen Fleming, Esq.
Sichenzia Ross Friedman Ference LLP
1065 Avenue of the Americas, 21st Flr.
New York, New York 10018
(212) 930-9700
(212) 930-9725 (fax)
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
From time to time after this Registration Statement becomes effective.
If any securities being registered on this Form are to be offered on a delayed
or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other
than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. ________
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. _________
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. _________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. _________
ii
CALCULATION OF REGISTRATION FEE
------------------------------- -------------------- ---------------- ------------------ --------------------
Proposed
maximum Proposed
offering maximum
Title of each class of Amount to be price per aggregate Amount of
securities to be registered registered (1) share offering price registration fee
------------------------------- -------------------- ---------------- ------------------ --------------------
Shares of common stock 40,500,000 $0.66(2) $26,730,000.00 $3,146.12
------------------------------- -------------------- ---------------- ------------------ --------------------
Shares of common stock 17,504,688 $0.66(2) $11,533,094.08 $1,359.80
issuable upon exercise of
warrants
------------------------------- -------------------- ---------------- ------------------ --------------------
Total 58,004,688 $4,505.92
------------------------------- -------------------- ---------------- ------------------ --------------------
(1) Includes shares of our common stock, par value $0.001 per share, which may
be offered pursuant to this registration statement, which shares are currently
outstanding or issuable upon the exercise of warrants held by the selling
stockholders. In addition to the shares set forth in the table, the amount to be
registered includes an indeterminate number of shares issuable upon exercise of
the warrants as such number may be adjusted as a result of stock splits, stock
dividends and similar transactions in accordance with Rule 416. Should a
decrease in the exercise price for our warrants as a result of an issuance or
sale of shares below the then current market price, result in our having
insufficient shares, we will not rely upon Rule 416, but will file a new
registration statement to cover the resale of such additional shares should that
become necessary.
(2) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(c) under the Securities Act of 1933, using the average
of the high and low price as reported on the Over-The-Counter Bulletin Board on
December 7, 2005, which was $0.66 per share.
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the commission, acting pursuant to said Section 8(a),
may determine.
PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION, DATED DECEMBER 20, 2005
BRAVO! FOOD INTERNATIONAL CORP.
58,004,688 SHARES OF
COMMON STOCK
This prospectus relates to the resale by the selling stockholders up to
58,004,688 shares of our common stock, including the following:
o 40,500,000 shares of our common stock;
o up to 15,492,188 shares issuable upon the exercise of common stock
purchase warrants at $0.80.
o up to 1,012,500 shares issuable upon the exercise of common stock
purchase warrants at $0.50; and
o up to 1,000,000 shares issuable upon the exercise of common stock
purchase warrants at $0.05
The selling stockholders may sell common stock from time to time in the
principal market on which the stock is traded at the prevailing market price or
in negotiated transactions. The selling stockholders may be deemed underwriters
of the shares of common stock, which they are offering. We will pay the expenses
of registering these shares.
Our common stock is registered under Section 12(g) of the Securities
Exchange Act of 1934 and is listed on the Over-The-Counter Bulletin Board under
the symbol "BRVO". The last reported sales price per share of our common stock
as reported by the Over-The-Counter Bulletin Board on December 7, 2005, was
$0.66.
Investing in these securities involves significant risks. See "Risk Factors"
beginning on page 4.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
Prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this prospectus is _______, 2005.
The information in this Prospectus is not complete and may be changed.
This Prospectus is included in the Registration Statement that was filed by
Bravo! Foods International Corp., with the Securities and Exchange Commission.
The selling stockholders may not sell these securities until the registration
statement becomes effective. This Prospectus is not an offer to sell these
securities and is not soliciting an offer to buy these securities in any state
where the sale is not permitted.
1
PROSPECTUS SUMMARY
The following summary highlights selected information contained in this
prospectus. This summary does not contain all the information you should
consider before investing in the securities. Before making an investment
decision, you should read the entire prospectus carefully, including the "risk
factors" section, the financial statements and the notes to the financial
statements.
BRAVO! FOODS INTERNATIONAL CORP.
We are involved in the development and marketing of our Slammers(R)
trademarked brand, the obtaining of license rights from third party holders of
intellectual property rights to other trademarked brands, logos and characters,
and the granting of production and marketing rights to processor dairies to
produce branded flavored milk and generating revenue through the sale of "kits"
to these dairies outside of the United States and through wholesale sales within
the United States. The price of the "kits" consists of an invoiced price for a
fixed amount of flavor ingredients per kit used to produce the flavored milk and
a fee charged to the diaries for the production, promotion and sales rights for
the branded flavored milk. In the United States, we also generate revenue from
the unit sales of finished branded flavored milks to retail consumer outlets.
Our new product introduction and growth expansion continue to be expensive
and we reported a net loss of $3,016,987 for the year ended December 31, 2004
and a net loss of $3,799,926 for the year ended December 31, 2003. In addition,
we had a net loss of $7,485,371 for the nine months ended September 30, 2005. We
have suffered operating losses and negative cash flows from operations since
inception and, at December 31, 2004, we had an accumulated deficit, a capital
deficit, are delinquent on certain debts and have negative working capital.
These conditions give rise to substantial doubt about our ability to continue as
a going concern.
Our principal offices are located at 11300 US Highway 1, North Palm Beach,
Florida 33408, and our telephone number is (561) 625-1411. We are a Delaware
corporation.
--------------------------------------------------------------------------------
The Offering
--------------------------------------------------------------------------------
Common stock offered by selling Up to 58,004,688 shares, which would
stockholders represent 29.1% of our outstanding
shares of common stock assuming the
exercise of warrants being registered
herewith including:
- 40,500,000 shares of common stock;
- up to 15,492,188 shares issuable
upon the exercise of common stock
purchase warrants at $0.80;
- up to 1,012,500 shares issuable upon
the exercise of common stock purchase
warrants at $0.50; and
- up to 1,000,000 shares issuable upon
the exercise of common stock purchase
warrants at $0.05.
--------------------------------------------------------------------------------
Common stock to be outstanding after Up to 199,333,439 shares
the offering
--------------------------------------------------------------------------------
Use of Proceeds We will not receive any proceeds from
the sale of the common stock
--------------------------------------------------------------------------------
Over-The-Counter Bulletin Board Symbol BRVO
--------------------------------------------------------------------------------
The above information regarding common stock to be outstanding after the
offering is based on 181,753,751 shares of common stock outstanding as of
December 7, 2005 and assumes the subsequent exercise of warrants by our selling
stockholders.
2
To obtain funding for our ongoing operations, we entered into the
following financing transaction:
On November 28, 2005, we closed a funding transaction with 13 accredited
institutional investors, for the issuance and sale of 40,500,000 shares of our
common stock for a purchase price of $20,250,000. We also issued five-year
warrants for the purchase of an additional 15,187,500 shares of common stock at
an exercise price of $0.80 per share to these investors. In connection with this
financing, we issued a five-year common stock purchase warrant to purchase of
1,012,500 shares of common stock at an exercise price of $0.50 and 304,688
shares at an exercise price of $0.80 to SG Cowen & Co., LLC, for its services as
a Placement Agent in connection with this funding transaction. The securities
are restricted and have been issued pursuant to an exemption to the registration
requirements of Section 5 of the Securities Act of 1933 for "transactions of the
issuer not involving any public offering" provided in Section 4(2) of the Act
and pursuant to a Regulation D offering.
The shares of common stock and the shares of common stock underlying the
warrants carry registration rights that obligate us to file a registration
statement within 45 days from closing and have the registration statement
declared effective within 120 days from closing.
In connection with an intellectual property licenses, we entered into the
following:
On June 20, 2005, we issued a one year warrant for the purchase of
1,000,000 shares of common stock at an exercise price of $0.05 per share to
Marvel Enterprises, Inc., pursuant to an April 14, 2005 Services Agreement for
marketing, promotional and creative services to be performed by Marvel
Enterprises, Inc. in connection with an intellectual property license between
our company and Marvel Enterprises, Inc.
This prospectus relates to the resale of the shares of common stock and
the shares of common stock issued or to be issued upon exercise of common stock
purchase warrants in connection with the November 28, 2005 private placement and
the shares of common stock issuable upon exercise of common stock purchase
warrants issued in connection with the April 14, 2005 Services Agreement.
3
RISK FACTORS
This investment has a high degree of risk. Before you invest you should
carefully consider the risks and uncertainties described below and the other
information in this prospectus. If any of the following risks actually occur,
our business, operating results and financial condition could be harmed and the
value of our stock could go down. This means you could lose all or a part of
your investment.
Risks Relating to Our Business:
We Have a History Of Losses Which May Continue, Requiring Us To Seek Additional
Sources of Capital Which May Not Be Available, Requiring Us To Curtail Or Cease
Operations.
Our new product introduction and growth expansion continue to be expensive
and we reported a net loss of $3,016,987 for the year ended December 31, 2004
and a net loss of $3,799,926 for the year ended December 31, 2003. In addition,
we had a net loss of $7,485,371 for the nine months ended September 30, 2005. We
cannot assure you that we can achieve or sustain profitability on a quarterly or
annual basis in the future. If revenues grow more slowly than we anticipate, or
if operating expenses exceed our expectations or cannot be adjusted accordingly,
we will continue to incur losses. We will continue to incur losses until we are
able to establish significant sales. Our possible success is dependent upon the
successful development and marketing of our services and products, as to which
there is no assurance. Any future success that we might enjoy will depend upon
many factors, including factors out of our control or which cannot be predicted
at this time. These factors may include changes in or increased levels of
competition, including the entry of additional competitors and increased success
by existing competitors, changes in general economic conditions, increases in
operating costs, including costs of supplies, personnel, marketing and
promotions, reduced margins caused by competitive pressures and other factors.
These conditions may have a materially adverse effect upon us or may force us to
reduce or curtail operations. In addition, we will require additional funds to
sustain and expand our sales and marketing activities, particularly if a
well-financed competitor emerges. While we closed on $20,250,000 in new equity
financing in November 2005, after the payment of approximately $1.5 million in
fees and expenses, we have allocated approximately $1.7 million of the net
proceeds for the payment of a finders fee in connection with our execution of a
Master Distribution Agreement with Coca-Cola Enterprises Inc. and approximately
$5.4 million for the redemption of approximately 30.3 million warrants, and have
allocated approximately $11.7 million for general working expenses. There can be
no assurance that this financing will be adequate for the development and
marketing of our services and products at a level that provides sufficient
profitability for sustained growth. If the present funds prove sufficient and we
are unable to generate adequate funds from operations or external sources, we
would be required to curtail or cease operations.
If We Are Unable to Achieve and Sustain Profitability, Our Business Operations
Will be Harmed and If We Obtain Additional Financing Our Then Existing
Shareholders May Suffer Substantial Dilution.
Additional capital may be required to effectively support the operations
and to otherwise implement our overall business strategy. However, there can be
no assurance that financing will be available when needed on terms that are
acceptable to us. The inability to obtain additional capital will restrict our
ability to grow and may reduce our ability to continue to conduct business
operations. If we are unable to obtain additional financing, we will likely be
required to curtail our marketing and development plans and possibly cease our
operations. Any additional equity financing may involve substantial dilution to
our then existing shareholders.
Our Independent Auditors Have Expressed Substantial Doubt About Our Ability to
Continue As a Going Concern, Which May Hinder Our Ability to Obtain Future
Financing.
In their report dated March 4, 2005, our independent auditors stated that
our financial statements for the year ended December 31, 2004 were prepared
assuming that we would continue as a going concern. Our ability to continue as a
going concern is an issue raised as a result of a net loss for the year ended
December 31, 2004 in the amount of $3,799,926. We continue to experience net
operating losses. Our ability to continue as a going concern is subject to our
ability to generate a profit and/or obtain necessary funding from outside
sources, including obtaining additional funding from the sale of our securities,
increasing sales or obtaining loans and grants from various financial
institutions where possible. Our continued net operating losses increases the
difficulty in meeting such goals and there can be no assurances that such
methods will prove successful.
4
Since we depend upon key personnel having significant business contacts in the
US and internationally, the loss of one or more of our management team may have
a negative effect on our business.
The unexpected loss of the services of any member of the management team could
have a material adverse effect on our ability to conduct and grow both our US
and international business. We are and will be dependent on our current
management teams for the foreseeable future
o to obtain needed additional financing
o to develop and maintain critical business contacts for the
production of our branded milk products
o to develop and maintain third party licensor and brand development
contacts for the formulation of new brand development and branded
food products
We face intense competition in our US market that could negatively impact our
results of operations
Since we are smaller than our competitors in the US market and since we
have limited resources and sell our branded products at premium prices, we have
had difficulty in developing and maintaining our market share in the consumer
milk market. This difficulty could adversely affect our ability to achieve our
business goals to develop and increase the awareness of our branded products in
an effort to increase sales, while maintaining a premium price structure.
The ability of our competition to sell dairy and other food products at
prices below prices charged by us for our products may represent an obstacle to
our ability to secure a market share at revenue levels sufficient to achieve
profitability.
In our foreign business, we grant the rights to produce and sell branded
milk products to processor dairies under production agreements. Our role in
these agreements, in addition to granting the rights to produce the branded
milks as part of the sale of flavor ingredient packages to dairies, is limited
to marketing and promotion assistance and control over packaging and advertising
design issues. Such processors dairies have significant control over sales and
distribution of the branded milk products.. A reduction in sales effort or
discontinuance of sales of our products by our co-producers could lead to
reduced sales.
Risks Relating to Convertible Preferred and Convertible Debenture Financing
Arrangement:
There Are a Large Number of Shares Underlying Our Convertible Debentures and
Warrants That May be Available for Future Sale and the Sale of These Shares May
Depress the Market Price of Our Common Stock.
As of December 7, 2005, we had 181,753,751 shares of common stock issued
and outstanding and convertible debentures outstanding that may be converted
into an estimated 31,329,273 shares of common stock at below market prices,
convertible prefered outstanding that may be converted into an estimated
8,047,038 shares of common stock at below market prices outstanding warrants to
purchase 64,291,697 shares of common stock and options to purchase 11,958,459
shares of common stock. All of the shares, including all of the shares issuable
upon conversion of the debentures and upon exercise of our warrants, may be sold
pursuant to a currently effective registration statement or pursuant to Rule
144. The sale of these shares may adversely affect the market price of our
common stock.
The Issuance of Shares Upon Conversion of the Convertible Debentures and
Exercise of Outstanding Warrants May Cause Immediate and Substantial Dilution to
Our Existing Stockholders.
The issuance of shares upon conversion of the convertible debentures and
exercise of warrants may result in substantial dilution to the interests of
other stockholders since the selling stockholders may ultimately convert and
sell the full amount issuable on conversion. Although the debenture holders may
5
not convert their convertible debentures and/or exercise their warrants if such
conversion or exercise would cause them to own more than 9.99% of our
outstanding common stock, this restriction does not prevent the selling
stockholders from converting and/or exercising some of their holdings, selling
these shares and then converting the rest of their holdings. In this way, the
debenture holders could sell more than this limit while never holding more than
this limit.
If We Are Required for any Reason to Repay Our Outstanding Convertible
Debentures, We Would Be Required to Deplete Our Working Capital, If Available,
Or Raise Additional Funds. Our Failure to Repay the Convertible Debentures, If
Required, Could Result in Legal Action Against Us, Which Could Require the Sale
of Substantial Assets.
In November 2003, April 2004, June 2004, October 2004, December 2004,
January 2005 and April 2005, we entered into financing arrangements for the sale
of $5,750,000 principal amount of convertible debentures. Currently, the
remaining unpaid principal of the issued notes is $766,666, with approximately
$85,350 in accrued interest
Any event of default could require the early repayment of the convertible
debentures, including a default interest rate if the default is not cured with
the specified grace period. We anticipate that the full amount of the
convertible debentures, together with accrued interest, will be converted into
shares of our common stock, in accordance with the terms of the convertible
debentures. If we are required to repay the convertible debentures, we would be
required to use our working capital or raise additional funds. If we were unable
to repay the debentures when required, the debenture holders could commence
legal action against us to recover the amounts due. Any such action may require
us to obtain additional financing or curtail operations.
Risks Relating to Our Common Stock:
If We Fail to Remain Current on Our Reporting Requirements, We Could be Removed
From the OTC Bulletin Board Which Would Limit the Ability of Broker-Dealers to
Sell Our Securities and the Ability of Stockholders to Sell Their Securities in
the Secondary Market.
Companies trading on the OTC Bulletin Board, such as us, must be reporting
issuers under Section 12 of the Securities Exchange Act of 1934, as amended, and
must be current in their reports under Section 13, in order to maintain price
quotation privileges on the OTC Bulletin Board. If we fail to remain current on
our reporting requirements, we could be removed from the OTC Bulletin Board. As
a result, the market liquidity for our securities could be severely adversely
affected by limiting the ability of broker-dealers to sell our securities and
the ability of stockholders to sell their securities in the secondary market.
Our Common Stock is Subject to the "Penny Stock" Rules of the SEC and the
Trading Market in Our Securities is Limited, Which Makes Transactions in Our
Stock Cumbersome and May Reduce the Value of an Investment in Our Stock.
The Securities and Exchange Commission has adopted Rule 15g-9 which
establishes the definition of a "penny stock," for the purposes relevant to us,
as any equity security that has a market price of less than $5.00 per share or
with an exercise price of less than $5.00 per share, subject to certain
exceptions. For any transaction involving a penny stock, unless exempt, the
rules require:
o that a broker or dealer approve a person's account for transactions
in penny stocks; and
o the broker or dealer receive from the investor a written agreement
to the transaction, setting forth the identity and quantity of the
penny stock to be purchased.
In order to approve a person's account for transactions in penny stocks, the
broker or dealer must:
o obtain financial information and investment experience objectives of
the person; and
o make a reasonable determination that the transactions in penny
stocks are suitable for that person and the person has sufficient
knowledge and experience in financial matters to be capable of
evaluating the risks of transactions in penny stocks.
6
The broker or dealer must also deliver, prior to any transaction in a penny
stock, a disclosure schedule prescribed by the Commission relating to the penny
stock market, which, in highlight form:
o sets forth the basis on which the broker or dealer made the
suitability determination; and
o that the broker or dealer received a signed, written agreement from
the investor prior to the transaction.
Generally, brokers may be less willing to execute transactions in securities
subject to the "penny stock" rules. This may make it more difficult for
investors to dispose of our common stock and cause a decline in the market value
of our stock.
Disclosure also has to be made about the risks of investing in penny
stocks in both public offerings and in secondary trading and about the
commissions payable to both the broker-dealer and the registered representative,
current quotations for the securities and the rights and remedies available to
an investor in cases of fraud in penny stock transactions. Finally, monthly
statements have to be sent disclosing recent price information for the penny
stock held in the account and information on the limited market in penny stocks.
7
USE OF PROCEEDS
This prospectus relates to shares of our common stock that may be offered
and sold from time to time by the selling stockholders. We will not receive any
proceeds from the sale of shares of common stock in this offering. In the event
that we received proceeds from the exercise of the Class A, Class B Warrants and
other warrants, we will use these funds for working capital.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock is quoted on the OTC Bulletin Board under the symbol
"BRVO".
For the periods indicated, the following table sets forth the high and low
bid prices per share of common stock. These prices represent inter-dealer
quotations without retail markup, markdown, or commission and may not
necessarily represent actual transactions.
--------------------------------------------------------------------------------
High Low
--------------------------------------------------------------------------------
2003
--------------------------------------------------------------------------------
First Quarter .28 .20
--------------------------------------------------------------------------------
Second Quarter .23 .09
--------------------------------------------------------------------------------
Third Quarter .16 .09
--------------------------------------------------------------------------------
Fourth Quarter .12 .05
--------------------------------------------------------------------------------
2004
--------------------------------------------------------------------------------
First Quarter .17 .06
--------------------------------------------------------------------------------
Second Quarter .34 .14
--------------------------------------------------------------------------------
Third Quarter .27 .13
--------------------------------------------------------------------------------
Fourth Quarter .22 .09
--------------------------------------------------------------------------------
2005
--------------------------------------------------------------------------------
First Quarter .18 .10
--------------------------------------------------------------------------------
Second Quarter 1.21 .14
--------------------------------------------------------------------------------
Third Quarter 1.43 .51
--------------------------------------------------------------------------------
Fourth Quarter* 0.80 .47
--------------------------------------------------------------------------------
*Up to December 7, 2005
HOLDERS
Equity Holders as of December 7, 2005
As of December 7, 2005, we had approximately 1,900 holders of our common
stock. The number of record holders was determined from the records of our
transfer agent and does not include beneficial owners of common stock whose
shares are held in the names of various security brokers, dealers, and
registered clearing agencies. The transfer agent of our common stock is American
Stock Transfer & Trust Company, 59 Maiden Lane, Plaza Level, New York, NY 10038.
The following is a list of our other security holders:
Series F preferred stock 5,248 shares 1 holder
Series H preferred stock 64,500 shares 4 holders
Series I preferred stock 30,000 shares 2 holders
Series J preferred stock 200,000 shares 1 holder
Series K preferred stock 95,000 shares 1 holder
8
Dividends
We have not paid dividends on our common stock and do not anticipate
paying dividends. Management intends to retain future earnings, if any, to
finance working capital, to expand our operations and to pursue our acquisition
strategy.
The holders of common stock are entitled to receive, pro rata, such
dividends and other distributions as and when declared by our board of directors
out of the assets and funds legally available therefor. The availability of
funds is dependent upon dividends or distribution of profits from our
subsidiaries and may be subject to regulatory control and approval by the
appropriate government authorities on either a regional or national level.
Preferred Stock
We have accrued dividends for our convertible preferred stock in the
amount of $339,904 at December 31, 2003, $388,632 for the period ended December
31, 2004 and $236,001 for the period ended September 30, 2005.
As of December 7, 2005, we have issued and outstanding 107,440 shares of
Series B convertible preferred stock; 5,248 shares of Series F convertible
preferred stock; 64,500 shares of shares of Series H convertible preferred
stock; 200,000 shares of Series J convertible preferred stock; and 95,000 shares
of Series K convertible preferred stock. With the exception of the Series B
stock, which is convertible on a one share of common for one share of preferred
basis, the remaining convertible preferred has a stated value of $10.00 per
share and, in the aggregate, are convertible into 31,221,830 shares of our
common stock
Series B shares are not redeemable. Series F shares are redeemable at the
option of the Holder at 125% of the stated value, if the Company is in default
of the material terms of the Series F operative documents, including the
Certificate of designation and he Subscription Agreement. Series H, J and K
shares are redeemable at the option of the company at 135% of the stated value,
commencing two years after issuance of the preferred and upon two days notice by
the Company. The Holders of the Series H, J and K shares have the right to
convert the preferred to common shares during the two day notice period.
Securities authorized for issuance under equity compensation plans
The equity compensation reported in this section has been and will be
issued pursuant to individual compensation contracts and arrangements with
employees, directors, consultants, advisors, vendors, suppliers, lenders and
service providers. The equity is reported on an aggregate basis as of December
31, 2004. Our security holders have not approved the compensation contracts and
arrangements underlying the equity reported.
--------------------------- ------------------------- --------------------------- ------------------------------------
Number of securities to
be issued upon exercise Weighted average price of Number of securities remaining for
of options, warrants outstanding options, future issuance under equity
Compensation Plan Category and rights warrants and rights compensation plans
--------------------------- ------------------------- --------------------------- ------------------------------------
Directors (former) 325,000 $0.71 0 individual plans
--------------------------- ------------------------- --------------------------- -------------- ---------------------
Employees (former) 550,000 $0.87 60,000 individual plans
--------------------------- ------------------------- --------------------------- -------------- ---------------------
Directors/Management 9,147,745 $0.245 1,250,000 2005 Stock Option
Incentive Plan(1)
--------------------------- ------------------------- --------------------------- -------------- ---------------------
Consultants 460,000 $0.30 0 individual plans
--------------------------- ------------------------- --------------------------- -------------- ---------------------
Lender 25,000 $0.40 0 individual plan
--------------------------- ------------------------- --------------------------- -------------- ---------------------
Total 10,507,745 $0.77 1,310,000
--------------------------- ------------------------- --------------------------- -------------- ---------------------
(1) On April 6, 2005, our Directors voted to adopt a Stock Option Incentive Plan
for the grant of option to directors, employees and consultants for the purchase
of up to 10,397,745 shares of our common stock. On May 12, 2005, the Board of
Directors accepted and adopted the determination of the Compensation Committee
to grant 9,147,745 of the authorized option to our directors and senior
management. The individual option contracts have not yet been issued; we
anticipate such issuance before December 31, 2005.
Compensation Plans
Directors
On March 27, 2001, we issued options to our directors to purchase an
aggregate of 925,000 shares of our common stock. The options have an exercise
price of $0.75 and expire March 26, 2006. Directors received options for 35,000
shares for each full year of service and an additional 40,000 shares for service
on a board committee. On August 14, 2001, we issued 250,000 options to the Board
of Directors for services rendered as directors. Each director received options
for 25,000 shares of common stock at an exercise price of $0.60. The options can
be exercised for five years.
9
On January 13, 2004, the Board of Directors adopted a plan to convert on a
one for one basis the options granted to our present employees and the directors
currently serving on the Board into a like number of our restricted shares of
common stock at the then market value of $0.08 per share. The conversion of the
options to common stock for any individual director or employee was conditioned
upon a "lockup" agreement by such director or employee, pursuant to which the
recipients of such common stock could not sell, transfer, pledge or hypothecate
such common stock for a six-month period.
On April 6, 2005, our Directors voted to adopt a Stock Option Incentive
Plan for the grant of options to directors, employees and consultants for the
purchase of up to 10,397,745 shares of our common stock. On May 12, 2005, the
Board of Directors accepted and adopted the determination of the Compensation
Committee to grant 3,572,744 of the authorized options to our directors.
Senior Management
On April 6, 2005, our Directors voted to adopt a Stock Option Incentive
Plan for the grant of options to directors, employees and consultants for the
purchase of up to 10,397,745 shares of our common stock. On May 12, 2005, the
Board of Directors accepted and adopted the determination of the Compensation
Committee to grant 4,900,000 of the authorized option to our senior management.
10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Some of the information in this Form SB-2 contains forward-looking
statements that involve substantial risks and uncertainties. You can identify
these statements by forward-looking words such as "may," "will," "expect,"
"anticipate," "believe," "estimate" and "continue," or similar words. You should
read statements that contain these words carefully because they:
o discuss our future expectations;
o contain projections of our future results of operations or of our
financial condition; and
o state other "forward-looking" information.
We believe it is important to communicate our expectations. However, there
may be events in the future that we are not able to accurately predict or over
which we have no control. Our actual results and the timing of certain events
could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including those set forth under "Risk
Factors," "Business" and elsewhere in this prospectus. See "Risk Factors."
OVERVIEW
Our business model includes the development and marketing of our company
owned Slammers(R) trademarked brand, the obtaining of license rights from third
party holders of intellectual property rights to other trademarked brands, logos
and characters and the granting of production and marketing rights to processor
dairies to produce branded flavored milk. We generate revenue in our
international (non-US) business through the sale of "kits" to these dairies. The
price of the "kits" consists of an invoiced price for a fixed amount of flavor
ingredients per kit used to produce the flavored milk and a fee charged to the
dairy processors for the production, promotion and sales rights for the branded
flavored milk. In the United States, we generate revenue from the unit sales of
finished branded flavored milks to retail consumer outlets.
Our new product introduction and growth expansion continues to be
expensive, and we reported a net loss of $7,485,731 for the nine-month period
ended September 30, 2005. As shown in the accompanying financial statements, we
have suffered operating losses and negative cash flows from operations since
inception and at September 30, 2005 had an accumulated deficit of $41,485,761
and negative working capital of $4,105,854. These conditions give rise to
substantial doubt about our ability to continue as a going concern. As discussed
herein, we plan to work toward profitability in our U.S. and international
business and obtain additional financing. While there is no assurance that
funding will be available or that we will be able to improve our operating
results, we are continuing to seek equity and/or debt financing. No assurances
can be given, however, that management will be successful in carrying out our
plans.
CORPORATE GOVERNANCE
The Board of Directors
Our board has positions for seven directors that are elected as Class A or
Class B directors at alternate annual meetings of our shareholders. We currently
have one open position on the Board. Five of the six current directors of our
board are independent. Our chairman and chief executive officer are separate.
The board meets regularly, at least four times a year, and all directors have
access to the information necessary to enable them to discharge their duties.
The board, as a whole, and the audit committee in particular, reviews our
financial condition and performance on an estimated vs. actual basis and
financial projections as a regular agenda item at scheduled periodic board
meetings, based upon separate reports submitted by the Company's chief executive
officer and chief financial officer. Directors are elected by our shareholders
after nomination by the board or are appointed by the board when a vacancy
arises prior to an election. We have adopted a nomination procedure based upon a
rotating nomination committee made up of those members of the director Class not
up for election. The board presently is examining whether this procedure, as
well as the make up of the audit and compensation committees, should be the
subject of an amendment to the by-laws.
11
Audit Committee
Our audit committee is composed of three independent directors and
functions to assist the board in overseeing our accounting and reporting
practices. Our financial information is booked in house by our CFO's office,
from which we prepare financial reports. These financial reports are audited or
reviewed by Lazar Levine & Felix LLP, independent registered certified
accountants and auditors. Our chief financial officer reviews the preliminary
financial and non-financial information prepared in house with our securities
counsel and the auditors. The committee reviews the preparation of our audited
and unaudited periodic financial reporting and internal control reports prepared
by our chief financial officer. The committee reviews significant changes in
accounting policies and addresses issues and recommendations presented by our
internal and external certified accountants as well as our auditors. Currently,
there is one vacancy on the audit committee.
Compensation Committee
Our compensation committee is composed of three independent directors who
review the compensation structure and policies concerning executive
compensation. The committee develops proposals and recommendations for executive
compensation and presents those recommendations to the full board for
consideration. The committee periodically reviews the performance of our other
members of management and the recommendations of the chief executive officer
with respect to the compensation of those individuals. Given the size of our
company, the board periodically reviews all such employment contracts. The board
must approve all compensation packages that involve the issuance of the
Company's stock or stock options.
Nominating Committee
The nominating committee was established in the second quarter 2002 and
consists of those members of the director Class not up for election. The
committee is charged with determining those individuals who will be presented to
the shareholders for election at the next scheduled annual meeting. The full
board fills any mid term vacancies by appointment.
CRITICAL ACCOUNTING POLICIES
Estimates
This discussion and analysis of our consolidated financial condition and
results of operations are based on our consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States of America. The preparation of these financial statements
requires us to make estimates and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. On an on-going basis, we
evaluate our estimates, including those related to reserves for bad debts and
valuation allowance for deferred tax assets. We base our estimates on historical
experience and on various other assumptions that are believed to be reasonable
under the circumstances, the result of which forms the basis for making
judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ materially from
these estimates under different assumptions or conditions. Our use of estimates,
however, is quite limited as we have adequate time to process and record actual
results from operations.
Revenue recognition
United States
We recognize revenue in the United States at the gross amount of our
invoices for the sale of finished product to wholesale buyers. We take title to
our branded flavored milks when they are shipped by our third party processors
and recognize as revenue the gross wholesale price charged to our wholesale
customers. Our gross margin is determined by the reported wholesale price less
the cost charged by Jasper Products, our third party processor, to produce the
branded milk products.
12
Prior to 2004, we reported revenue in the United States from its sale of
"kits" to third party processors and from the differential between the cost of
producing its finished product and the wholesale price of its finished product.
Commencing in the first quarter 2004, we no longer employ the "kit" model in the
United States and we report revenue from our sale of finished product on the
wholesale level. We report the cost of producing the product charged by a third
party processor as the cost of goods sold. This change in revenue recognition
has resulted in materially higher reported revenue for our company, with a
corresponding material increase in reported costs of goods sold.
In certain circumstances in our U.S. business, we are required to pay
slotting fees, give promotional discounts or make marketing allowances in order
to secure wholesale customers. These payments, discounts and allowances reduce
our reported revenue in accordance with the guidelines set forth in EITF 01-9
and SEC Staff Accounting Bulletin No. 104.
International Sales
We recognize revenue in our international (non US) business at the gross
amount of our invoices for the sale of kits at the time of shipment of flavor
ingredients to processor dairies with whom we have production contracts for
extended shelf life and aseptic long life milk. We base this recognition on our
role as the principal in these transactions, its discretion in establishing kit
prices (including the price of flavor ingredients and production right fees),
its development and refinement of flavors and flavor modifications, our
discretion in supplier selection and our credit risk to pay for ingredients if
processors do not pay ingredient suppliers. The revenue generated by the
production contracts under this model consists of the cost of the processors'
purchase of flavor ingredients and fees charged by our company to the processors
for production rights. We formulate the price of production rights to cover our
intellectual property licenses, which varies by licensor as a percentage of the
total cost of a kit sold to the processor dairy under the production agreement.
We recognize revenue on the gross amount of "kit" invoices to the dairy
processors and simultaneously records as cost of goods sold the cost of flavor
ingredients paid by the processor dairies to ingredients supplier. The
recognition of revenue generated from the sale of production rights associated
with the flavor ingredients is complete upon shipment of the ingredients to the
processor, given the short utilization cycle of the ingredients shipped.
Pursuant to EITF 99-19, international sales of kits made directly to
customers by the Company are reflected in the statements of operations on a
gross basis, whereby the total amount billed to the customer is recognized as
revenue.
RESULTS OF OPERATIONS
Financial Condition at September 30, 2005
As of September 30, 2005, we had an accumulated deficit of $41,485,761,
cash on hand of $553,857 and reported total capital surplus of $7,544,377.
For the nine month period ended September 30, 2005, we had revenue of
$6,591,693 and general and administrative expense of $2,345,041.
After interest expenses of $293,415, cost of goods sold of $4,719,011,
product development costs of $194,955 and selling expenses of $3,525,002
incurred in the operations of the Company, we had a net loss of $7,485,731. Of
this net loss amount, $3,000,000 has been recorded in the quarter ending
September 30, 2005 as a one time, non-recurring finder's fee payable to a
third-party in connection with the execution of the Master Distribution
Agreement with Coca-Cola Enterprises, Inc.
Nine Months Ended September 30, 2005 Compared to the Nine Months Ended September
30, 2004
Consolidated Revenue
We had revenues for the nine months ended September 30, 2005 of
$6,591,693, with cost of sales of $4,719,011, resulting in a gross margin of
$1,872,682. This revenue and resultant gross margin are net of slotting fees,
13
promotional discounts and marketing allowances for this period in the amount of
$330,699. Of the reported revenue, U.S. sales accounted for $6,269,747, with
$288,596 from UK unit sales and an additional $33,350 from international kit
sales in the Middle East. We did not have revenue in this period in Canada or
Mexico. Our reported revenue for the nine months ended September 30, 2005
increased by $3,886,701, a 143.69% increase compared to revenue of $2,704,992
for the same period in 2004. This increase is the result of the Company's
development of new branded product lines in the United States, including the
2005 launch of our Slammers(R) line of Mars' Starburst, MilkyWay and 3
Musketeers flavored milk drinks. Our launch of Mars Slammers(R) line in the
first quarter 2005 achieved market penetration in over 30,000 grocery and
convenience stores for this line by September 30, 2005.
Consolidated Cost of Sales
We incurred cost of goods sold of $4,719,011 for the nine months ended
September 30, 2005, $4,506,616 of which was incurred in our U.S. business,
$209,782 in connection with our UK operation and $2,613 in connection with our
international sales in the Middle East. Cost of goods sold in this period
increased by $2,825,177 a 149.18% increase compared to $1,893,834 for the same
period in 2004. The increase in cost of goods sold reflects an increase in
sales, the concomitant increase in reported cost of goods sold associated with
that increase and the economic inefficiencies of low production volume
associated with the initial launch of the Slammers(R) line in the UK.
In countries except the United States and the United Kingdom, our revenue
is generated by the sale of kits to dairy processors. Each kit consists of
flavor ingredients for flavored milks and production rights to manufacture and
sell the milks. In line with our revenue recognition policies, we recognize the
full invoiced kit price as revenue, less the cost of production charged by the
processor, which we record as cost of goods sold.
In the United States and the United Kingdom, we are responsible for the
sale of finished Slammers(R) flavored milk (referred to as "unit sales") to
retail outlets. For these unit sales, we recognize as revenue the invoiced
wholesale prices that we charge to the retail outlets that purchase the
Slammers(R) flavored milks. We report as cost of goods sold the price charged to
the Company by third party processors that produce the finished Slammers(R)
products.
Segmented Revenues and Costs of Sales
The following table presents revenue by source and type against costs of
goods sold, as well as combined gross revenues and gross margins. In countries
other than the United States and the United Kingdom, revenues for the period
ended September 30 2005 were generated by kit sales to third party processors.
The Company's revenue from the sale of finished product to retail outlets is
recorded as "unit sales" on the following table.
Nine Months Ended
September 30, 2005 United States Mexico Middle East United Kingdom Total Company
----------- ----------- ----------- ----------- -----------
Revenue - unit sales $ 6,269,747 $ -- $ -- $ 288,596 $ 6,558,343
Revenue - gross kit sales -- -- 33,350 -- 33,350
----------- ----------- ----------- ----------- -----------
Total revenue 6,269,747 -- 33,350 288,596 6,591,693
Cost of goods sold (4,506,616) -- (2,613) (209,782) (4,719,011)
----------- ----------- ----------- ----------- -----------
Gross margin $ 1,763,131 $ -- $ 30,737 $ 78,814 $ 1,872,682
=========== ========= =========== =========== ===========
Nine Months Ended
September 30, 2004 United States Mexico Middle East United Kingdom Total Company
----------- ----------- ----------- ----------- -----------
Revenue - unit sales $ 2,236,383 $ -- $ -- $ -- $ 2,236,383
Revenue - gross kit sales 65,461 83,518 319,630 -- 468,609
----------- ----------- ----------- ----------- -----------
Total revenue 2,301,844 83,518 319,630 -- 2,704,992
Cost of goods sold (1,820,432) (31,101) (42,301) -- (1,893,834)
----------- ----------- ----------- ----------- -----------
Gross margin $ 481,412 $ 52,417 $ 277,329 $ -- $ 811,158
=========== =========== =========== =========== ===========
14
United States
Revenues for the period ended September 30, 2005 from unit sales in the
United States increased from $2,236,383 for the same period in 2004 to
$6,269,747 in 2005, a 180.4% increase. The increase is the result of the
introduction of the Company's new product lines during this period.
In the period ended September 30, 2005, our gross margin for U.S. sales of
$1,763,131, increased by $1,281,719, or by 266.24%, from $481,412 for the same
period in 2004. The increase in gross margin was the result of the increased
sales and greater efficiencies in the production of our products.
Foreign Sales
Revenues for the period ended September 30, 2005 from sales in foreign
countries decreased from $403,148 for the same period in 2004 to $321,946, a
20.14 % decrease. The decrease is the result of the lack of sales in Mexico and
a reduction of sales in the Middle East during this period, offset by the
commencement of sales in the United Kingdom.
We recorded $212,395 in costs of sales in foreign countries for the period
ended September 30, 2005, an increase of $138,993 or 189.36% from $73,402 for
the same period in 2004. The increase was the result of the costs associated
with establishing a new business in the United Kingdom based upon the Company's
unit sales model.
For the period ended September 30, 2005, our gross profit of $109,551 for
sales in foreign countries decreased by $220,195, or 66.78%, from $329,746 for
the same period in 2004. The decrease in gross profit was consistent with the
decrease in sales volume for this period.
Consolidated Operating Expenses
We incurred selling expenses of $3,525,002 for the period ended September
30, 2005, $3,260,493 of which was incurred in our United States operations. Our
selling expense for this period increased by $2,254,960, a 177.5% increase
compared to our selling expense of $1,270,042 for the same period in 2004. The
increase in selling expenses in the current period was due to increased freight
and promotional charges, including media advertising, associated with increased
sales and our development of four new product lines, utilizing newly licensed
and directly owned branded trademarks. In addition, the Company recorded
$99,168, pro-rata, of an $11,900,000 net charge in deferred distribution costs
for the issuance of a three warrant to Coca-Cola Enterprises to purchase of
30,000,000 shares of our common stock in connection with the execution of a
Master Distribution Agreement. The Company will recognize that cost as a selling
expense over the 10-year term of the Master Distribution Agreement.
We incurred general and administrative expenses of $2,345,041 for the
period ended September 30, 2005, $2,183,598 of which we incurred in our United
States business operations and $161,443 for the enlargement of our international
business into the United Kingdom and Canada. Our general and administrative
expenses for this period increased by $131,715, a 5.95% increase compared to
$2,213,326 for the same period in 2004.
As a percentage of total revenue, the Company's general and administrative
expenses decreased from 81.8% in the period ended September 30, 2004, to 35.6%
for the current period in 2005. We anticipate a continued effort to reduce these
expenses as a percentage of sales through revenue growth, cost cutting efforts
and the refinement of business operations.
15
Interest Expense
We incurred interest expense for the period ended September 30, 2005 of
$293,415. Our interest expense increased by $138,598, a 89.52% increase compared
to $154,817 for the same period in 2004. The increase was due to using
additional debt to finance the Company's operations during this period,
including the development and launch of new product lines and expenses
associated with increased promotional activities and marketing sponsorships.
Loss Per Share
We accrued dividends payable of $263,001 for various series of preferred
stock during the period ended September 30, 2005. The accrued dividends
decreased for this period by $28,459, or 9.76%, from $291,460 for the same
period in 2004. The net loss before accrued dividends for the current period
increased $4,603,600, from $2,882,131 for the period ended September 30, 2004 to
$7,485,731 for the current period. The increase in the net loss resulted in an
increase in the Company's current period loss per share from $0.08 for the same
period in 2004, to a loss per share of $0.09 for the current period. Of the
$7,485,731 net loss, $3,000,000 has been recorded in the quarter ending
September 30, 2005 as a one time, non-recurring finder's fee payable to a third
party in connection with the execution of the Master Distribution Agreement with
Coca-Cola Enterprises, Inc. Absent the $3,000,000 non-recurring finder's fee
charge, the Company's increased net loss per share was offset by an increase in
the weighted average of common shares outstanding from 38,254,305 shares for the
nine months ended September 2004 to 82,091,556 shares for the current nine month
period, resulting in a current period loss per share of $0.06.
Three Months Ended (S)eptember 30, 2005 Compared to the Three Months Ended
September 30, 2004
Revenue
We had revenues for the three months ended September 30, 2005 of
$3,245,305, with cost of sales of $2,360,884, resulting in a gross profit of
$884,421, or 27.3% of sales, $2,956,709 of which were generated by the Company's
U.S. operation and $288,596 from our UK business. We did not report any sales
for Canada, Mexico or the Middle East in the three months ended September 30,
2005. Our revenue for the three months ended September 30, 2005 increased by
$2,419,875, a 293% increase compared to revenue of $825,430 for the three months
ended September 30, 2005. The increase in revenue in the United States for the
three months ended September 30, 2005 is the result of the continuing rollout of
our new product lines during this period and the launch of our business in the
United Kingdom.
Cost of Goods Sold
We incurred cost of goods sold of $2,360,884 for the three months ended
September 30, 2005, $2,151,102 of which was incurred in our U.S. operations in
the third quarter. Our cost of goods sold for this period increased by
$1,732,137, a 275.5% increase compared to $628,747 for the three months ended
September 30, 2004. The increase in cost of goods sold in the United States for
the three months ended September 30, 2005 is the result of increased sales and
the corresponding increase in the costs of good sold.
Operating Expense
We incurred selling expenses of $1,727,531 for the three months ended
September 30, 2005, $1,634,580 of which was incurred in our U.S. operation.
Selling expenses increased for the three months ended September 30, 2005 by
$1,074,909, a 164.7% increase compared to the selling expense of $652,622 for
the three months ended September 30, 2004. The increase in selling expenses is
the result of increased sales, including promotional expenses, the costs
associated with guaranteed royalties under our third-party intellectual property
license agreements and deferred distribution costs for the issuance of a warrant
in connection with the execution a Master Distribution Agreement with Coca-Cola
Enterprises Inc.
We incurred general and administrative expenses of $905,487 for the three
months ended September 30, 2005, $844,464 of which we incurred in our U.S.
operations. General and administrative expenses for the three months ended
September 30, 2005 increased by $354,188, a 64.25% increase compared to $551,299
for the same period in 2004. The increase in general and administrative expenses
for the current period is the result of greater management activities in the
promotion and continued rollout of our new product lines in the United States
and the establishment of our business in the United Kingdom.
Interest Expense
We incurred interest expense for the three months ended September 30, 2005
of $73,169. Interest expense for the three months ended September 30, 2005
decreased by $6,653, an 8.3% decrease compared to $79,822, for the same period
in 2004. This decrease was the result of reduced debt in this period.
16
Net Loss
We had a net loss for the three months ended September 30, 2005 of
$4,906,456 compared with a net loss of $1,120,992 for the same period in 2004.
The net loss increased by $3,785,464 or 337.7% compared to the same period in
2004. Of the $4,906,456 net loss reported in the quarter ending September 30,
2005, $3,000,000 represents a one time, non-recurring finder's fee payable to a
third party in connection with the execution of the Master Distribution
Agreement with Coca-Cola Enterprises, Inc. Absent the $3,000,000 non-recurring
finder's fee charge, the Company's increased net loss per share was offset by an
increase in the weighted average of common shares outstanding from 44,374,877
shares for the three months ending September 2004 to 113,680,645 shares for the
current three month period, resulting in a current three month period loss per
share of $0.016.
Year Ended December 31, 2004 Compared to Year Ended December 31, 2003
Consolidated Revenue
We had revenue for the year ended December 31, 2004 of $3,344,699, with
cost of sales of $2,374,805, resulting in a gross margin of $969,894. This
revenue and resultant gross margin are net of slotting fees, promotional
discounts and marketing allowances for this period in the amount of $204,755. Of
the reported $3,344,699, U.S. sales accounted for $2,771,081 with an additional
$573,618 from international sales in Mexico and the Middle East. Our reported
revenue for the year ended December 31, 2004 increased by $2,144,557, a 178.69%
increase compared to revenue of $1,200,142 for the same period in 2003. This
increase is the result of a change in our method of revenue recognition in the
United States, commencing January 1, 2004, when we began to act as the principal
in these transactions, rather than as an agent. In addition, in the first
quarter of 2004, we began to phase out our Looney Tunes(TM) flavored milk
products and to develop four new branded product lines in the United States,
including the launch of our Slammers(R) line of Marvel Comics Super Heroes(R)
branded flavored milks during the second quarter 2004. We also began to ship
kits to our third-party Middle East dairy processor during the second quarter
2004.
Consolidated Cost of Sales
We incurred cost of goods sold of $2,374,805 for the year ended December
31, 2004, $2,262,055 of which was incurred in our U.S. business, and $112,750 in
connection with out international sales. Cost of goods sold in 2004 increased by
$2,182,307, a 1133.68% increase compared to $192,498 for the same period in
2003. The increase in cost of goods sold reflects an increase in sales, the
change in our role from agent to principal during this period and the
concomitant increase in reported cost of goods sold associated with that change.
In countries except the United States, our revenue is generated by the
sale of kits to dairy processors. Each kit consists of flavor ingredients for
flavored milks and production rights to manufacture and sell the milks. In line
with our revenue recognition policies, we recognize the full invoiced kit price
as revenue, less the cost of production charged by the processor, which we
record as cost of goods sold.
In the United States, we are responsible for the sale of finished
Slammers(R) flavored milk (referred to as "unit sales") to retail outlets. For
these unit sales, we recognize as revenue the invoiced wholesale prices that we
charge to the retail outlets that purchase the Slammers(R) flavored milks. We
report, as cost of goods sold, the price charged to us by Jasper Products, a
third party processor under contract with our company, for producing the
finished Slammers(R) products.
17
Segmented revenues and costs of sales
The following table presents revenue by source and type against costs of
goods sold, as well as combined gross revenues and gross margins. In countries
other than the United States, revenues for the period ended December 31, 2004
were generated by kit sales to third party processors. Our revenue from the sale
of finished product to retail outlets is recorded as "unit sales" on the
following table.
United Middle
2004 States Canada Mexico East Total Company
----------- ----------- ----------- ----------- -----------
Revenue - unit sales $ 2,726,702 $ -- $ -- $ -- $ 2,726,702
Revenue - gross kit sales 44,379 -- 119,968 453,650 617,997
----------- ----------- ----------- ----------- -----------
Total revenue 2,771,081 -- 119,968 453,650 3,344,699
Cost of goods sold (2,262,055) -- (55,609) (57,141) (2,374,805)
----------- ----------- ----------- ----------- -----------
Gross margin $ 509,026 $ -- $ 64,359 $ 396,509 $ 969,894
=========== =========== =========== =========== ===========
United Middle
2003 States Canada Mexico East Total Company
----------- ----------- ----------- ----------- -----------
Revenue - unit sales $ 356,985 $ -- $ -- $ -- $ 356,985
Revenue - net kit sales 2,737 -- -- -- 2,737
Revenue - gross kit sales 629,999 43,745 145,362 21,314 840,420
----------- ----------- ----------- ----------- -----------
Total revenue 989,721 43,745 145,362 21,314 1,200,142
Cost of goods sold (127,647) (10,403) (45,247) (9,201) (192,498)
----------- ----------- ----------- ----------- -----------
Gross margin $ 862,074 $ 33,342 $ 100,115 $ 12,113 $ 1,007,644
=========== =========== =========== =========== ===========
United States
Revenues for the period ended December 31, 2004 in the United States
increased from $989,721 for the same period in 2003 to $2,771,081 in 2004, a
179.99% increase. The increase is the result of a change in revenue recognition
and the introduction of our new product lines during this period.
In the period ended December 31, 2004, our gross margin for U.S. sales of
$509,026 decreased by $353,048, or by 40.95%, from $862,074 for the same period
in 2003. The decrease in gross margin was the result of our role change from
agent to principal in our U.S. sales transactions, which required us to
recognize the entire cost of production of our milk products against revenues
from the wholesale sales for those products.
Foreign Sales
Revenues for the period ended December 31, 2004 from kit sales in foreign
countries increased from $210,421 for the same period in 2003 to $573,618, a
172.6 % increase. The increase is the result of sales growth in Mexico and the
Middle East during this period.
We recorded $112,750 in costs of kit sales in foreign countries for the
period ended December 31, 2004, an increase of $47,899 or 73.86% from $64,851
for the same period in 2003. As a percentage of sales, the costs of goods sold
decreased 19.7% for the period ended December 31, 2004, from 30.8% for the same
period in 2003. The decrease in cost of goods sold as a percentage of sales was
the result of the commencement of sales in the Middle East, which had
significantly lower costs of goods sold as a percentage of sales than occurred
China, Mexico and Canada.
18
For the period ended December 31, 2004, the gross profit of $460,868 for
kit sales in foreign countries increased by $315,298 or 216.6%, from $145,570
for the same period in 2003. The increase in gross profit was consistent with
the increase in sales volume and the decease in cost of goods sold for this
period.
Consolidated Operating Expenses
We incurred selling expenses of $1,804,617 for the period ended December
31, 2004, of which we incurred $1,664,520 in our United States operations. Our
selling expense for this period increased by $64,767, a 3.72% increase compared
to selling expense of $1,739,850 for the same period in 2003. The increase in
selling expenses in the current period was due to increased freight and
promotional charges associated with our transition away from our Looney
Tunes(TM) product line and the development of four new product lines, utilizing
newly licensed and directly owned branded trademarks.
Our incurred general and administrative expenses for the period ended
December 31, 2004 were $2,639,085, most of which we incurred in our United
States business operations. Our general and administrative expenses for this
period increased by $389,407, a 17.31% increase compared to $2,249,678 for the
same period in 2003. The increase in general and administrative expenses for the
current period in 2004 is the result of the accrual of the compensation value of
the conversion of management's and directors' options to common stock, in the
amount of $269,750 plus the recording of an additional payroll period in 2004.
This expense is a one-time charge.
As a percentage of total revenue, our general and administrative expenses
decreased from 187.5% in the period ended December 31, 2003, to 78.9% for the
current period in 2004. We anticipate a continued effort to reduce these
expenses as a percentage of sales through revenue growth, cost cutting efforts
and the refinement of business operations.
Interest Expense
We incurred interest expense for the period ended December 31, 2004 of
$240,447. Our interest expense increased by $210,914, a 714.16% increase
compared to $29,533 for the same period in 2003. The increase was due to
additional loans in 2004 and utilizing debt to finance our operations during
this period's transition in licensors of intellectual property utilized by our
company and the development and launch of new product lines.
Loss Per Share
We accrued dividends payable of $388,632 to various series of preferred
stock during the period ended December 31, 2004. Our accrued dividends increased
for this period by $48,728, or 14.33%, from $339,904 for the same period in
2003. The net loss before accrued dividends increased by $782,939, from
$3,016,987 for the period ended December 31, 2003 to $3,799,926 for the current
period, and the increase in accrued dividends was offset by the increase in the
weighted average number of common shares outstanding, resulting in a decrease in
our current period loss per share from $0.15 for the same period in 2003, to a
loss per share of $0.10 for the current period.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2005, we reported that net cash used in operating
activities was $4,956,448, net cash provided by financing activities was
$5,510,649 and net cash used in investing activities was $90,583. We had a
negative working capital of $4,105,854 as of September 30, 2005.
Compared to $3,372,840 of net cash used in operating activities in the
period ended September 30, 2004, our current period net cash used in operating
activities increased by $1,583,608 to $4,956,448. Prepaid expenses increased by
$902,920, which increase was primarily due to increases in programs for
marketing, demos and advertising ($370,000), increased costs incurred in
connection with financing ($158,000),slotting ($114,000) and costs incurred in
connection with production ($258,319). Accounts payable and accrued expenses
increased to $4,208,414, mainly due to the recording of $3,000,000 for a
finder's fee in connection with the Coca-Cola Enterprises Master Distribution
Agreement, $343,000 in promotional expenses and $161,000 in third-party
processor costs. Accrued expenses included $128,180 for a Masterfoods quarterly
royalty payment. Deferred product and development costs increased by $296,000,
consisting mainly of licensing payments made to Marvel.
19
Changes in accounts receivable in this current period in 2005 resulted in
a cash decrease of $149,281, compared to a cash decrease in receivables of
$8,490 for the same period in 2004, having a net result of an decrease of
$140,791. The changes in accounts payable and accrued liabilities in the period
ended of September 30, 2004 contributed to a cash decrease of $224,031, whereas
the changes in accounts payable and accrued liabilities for the current period
in 2005 amounted to an increase of $4,208,414. Cash flow generated through our
operating activities was inadequate to cover all of our cash disbursement needs
in the period ended September 30, 2005, and we had to rely on equity and debt
financing to cover expenses.
Cash used in the period ended September 30, 2005 in our investing
activities for equipment was $90,583 for software, computer equipment, telephone
system, Company van, mobile communication devices and leasehold improvements in
the U.S., compared to $47,647 for the same period in 2004.
Net cash provided by our financing activities for the period ended
September 30, 2005 was $5,510,649. Net cash provided by financing activities for
the same period in 2004 was $3,419,891. The increase was due to a greater need
for financing to fund the Company's operations during this period and the
exercise of warrants generating $2,958,509.
The Company used the proceeds of the current period financing for working
capital purposes to support the continued launch of new product lines under a
license with Masterfoods USA and for new product development.
Going forward, our primary requirements for cash consist of the following:
o the continued development of our business model in the United States
and on an international basis;
o promotional and logistic production support for the capacity demands
presented by our Master Distribution Agreement with Coca-Cola
Enterprises;
o general overhead expenses for personnel to support the new business
activities;
o development, launch and marketing costs for our line of new branded
flavored milk products, and
o the payment of guaranteed license royalties.
We estimate that our need for financing to meet cash requirements for
operations will continue through the fourth quarter of 2005, when we expect that
cash supplied by operating activities will approach the anticipated cash
requirements for operating expenses. We anticipate the need for additional
financing in 2005 to reduce our liabilities, assist in marketing and to improve
shareholders' equity status. No assurances can be given that we will be able to
obtain additional financing, or that operating cash flows will be sufficient to
fund our operations.
We currently have monthly working capital needs of approximately $300,000.
We will continue to incur significant selling and other expenses in 2005 in
order to derive more revenue in retail markets, through the introduction and
ongoing support of our new products and the implementation of the Master
Distribution Agreement with Coca-Cola Enterprises. Certain of these expenses,
such as slotting fees and freight charges, will be reduced as a function of unit
sales costs as we expand our sales markets and increase our sales within
established markets. Freight charges will be reduced as we are able to ship more
full truckloads of product given the reduced per unit cost associated with full
truckloads versus less than full truckloads. Similarly, slotting fees, which are
paid to warehouses or chain stores as initial set up or shelf space fees, are
essentially one-time charges per new customer. We believe that along with the
increase in our unit sales volume, the average unit selling expense and
associated costs will decrease, resulting in gross margins sufficient to
mitigate cash needs. In addition, we are actively seeking additional financing
to support our operational needs and to develop an expanded promotional program
for our products.
Material Events
In January 2005, we launched our Slammers(R) Starburst line of Fruit &
Cream Smoothies utilizing a "shelf stable" re-sealable plastic bottle for milk
products that does not require refrigeration. Until that launch, all single
served flavored milk in plastic bottles required refrigeration for storage,
distribution, and shelf placement. The tactical advantage of distributing milk
products ambient enables us to side-step a major entry barrier in our immediate
consumption strategy. Refrigerated milk is relegated to dairy
direct-store-delivery systems that are controlled by either regional dairy
20
processors or larger national dairy holding companies. Shelf stable re-sealable
plastic bottle allows us to use a more traditional distribution network that
accommodates the non-refrigerated beverages. Also, milk products packaged in
shelf stable re-sealable plastic bottles have significantly longer shelf life
for storage, allowing us to ship in full truckloads resulting in decreased
freight costs. We currently are converting all of our products to "shelf stable"
re-sealable plastic bottle.
On July 13, 2005, Coca-Cola Enterprises Inc. (CCE) acquired options to
purchase shares of common stock, convertible securities and warrants, entitling
Coca-Cola Enterprises to purchase approximately 69,000,000 shares of common
stock from nine non-affiliated shareholders of the Company (the "CCE Options"),
representing, as of that date, approximately 23% of the authorized shares of our
common stock. Coca-Cola Enterprises and our company contemporaneously commenced
negotiations regarding a stock purchase agreement for the direct sale of
approximately 81 million shares of our common stock to Coca-Cola Enterprises.
The consummation of the direct sale and the exercise of the CCE Options by
Coca-Cola Enterprises would have resulted in Coca-Cola Enterprises holding
slightly in excess of 50% of our equity on a fully diluted basis. These
transactions were contingent upon the execution of a Master Distribution
Agreement between us and Coca-Cola Enterprises. On July 29, 2005, our company
and Coca-Cola Enterprises entered into a Letter of Intent memorializing and
confirming their intention to enter into the stock purchase agreement.
Subsequent to the execution of the Letter of Intent, in lieu of the
exercise of the CCE Options and the stock purchase agreement, the parties agreed
to enter into the Master Distribution Agreement with the attendant grant of
three-year warrants by our company to Coca-Cola Enterprises for the right to
purchase 30 million shares of our common stock at an exercise price of $0.36 per
share. On August 31, 2005, we issued the warrants to Coca-Cola Enterprises and
the parties executed a ten-year exclusive Master Distribution Agreement that we
believe will significantly expand the distribution and sales of our products. We
will recognize a $11,900,000 net charge in deferred distribution costs for the
warrant issuance to Coca-Cola Enterprises over the 10-year term of the Master
Distribution Agreement.
On November 28, 2005, the Company closed a funding transaction with
thirteen accredited institutional investors, for the issuance and sale of
40,500,000 shares of the Company's common stock to the Subscribers for
$20,250,000. The Company also issued five-year warrants for the purchase of an
additional 15,187,500 shares of common stock at an exercise price of $0.80 per
share. The securities are restricted and have been issued pursuant to an
exemption to the registration requirements of Section 5 of the Securities Act of
1933 for "transactions of the issuer not involving any public offering."
provided in Section 4(2) of the Act and pursuant to a Regulation D offering" The
securities carry registration rights that obligate the Company to file a
registration statement within 45 days and have the registration statement
declared effective within120 days from closing.
The net proceeds to the Company after the payment of transaction expenses
will be approximately $18.9 million. Approximately $5.8 million of the net
proceeds will used by the Company to redeem warrants for the purchase of
approximately 30.3 million shares of the Company's common stock, issued by the
Company in connection with prior financing transactions. In addition, the
Company will use the net proceeds from the financing for increased production
capacity, the launch of marketing campaigns, paying the finder's fee relating to
the Coca-Cola Enterprises Master Distribution Agreement and general working
capital purposes.
External Sources of Liquidity
Individual Loans
On November 6 and 7, 2001, respectively, we received the proceeds of two
loans aggregating $100,000 from two offshore lenders. The two promissory notes,
one for $34,000 and the other for $66,000, were payable February 1, 2002 and
bear interest at the annual rate of 8%. These loans are secured by a general
security interest in all our assets. On February 1, 2002, the parties agreed to
extend the maturity dates until the completion of the anticipated Series H
financing. On September 18, 2002, the respective promissory note maturity dates
were extended by agreement of the parties to December 31, 2002. On September 18,
2002, we agreed to extend the expiration dates of warrants issued in connection
with our Series D and F preferred until September 17, 2005 and to reduce the
exercise price of certain of those warrants to $1.00, in partial consideration
for the maturity date extension. The holders of these notes have agreed to
extend the maturity dates, and the notes are now payable on a demand basis.
21
On May 6, 2004, we issued a secured promissory note to Mid- Am Capital LLC
in the principal amount of $750,000. The note provides for 8% interest. The
note's original maturity date of September 4, 2004 has been extended. We issued
warrants to purchase 3,000,000 shares of our common stock to Mid-Am in
connection with this promissory note. The warrants are exercisable for one year
from issue at an exercise price of $0.25 per share. We used the proceeds of this
promissory note to pay the promissory note issued to Jasper Products in January
2004.
Convertible Debentures
To obtain funding for our ongoing operations, we entered into the
following financing transactions:
In November 2003, April 2004, June 2004, October 2004, December 2004,
January 2005 and April 2005, we entered into financing arrangements for the sale
of $5,750,000 principal amount of convertible debentures.
In November 2003 we issued $400,000 in convertible debentures at 8%
interest, two years from the date of issuance, unless sooner converted into
shares of our common stock. Two hundred thousand dollars ($200,000) in principal
remains unpaid.
In April 2004, we issued of $500,000 in convertible debentures at 10%
interest. The principal on the notes is due in equal monthly installments
commencing on November 1, 2004 until October 1, 2005. Twenty five thousand
dollars ($25,000) in principal remains unpaid.
In June 2004, we issued convertible 10% notes in the aggregate amount of
$1,300,000. The notes are payable in twelve equal monthly installments,
commencing January 1, 2005. Ten thousand four hundred sixteen dollars ($510,416)
in principal remains unpaid.
In October 2004, we issued convertible 10% notes in the aggregate amount
of $500,000. The notes are payable in twelve equal monthly installments,
commencing May 1, 2005. Five hundred thousand dollars ($500,000) in principal
remains unpaid.
In December 2004, we issued convertible 10% notes in the aggregate amount
of $400,000. The notes are payable in twelve equal monthly installments,
commencing May 1, 2005 in cash or conversion to common stock. All principal has
been repaid through the issuance of common stock.
On January 31, 2005, we closed a funding transaction with five
institutional accredited investors for the issuance and sale of up to $2,300,000
of principal amount of convertible notes convertible into shares of our common
stock. The notes have a maturity date two years from closing, have an interest
rate of 4% and are payable in 12 equal monthly installments, commencing June 1,
2005 in cash or conversion to common stock. All but $25,000 of principal has
been repaid through the issuance of common stock.
On April 21, 2005, we issued a 10% convertible note in the amount of
$300,000. The convertible note has an October 31, 2005 maturity date and is
payable in five equal monthly installments, commencing June 1, 2005. The
installment payments consist of principal (equal to 1/5th of the initial
principal amount) plus accrued interest in cash or conversion to common stock.
All principal has been repaid through the issuance of common stock
EFFECTS OF INFLATION
We believe that inflation has not had any material effect on our net sales
and results of operations.
22
BUSINESS
Our company
Our company is a Delaware corporation, which was formed on April 27, 1996.
We formerly owned the majority interest in two Sino-American joint ventures in
China, known as Green Food Peregrine Children's Food Co. Ltd. and Hangzhou
Meilijian Dairy Products Co., Ltd. These two joint ventures processed milk
products for local consumption in the areas of Shanghai and Hangzhou, China,
respectively. We closed Green Food Peregrine in December 1999 and sold our
interest in Hangzhou Meilijian Dairy in December 2000.
In December 1999, we obtained Chinese government approval for the
registration of a new wholly owned subsidiary in the Wai Gao Qiao "free trade
zone" in Shanghai, China. We formed this import-export company to import, export
and distribute food products on a wholesale level in China. In addition, China
Premium (Shanghai) was our legal presence in China with respect to contractual
arrangements for the development, marketing and distribution of branded food
products. We ceased all activities of this Chinese subsidiary in April 2004,
owing to low sales volume and insufficient financial or logistic resources to
market our products profitably in mainland China.
In December 1999, we formed Bravo! Foods, Inc., a wholly owned Delaware
subsidiary, which we utilized to advance the promotion and distribution of
branded Looney Tunes(TM) products in the United States, through production
agreements with local dairy processors. At the end of 2001, we assumed this
business, and our U.S. subsidiary ceased functioning as an operating company at
that time.
On February 1, 2000, we changed our name from China Peregrine Food
Corporation to China Premium Food Corporation, and on March 16, 2001 we changed
our name to Bravo! Foods International Corp.
In January 2005, we formed Bravo! Brands (UK) Ltd., a United Kingdom
registered company that is wholly owned by Bravo! Brands International Ltd. We
will utilize Bravo! Brands (UK) Ltd. to advance the production, promotion and
distribution of licensed branded products in the United Kingdom through
production and sales agent agreements with local entities.
In March 2005, we formed Bravo! Brands International Ltd., a Delaware
subsidiary that may hold license rights for our branded products on an
international basis. We may utilize Bravo! Brands International Ltd. to hold and
exploit certain license rights for branded products developed by us in
international markets through local second-tier subsidiaries such as Bravo!
Brands (UK) Ltd.
The Business
Our business involves the development and marketing of our own Slammers(R)
trademarked brand, the obtaining of license rights from third party holders of
intellectual property rights to other trademarked brands, logos and characters
and the granting of production and marketing rights to processor dairies to
produce branded flavored milk utilizing our intellectual property. .
In the United States, we generate revenue from the unit sales of finished
branded flavored milks to retail consumer outlets. Currently, we use a single
third-party processor in the United Sates to product all of our single serve
milk based beverages. We recognize revenue in the United States at the gross
amount of our invoices for the sale of finished product to wholesale buyers
("unit sales"). We take title to our branded flavored milks when they are
shipped by our third party processors and recognize as revenue the gross
wholesale price charged to our wholesale customers. Our gross margin is
determined by the reported wholesale price less the cost charged by Jasper
Products, our third party processor, to produce our branded milk products.
Internationally, we generate revenue primarily through the sale of "kits"
to these processors. "Kits" sold to processors consist of flavor ingredients
that are developed and refined by us and the grant of production rights to
processors to produce the flavored milks. The consideration paid to us under
these production contracts consists of fees charged for our grant of production
rights for the branded flavored milks plus a charge for flavor ingredients. The
fees charged by us for the production rights are set to match royalty fees for
our intellectual property licenses.
23
All of our third party licensing agreements recognize that we will use
third party production agreements for the processing of flavored milk products,
and that the milk products will be produced and may be sold directly by those
processors. Our responsibilities under our third party production agreements are
to design and provide approved packaging artwork, to help determine the best
tasting flavors for the particular market and to assist in the administration,
promotion and expansion of the respective branded milk programs. Ingredients for
the flavored milks are formulated to our specifications and supplied on an
exclusive basis by either Givaudan Roure or Mastertaste, both of which are
flavor development and production companies. In the United States, we assume the
responsibility for sales and marketing of our flavored milks produced by Jasper
Products LLC.
Master Distribution Agreement - Coca-Cola Enterprises
On July 13, 2005, Coca-Cola Enterprises Inc. (CCE) acquired options to
purchase shares of common stock, convertible securities and warrants, entitling
Coca-Cola Enterprises to purchase approximately 69,000,000 shares of common
stock from nine non-affiliated shareholders of the Company (the "CCE Options"),
representing, as of that date, approximately 23% of the authorized shares of our
common stock. Coca-Cola Enterprises and our company contemporaneously commenced
negotiations regarding a stock purchase agreement for the direct sale of
approximately 81 million shares of our common stock to Coca-Cola Enterprises.
The consummation of the direct sale and the exercise of the CCE Options by
Coca-Cola Enterprises would have resulted in Coca-Cola Enterprises holding
slightly in excess of 50% of our equity on a fully diluted basis. These
transactions were contingent upon the execution of a Master Distribution
Agreement between us and Coca-Cola Enterprises. On July 29, 2005, our company
and Coca-Cola Enterprises entered into a Letter of Intent memorializing and
confirming their intention to enter into the stock purchase agreement.
Subsequent to the execution of the Letter of Intent, in lieu of the
exercise of the CCE Options and the stock purchase agreement, the parties agreed
to enter into the Master Distribution Agreement with the attendant grant of
three-year warrants by our company to Coca-Cola Enterprises for the right to
purchase 30 million shares of our common stock at an exercise price of $0.36 per
share. On August 31, 2005, we issued the warrants to Coca-Cola Enterprises and
the parties executed a ten-year exclusive Master Distribution Agreement (the
"Master Agreement") that we believe will significantly expand the distribution
and sales of our products in the entirety of the United States, all U.S.
possessions, Canada, Belgium, continental France, Great Britain, Luxembourg,
Monaco and the Netherlands, as well as any other geographic territory to which,
during the term of the Master Agreement, Coca-Cola Enterprises obtains the
license to distribute beverages of The Coca-Cola Company. The appointment of
Coca-Cola Enterprises as the exclusive distributor for our products is effective
August 30, 2005, has an effective distribution date of October 31, 2005, and an
expiration date of August 15, 2015. Coca-Cola Enterprises has the option to
renew the Master Agreement for two subsequent periods of ten additional years.
Under the terms of the Master Agreement, Coca-Cola Enterprises is
obligated to use all commercially reasonable efforts to solicit, procure and
obtain orders for our products, and merchandise and actively promote the sale of
such products in the Territory, as defined in the Master Agreement. The Master
Agreement establishes a comprehensive process for the phased transition from our
existing system of distributors to Coca-Cola Enterprises, dependent upon
distribution territory, product and sales channels. The parties have agreed that
Coca-Cola Enterprises will implement its distribution on a ramp-up basis, with
the initial distribution commencing in the United States on or about the October
31, 2005 effective distribution date. Coca-Cola Enterprises' distribution in
other Territory areas will be dependent upon, among other things, third-party
licensing considerations and compliance with the regulatory requirements for the
products in foreign countries.
We have agreed to provide the following:
o strategic direction of its products;
o maintain sales force education and support;
o actively market and advertise its products and design and develop
point of sale materials and advertising.
24
We are also responsible for handling:
o consumer inquiries;
o product development; and
o the manufacture and adequate supply of its products for distribution
by Coca-Cola Enterprises.
The terms of the Agreement require our company to maintain the
intellectual property rights necessary for our company to produce, market and/or
distribute and for Coca-Cola Enterprises to sell our products in the Territory.
We are obligated to spend a fixed dollar amount in the remainder of 2005 and
2006 on national and local advertising, including actively marketing the
Slammers trademark, based on a plan as mutually agreed each year. Beginning in
2007, the Company shall allocate an amount per year for such activities in each
country in the defined Territory equal or greater than an agreed upon percentage
of our total revenue in such country.
Under the Agreement, Coca-Cola Enterprises has the right of first refusal
to distribute any new products developed by our company, and the Master
Agreement establishes a process for the potential expansion of Coca-Cola
Enterprises' distribution of the Company's products to new territories. Either
party may be terminate the Master Agreement for a material breach, insolvency or
bankruptcy and Coca-Cola Enterprises may terminate for change of control by our
company, material governmental regulatory enforcement action or threatened
governmental action having a material adverse consumer or sales impact on our
products, and upon twelve months notice after August 15, 2006.
Third Party Intellectual Property Licenses
Marvel Enterprises, Inc. (Super Heroes(R) and Marvel Heroes(R))
On February 4, 2005, we entered into a two-year license agreement for the
utilization of Marvel Heroes characters on our flavored milks in the United
Kingdom and Ireland. We agreed to a royalty rate of 4% of net wholesale sales in
the territory against the prepayment of a guaranteed minimum royalty amount. We
have adopted the unit sales model currently used in the United States. We have
outsourced the infrastructure required for the production, promotion, marketing,
distribution and sale of our products through a production agreement with
Waterfront Corporation in the UK and through an exclusive sales agency agreement
with Drinks Brokers, Ltd. a UK registered company responsible for the launch and
growth of several major beverage brands in the licensed territory.
In March 2005, we entered into a new one-year license agreement with
Marvel Enterprises, Inc. to use its Super Heroes(R) properties to promote our
branded milk products in the United Stated, Canada and Mexico. Under the terms
of the license agreement, we agreed to a royalty rate of 5% of net wholesale
sales in the United States, 4% for school lunch channels and 2.5% for school hot
lunch programs. We also agreed to a 11% royalty on the amount invoiced to dairy
processors for "kits" in Canada and Mexico.
On February 4, 2005, we entered into an eighteen month license agreement
for the utilization of Marvel Heroes characters on our flavored milks in nine
Middle East Countries. We a agreed to a 11% royalty on the amount invoiced to
third party dairy processors for "kits" in the territory against the prepayment
of a guaranteed minimum royalty amount.
Chattanooga Bakery, Inc.( Moon Pie(R) )
In October 2003, we commenced a two-year license agreement with MD
Enterprises, Inc. on behalf of Chattanooga Bakery. Under the terms of the
license agreement, we have the exclusive right to manufacture, distribute,
market and sell Moon Pie(R) flavored milk products in the United States. We
agreed to a variable royalty rate of 3% to 2% of net wholesale sales, depending
upon volume.
Masterfoods USA (Starburst(R), Milky Way(R), 3 Musketeers(R))
On September 21, 2004, we entered into a licensing agreement with
Masterfoods USA, a division of Mars, Incorporated, for the use of Masterfood's
Milky Way(R), Starburst(R) and 3 Musketeers(R) trademarks in connection with the
manufacture, marketing and sale of single serve flavored milk drinks in the
United States, its Possessions and Territories, and US Military installations
worldwide. The license limits the relationship of the parties to separate
independent entities. The initial term of the license agreement expires December
31, 2007. We have agreed to pay a royalty based upon the total net sales value
of the licensed products sold and advance payments of certain agreed upon
guaranteed royalties. Ownership of the licensed marks and the specific milk
flavors to be utilized with the marks remains with Masterfoods. We have a right
of first refusal for other milk beverage products utilizing the Masterfoods
marks within the licensed territory.
25
In House Intellectual Property
In addition to our third-party licenses, we have developed and sell
flavored milks bearing trademarks developed by us, including "Slammers(R)" "Pro
Slammers(TM)", "Slim Slammers(R)" and "Breakfast Blenders(TM)"..
Production Contracts/Administration
Prior to 2000, our business primarily involved the production and
distribution of milk in China. In the third quarter of 2000, we began to refocus
our business away from the production - distribution aspect of the value chain
by implementing a business model that involved the branding, marketing,
packaging design and promotion of branded flavored fresh milk in the United
States. During the middle of 2001, this refocused business was implemented in
China, in December 2001 in Mexico and in the third quarter of 2002 in Canada.
Currently, operations in the United States, Mexico and Canada are run directly
by Bravo! Foods International Corp. Our international business, which had been
facilitated by AsheTrade, our international agent, will now be handled by the
company's subsidiary formed in 2005, Bravo! Brands International Ltd. Mr.
Ibrahim Ashemimry, the principal of AsheTrade, has joined Bravo! Brands
International Ltd. as an employee and officer.
United States
The initial dairy processors with which we had production contracts were
members of Quality Chekd Dairies, Inc., a national cooperative with over 40
member dairies that process fresh milk on a regional basis. This business, while
viable, proved to have limited sales expansion capabilities in the US owing to
the inherent regional distribution limitations of a "fresh" milk product with a
short shelf life.
The advent of extended shelf life (ESL) and aseptic long life milk
presented us with the opportunity to increase dramatically sales on a national
basis. In the third quarter of 2001 and the first quarter of 2002, we entered
into production contracts with Shamrock Farms, located in Phoenix, Arizona and
Jasper Products, of Joplin, Missouri, and began to market branded ESL and
aseptic flavored milks to large national chain accounts. Since 2003, we have our
ESL and aseptic milks produced by Jasper Products
United Kingdom
In February 2005, we executed an exclusive sales agency agreement with
Drinks Brokers, Ltd., a division of Tactical Sales Resources Limited for sales
of our product lines in the United Kingdom. Pursuant to terms of the agreement,
Bravo! appointed Drinks Brokers as its Sales Agent in the United Kingdom for the
marketing, promotion, distribution and sale of Bravo!'s Slammers(R) Marvel
Heroes line of flavored milk, as well as other product lines that Bravo! may
introduce to the UK in the near future.
Drinks Brokers will utilizes its established networks to manage all
matters relating to the sale and effective distribution of Bravo!'s products
within the United Kingdom, including the solicitation of sales from customers in
applicable market segments, marketing, advertising and promotion of the Bravo!'s
products, distribution, and merchandising.
Our products are processed I the United Kingdom by Waterfront Corporation
Limited, on a third party co-pack basis. We generate revenue in the United
Kingdom from the unit sales of finished branded flavored milks to retail
consumer outlets. Currently, we use a single third-party processor in the United
Sates to product all of our single serve milk based beverages. We recognize
revenue in the United Sates at the gross amount of our invoices for the sale of
finished product to wholesale buyers ("unit sales"). We take title to our
branded flavored milks when they are shipped by our third party processor and
recognize as revenue the gross wholesale price charged to our wholesale
customers. Our gross margin is determined by the reported wholesale price less
the cost charged by Waterfront Corporation Limited.
26
Middle East
In December 2003, we entered into a third party production agreement with
Saudia Dairy & Foodstuff Company, (SADAFCO) a Middle East dairy processors,
headquartered in Jeddah, Saudi Arabia. SADAFCO processes our Slammers (R)
branded flavored milks, including the Marvel line, for distribution in nine
Middle East countries. AsheTrade, our international agent, with offices in
Miami, Florida and Jeddah, Saudi Arabia, facilitates our international business.
In September 2005, we entered into a third party production agreement with
Oman National Dairy Products Co. Ltd. , a Middle East dairy processors,
headquartered in Ruwi, Oman. Oman Dairy will process our Slammers (R) branded
flavored milks, including the Marvel line, for distribution in nine Middle East
countries. We generate revenue for sales in the Middle East utilizing the "kit"
model. WE are not responsible for production, marketing, promotion or
distribution of the product in the Middle East
Products
Commencing in September of 2000, we implemented the "kit" sales program with
third party dairy processors in the United States, for the production and sale
of fresh branded flavored milk in single serve plastic bottles. This product, as
with all of our U.S. products up to September 2000, had a limited shelf life of,
generally, 21 days.
In early 2002, we developed branded extended shelf life and aseptic,
bacteria free, long life flavored milk products. The extended shelf life product
was sold in 11.5oz single serve plastic bottles and had to be refrigerated. The
shelf life of this product is 90 days. Our aseptic product does not require
refrigeration and has a shelf life of 8 months. This product was packaged in an
11.2oz Tetra Pak Prisma(TM) sterile paper container. Both of these products were
introduced to the public in the second and third quarters of 2002.
Commencing in May 2002, we developed a new branded fortified flavored milk
product under the "Slammers(R) Fortified Reduced Fat Milk" brand name. We use
our Slammers(R) brand in conjunction with our licensed third party trademarks.
Slammers(R) is made from 2 percent fat milk and is fortified with 11 essential
vitamins. The introduction of this new product and the phase out of our
"regular" branded milks occurred in the fourth quarter of 2002. Our Slammers(R)
flavored milks are sold in the United States in single serve extended shelf life
plastic bottles, as well as the long life aseptic Tetra Pak Prisma(TM) package.
Our Slammers(R) flavored milks are sold in Mexico and have been sold in Canada
in single serve extended shelf life plastic bottles.
In November 2002, we introduced Slim Slammers(R) Fortified Milk, a low
calorie version of our Slammers (R)Fortified Reduced Fat Milk. Slim Slammers(R)
Fortified Milk has no added sugar and is sweetened with sucralose, a natural
sweetener made from sugar. Slim Slammers(R) Fortified Milk is made from 1
percent fat milk, is fortified with 11 essential vitamins and is available in
the same flavors as our Slammers(R) brand. We reintroduced this product in the
United States with a new package and formulation during 2004.
In 2004, we announced our product development and brand strategy for seven
new, separate and distinct single serve product lines. Ultimate Slammers(TM),
Slim Slammers(R), Moon Pie Slammers(R), Pro-Slammers(TM), Starburst(R)
Slammers(R), 3 Musketeers(R) Slammers(R), and Milky Way(R) Slammers(R) are all
fortified and positioned to appeal directly to profiled demographic segments,
including teens and pre teens for Ultimate Slammers(TM), Starburst(R)
Slammers(R) and , Milky Way(R) Slammers(R), teens and sports enthusiasts for
Pro-Slammers(TM), young to old for Moon Pie(R) Slammers(R) and health conscious
adults for Slim Slammers(R) and3 Musketeers(R) Slammers(R).
We launched four brands in 2004, beginning with Ultimate Slammers(R) in
April and achieved national distribution of Ultimate Slammers(R) through both
retail grocers and convenience stores by mid- summer. Roughly 10,000 retail
supermarket stores carried this brand nationwide in 2004. This was followed by
our June launch of Slim Slammers(R) and Moon Pie (R)Slammers(R) and the July
release of our Pro-Slammers(TM) line.
In January 2005, we launched our Slammers(R) Starburst line of Fruit &
Cream Smoothies utilizing a "shelf stable" re-sealable plastic bottle for milk
products that does not require refrigeration. Until that launch, all single
served flavored milk in plastic bottles required refrigeration for storage,
distribution, and shelf placement. The tactical advantage of distributing milk
products ambient enables us to side-step a major entry barrier in our immediate
27
consumption strategy. Refrigerated milk is relegated to dairy
direct-store-delivery systems that are controlled by either regional dairy
processors or larger national dairy holding companies. Shelf stable re-sealable
plastic bottle allows us to use a more traditional distribution network that
accommodates the non-refrigerated beverages. Also, milk products packaged in
shelf stable re-sealable plastic bottles have significantly longer shelf life
for storage, allowing us to ship in full truckloads resulting in decreased
freight costs. We currently are converting all of our products to "shelf stable"
re-sealable plastic bottle.
In the first quarter2005, we launched our Slammers(R) MilkyWay and 3
Musketeers lines utilizing a "shelf stable" re-sealable plastic bottle for milk
products that does not require refrigeration, under the Masterfoods License.
Industry Trends
The flavored milk industry has grown from approximately $750 million in
1995 to $2.5 billion in 2004. The single serve portion of this category is
difficult to measure, since approximately 2/3 of the sales in the single serve
milk industry are sold in immediate consumption channels or other channels that
do not report scan-data. For example, Wal-Mart has become the largest retailer
in the USA for milk, selling an estimated 15% of total milk sales. Wal-Mart does
not report sales for the industry data resources embodied in A.C. Neilson or IRI
analyses. Similarly, most convenience stores and "up-and-down-the-street"
retailers in the immediate consumption sales channels do not report either, and
neither do vending and schools.
We have analyzed the industry using reports available from milk and
beverage industry sources. These include the total, segmented and rate of growth
sales that are reported, the immediate consumption sales rates for all
consumables compared to retail grocery buying patterns and opinions of experts
in the milk industry as to the relative size of reported versus non-reported
sales. Based upon these reports and analysis, we believe the current size of the
single serve flavored milk industry (packaging 16 oz. or smaller) is
approximately $1.5 billion domestically. The industry grew at annual rates of
between 5 and 15 percent during the last five years but was virtually flat in
the last two years while it digested the remarkable 10-year growth rates. We
believe that this space is positioned for growth now and will continue to be in
the immediate consumption channels such as vending, convenience stores and food
service market segments.
Market Analysis
The flavored milk business is a relatively new category in the dairy
field. The flavored "refreshment" segment is both the fastest growing and most
profitable category in the industry and is receiving the most attention in the
industry today. Pioneered by Nestle with the NesQuik line and Dean Foods with
its Chug brand, this "good for you" segment is in demand both in the U.S. and
internationally.
The International Dairy Foods Association reports that, although flavored
milk currently amounts to only 5 to 6 percent of milk sales, it represents over
59% of the growth in milk sales. With the total milk category exceeding $9.3
billion in 2004, the flavored milk segment was approximately $2.5 billion in
2004, with single serve flavored milk growing to approximately $1.5 billion for
the same period. Statistically, as the flavored segment grows, the entire
category grows as well. In the past ten years, selling more flavored milks has
resulted in more sales of white milk as well.
In addition, the International Dairy Foods Association and Dairy
Management Inc. have reported on studies suggesting that dairy products may help
in weight loss efforts when coupled with a reduced calorie diet, based on data
associating adequate calcium intake with lower body weight and reduced body fat.
We continue to develop a niche in the single serve flavored milk business by
utilizing strong, national branding as part of the promotion of our Slammers(R),
Pro Slammers(TM) and Slim Slammers(R) products. This niche has as its focus the
increased demand for single serve, healthy and refreshing drinks.
Market Segment Strategy
The Bravo! product model addresses a very clear and concise target market.
We know from experience that the largest retailers of milk products are
demanding new and more diverse refreshment drinks, specifically in the dairy
area, in response to consumer interest and demand. To that end, we have and will
continue to differentiate our products from those of our competitors through
innovative product formulations and packaging designs, such as those implemented
in our Slammers(R) and Pro Slammers(TM) fortified milk product lines and our
Slim Slammers(R) low calorie, no sugar added products.
28
Our Slammers(R) milk products have had promising results penetrating this
arena as consumers continue to look for healthy alternatives to carbonated
beverages. The positioning of our products as a healthy, fun and great tasting
alternative refreshment drink at competitive prices to more traditional
beverages creates value for the producer and the retailer alike. This "profit
orientation" for the trade puts old-fashioned milk products in a whole new
light. The consumer is happy, the retailer is happy and the producer is able to
take advantage of the value added by the brand and the resulting overall
increase in milk sales.
We currently are implementing a very important "first-to-market" strategy
that we feel will dramatically reposition our brands and company. Until now, all
single served flavored milk in plastic bottles required refrigeration for
storage, distribution, and shelf placement. Our strategic partner, Jasper
Products, became America's first processor with FDA approval to offer a "shelf
stable" re-sealable plastic bottle for ambient milk products that do not require
refrigeration.
The tactical advantage of distributing our milk products at ambient
temperatures enables us to side-step a major entry barrier in our immediate
consumption strategy. Most beverages are distributed ambient either through
beverage distribution channels or warehouse "candy and tobacco" distributors.
Refrigerated milk was relegated to dairy direct-store-delivery systems that are
controlled by either regional dairy processors or larger national dairy holding
companies such as Dean Foods or H.B. Hood. We avoid the roadblock of being
reliant upon our competition for chilled distribution since we are now in the
unique position to use the more traditional distribution network that
accommodates non-refrigerated beverages. We currently are converting all of our
products into ambient "shelf stable" re-sealable plastic bottles.
We have been and continue to pursue a strategic goal of placing
Slammers(R) milks in elementary, middle and high schools through ala carte lunch
programs and vending facilities in school cafeterias and we are promoting our
Slim Slammers(R) milks as low calorie, non-sugar added alternatives to
traditional soft drinks. Penetration of this market segment has been limited by
logistic and economic concerns of school administrators in the push to remove
traditional carbonated soft drinks from schools in favor of milk and milk based
products.
Competition
Nestle pioneered the single serve plastic re-sealable bottle which has
become the standard for this industry, and they currently enjoy a dominant
market share. Dean Foods owns a number of regional single serve brands that are
sold in this format, and they also have an exclusive license to produce Hershey
brand flavored milk nationwide. Our analysis indicates that the Nestle's Nesquik
brand accounts for approximately 30-35 percent of the U.S. single serve milk
category, while Hershey's market share is approximately half that, at around
15%. The other competition comes from private label and regional dairy brands.
Our Slammers(R) milks are the only other single serve brand distributed
nationally in America in plastic re-sealable containers.
Our resources for promotions have been limited, and we run significantly
less promotional activities in comparison to our competitors. Where we are in
direct competition with Nestle and Hershey, however, we have been able to
maintain competitive sales levels.
Employees
We have fifteen full time employees located at our North Palm Beach
corporate offices..
Description of Property
Neither our company nor our subsidiaries currently own any real property.
As of February 1, 1999, we moved our corporate offices from West Palm Beach to
11300 US Highway 1, Suite 202, North Palm Beach, Florida, pursuant to a lease
with HCF Realty, Inc., having an initial term of five years. The current
aggregate monthly rent amounts to approximately $7,468, which includes an
expansion of our office space from 2,485 square feet to 3,490 square feet. The
term of this lease has been extended for six years to October 30, 2010.
29
Currently, we are negotiating for an expansion of our office space in
North Palm Brach, Florida to include an additional 2,190 square feet at $18.50
per square foot.
We do not have a policy to acquire property for possible capital gains or
income generation. In addition, we do not invest in securities of real estate
entities or developed or underdeveloped properties.
30
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors, executive officers and significant employees/advisors are as of
December 7, 2005, as follows. Our directors serve for staggered terms of two
years or until their successors are elected. On March 6, 2003, the Board voted
to reduce the board positions by one to nine.
Year
Name of Officer and Age Position with the Company Appointed
----------------------- ------------------------- ---------
Bravo! Foods International Corp.
Stanley A. Hirschman 59 Chairman and Director 2000
Roy G. Warren 50 Director, Chief Executive Officer 1997/1999
Jeffrey J. Kaplan 57 Chief Financial Officer 2005
Tommy E. Kee 56 Chief Accounting Officer 2003
Roy D. Toulan, Jr. 60 Vice President, Corporate Secretary, General Counsel 2003
Michael Edwards 46 Chief Revenue Officer 2000
Benjamin Patipa 59 Chief Operating Officer 2002
Arthur W. Blanding 77 Director 1999
Robert Cummings 62 Director 1997
John McCormack 46 Director 1997
Phillip Pearce 76 Director 1997
The experience and background of the Company's executive officers follow:
Mr. Stanley A. Hirschman - Chairman and Director since September 2000
Mr. Hirschman is president of CPointe Associates, Inc., an executive
management and consulting firm specializing in solutions for emerging companies
with technology-based products. CPointe was formed in 1996. In addition, he is a
director of Energy & Engine Technology, 5 G Wireless Communications, Bronco
Energy Fund and GoldSpring, Inc. Prior to establishing CPointe Associates, Mr.
Hirschman was vice president of operations of Software, Etc., Inc., a retail
software chain, from 1989 until 1996. Mr. Hirschman has also held senior
management positions with retailers T.J. Maxx, Gap Stores and Banana Republic.
Mr. Hirschman currently serves on the Audit Committee of the Company's board of
directors.
Mr. Roy G. Warren - Chief Executive Officer since May 1999; Director since 1997
Mr. Warren serves as our Chief Executive Officer and as a director. As
Chief Executive Officer, Mr. Warren continues to develop strategy for our growth
and external financial matters.
For 15 years from 1981 through 1996, Mr. Warren was in the securities
brokerage industry. During those years, Mr. Warren acted as executive officer,
principal, securities broker and partner with brokerage firms in Florida, most
notably Kemper Financial Companies, Alex Brown & Sons and Laffer Warren &
Company. Mr. Warren currently serves on the Executive Committee of the Company's
board of directors.
Mr. Warren also serves as a director of our U.S. subsidiary, Bravo! Foods,
Inc. and our wholly owned Chinese subsidiary, China Premium Food Corp (Shanghai)
Co., Ltd.
Mr. Tommy E. Kee -Chief Financial Officer 2003 - 2005; Chief Accounting Officer
since 2005
Tommy Kee joined our company in March 2003 as Chief Financial Officer. Mr.
Kee currently serves as our Chief Accounting Officer for our company. He
graduated with an MBA from the University of Memphis and a BS degree in
accounting from the University of Tennessee. Before joining us, he served for
several years as CFO for Allied Interstate, Inc. in the West Palm Beach area.
31
Prior to that, Mr. Kee served as CFO and Treasurer for Hearx Ltd. a West Palm
Beach, Florida public company. He also served 18 years as International
Controller and Financial Director with the Holiday Inns Inc. organization in
Memphis and Orlando. Mr. Kee handles all financial management and reporting for
our company and works closely with our external auditors and general counsel for
financial reporting and SEC compliance.
Mr. Jeffrey Kaplan - Chief Financial Officer since 2005
Mr. Kaplan joined Bravo! in October 2005 as Chief Financial Officer. Mr.
Kaplan served as Executive Vice President and Chief Financial Officer of BIB
Holdings, Ltd. and then its private company spin-off, Elk Canyon Ltd., designers
of jeanswear and loungewear, from October 2003 to September 2005. He served as
Executive Vice President of Business Affairs of Viewpoint Corporation, a
graphics software company, from November 2001 to September 2003 and its
Executive Vice President and Chief Financial Officer from February 2001 to
October 2001. Mr. Kaplan served as Executive Vice President and Chief Financial
Officer of Rare Medium Group Inc., an IT professional services company, from
October 1999 to February 2001. Mr. Kaplan received his Bachelor of Arts degree
in political science from Brown University in 1970 and his Masters of Business
Administration in finance from New York University in 1972.
Mr. Roy D. Toulan, Jr. - Vice President, Corporate Secretary, General Counsel
since 2003
Roy Toulan began with the original founders as outside corporate counsel
in 1997 and has been responsible for all of our corporate and business legal
work, including securities matters. Mr. Toulan became Corporate Counsel in
October 2002, when he left his private legal practice in Boston, and Vice
President in January 2003. He received his law degree from Catholic University
in Washington D.C., and for the first 15 years of his career practiced corporate
and securities litigation with large law firms in New York and Boston. Before
joining our company full time, he spent the last 18 years of his private
practice in Boston, Massachusetts, engaged in general corporate and securities
law helping companies with corporate structure and funding, both domestically
and internationally.
Mr. Michael Edwards - Vice President Sales since 2003
Mr. Edwards has been with our company in a sales and marketing capacity
since 2000. Prior to that time, he worked for 5 years in beverage marketing
research for Message Factors, Inc., a Memphis, Tennessee marketing research
firm. Mr. Edwards has a BS degree from Florida State University in Management
and Marketing and spent 13 years in the banking industry, leaving CitiBank to
join Message Factors in 1995.
Dr. Benjamin Patipa - Director of School/Vending 2002 - 2004; Vice President,
Chief Operating Officer since 2004
Dr. Patipa is a pediatrician with over fifteen years of experience in
directing operations, marketing, sales and facilitating growth in both public
and private companies. In 1987, Dr. Patipa founded and served as the chairman
and CEO of Weight For Me, Inc., a company that developed a proprietary program
which pioneered the delivery of weight control and nutrition services to the
over 12 million obese children and adolescents in America. Weight For Me earned
national and international recognition as the premier program for the control of
obesity in children and adolescents. Dr. Patipa also served at HEARx Ltd. as a
member of the Executive Operating Committee and Sonus USA, Inc., where he lead
the company's franchise licensing and buying group business in the Southeast
United States. Most recently, Dr. Patipa served as Senior Vice President and
Operational Head of eHDL/HealthNet Data Link, Inc., a national electronic
healthcare information company.
Mr. Arthur W. Blanding - Director Since November 1999
Mr. Blanding is president of The Omega Company, an international dairy
industry consulting company. Mr. Blanding has over 50 years experience in
management of dairy processing, sales and strategic planning consulting. He
graduated from Michigan State University in 1956, with a degree in food science,
and in 1964 from Oregon State University with a degree in Food Microbiology and
attended Harvard Business School.
As President of The Omega Company for the past 20 years, Mr. Blanding has
completed over 200 projects successfully, both in the U.S. and abroad. Clients
of The Omega Company include Abbott International, Cumberland Farms, Dairy Gold,
Farm Fresh, Inc., Haagen Dazs, Labatt, Ross Laboratories and Stop & Shop
32
Company, among others. Mr. Blanding was a consultant for the design and
construction of the dairy processing facility built in Shanghai by Green Food
Peregrine. The Omega Company is a party to a consulting contract with the
Company concerning technical and production issues.
Mr. Robert J. Cummings - Director Since 1997
Mr. Cummings' work experience includes ten years in purchasing at Ford
Motor Company. In 1975, he founded and currently operates J & J Production
Service, Inc., a manufacturing representative business, which is currently
responsible for over $300 million in annual sales.
Mr. Phillip Pearce - Director Since 1997
Mr. Pearce is a "retired" member of the securities industry. Mr. Pearce
served as Chairman of the NASD during which time he was instrumental in the
founding of NASDAQ. Additionally, Mr. Pearce was a former Director of E.F.
Hutton and has served as Governor of the New York Stock Exchange. Since his
retirement in 1988, Mr. Pearce has remained active in the securities industry as
a corporate financial consultant. Mr. Pearce serves on the compensation
committee of our board of directors. Mr. Pearce also serves on our audit
committee. Mr. Pearce serves as a director of Xybernaut Corporation, a reporting
company, and Redwood Grove Capital Management, LLC.
Based upon a review of the appropriate Forms 3, 4 and 5 and any amendments
to such forms filed pursuant to Section 16(a), we report the following
delinquent filings. Senior management and our Directors filed Form 4 reports on
January 28, 2005 for common stock issued on December 31, 2004, owing to a
misunderstanding as to when the delivery of such shares by us to the individual
recipients was to occur.
33
EXECUTIVE COMPENSATION
Compensation of directors
We compensated Directors for their travel expenses to and from board of
directors' meetings in 2001, 2002, 2003 and 2004. In 2003, there were three in
person meetings and four telephonic board meetings. In 2004, there were three in
person meetings and four telephonic board meetings. Directors received options
for 35,000 shares of common stock for each year as a director through 2001. Each
member of the executive committee has received options for an additional 40,000
shares of common stock for their services from 1998 through 2001. Directors
received additional options for 25,000 shares for 2002 and 2003. On January 13,
2004, the Directors unanimously voted to convert the options to common stock on
a one for one basis. The common shares so converted were issued pursuant to a
Form S-8 registration statement filed December 23, 2004.
Compensation of executive officers
The following table sets forth the compensation paid during the last three
fiscal years to our Chief Executive Officer and the other executive officers of
our company:
Summary Compensation
Annual Compensation Long-Term Compensation
--------------------------------------------- ------------------------
Name & Position Year Salary Bonus Other Restricted Stock All Other
2004 (1) Awards and Options Compensation (2)
------------------------- ------ ---------- ----------- --------------- ------------------------ ------------------
Roy G. Warren President 2001 $180,000 $137,750 $12,000 2,500,000 employment $220,000 salary
& CEO 2002 $180,000 value of Medical contract options and $12,000
Director 2003 $220,000 converted insurance 255,000 Director (insurance)
2004 $220,000 options; options converted to
$8,462 common stock per
cash bonus January 13, 2004 vote
of Directors
Tommy E. Kee 2003 120,000 $15,000 $12,000 300,000 employment $60,000 salary
Chief Financial Officer 2004 120,000 value of Medical contract options $12,000
converted insurance converted to common (insurance)
options; stock per January 13,
$4,615 2004 vote of Directors
cash bonus
Roy D. Toulan, Jr. 2003 180,000 $15,000 $8,900 300,000 employment $180,000 salary
Vice President Secretary 2004 180,000 value Medical (part) contract options $8,900
Corporate Counsel converted Life & converted to common (insurance)
options; disability stock per January 13,
$6,923 insurance 2004 vote of Directors
cash bonus
(1) Mr. Warren has waived a 4% EBITDA bonus provision in his employment
contract. Mr. Toulan was granted 100,000 shares of common stock in
2003 as a signing bonus, valued at $28, 000. The reported values of
options converted in 2004 are pursuant to a January 13, 2004 vote of
Directors authorizing conversion, and are valued $0.05 per share.
(2) Amount paid for termination of employment owing to change of
control.
34
Option Grants
The following table sets forth individual grants of stock options made
during the last completed fiscal year to each of the named executive officers.
Option Grants In Last Fiscal Year
Individual Grants
None.
Aggregated Options Exercised in Last Fiscal Year
And Fiscal Year-End Option Values
------------------------- ------------ ------------ -------------------------------- ---------------------------------
Number of Securities Value of Unexercised
Underlying Unexercised Options In-the-Money Options at 2004
Shares at 2004 Fiscal Year-End Fiscal Year-End
Acquired Value
Name on Exercise Realized Exercisable / Unexercisable Exercisable / Unexercisable
------------------------- ------------ ------------ -------------------------------- ---------------------------------
Roy G. Warren President -0- -0-
& CEO 2,755,000 $220,400
Director (1) (3) ---------------- ---------------
-0- -0-
------------------------- ------------ ------------ ---------------- --------------- ---------------------------------
Tommy E. Kee -0- -0-
------------------------ 300,000 $24,000
Chief Financial Officer (2) (3) ---------------- ---------------
Treasurer -0- -0-
------------------------- ------------ ------------ ---------------- --------------- ---------------------------------
Roy D. Toulan, Jr. -0- -0-
Vice President Secretary 300,000 $24,000
Corporate Counsel (2) (3) ---------------- ---------------
-0- -0-
------------------------- ------------ ------------ ---------------- --------------- ---------------------------------
(1) 2,500,000 employment contract options and 255,000 Director options
converted to common stock per January 13, 2004 vote of Directors
(2) 300,000 employment contract options converted to common stock per
January 13, 2004 vote of Directors
(3) The reported value of options converted in 2004 are at market ($0.08
per share) at January 13, 2004 vote of Directors authorizing
conversion, and at $0.05 per share for income tax reporting purposes
Compensation Plans
Directors
On March 27, 2001, we issued options to our directors, including Roy
Warren, to purchase the aggregate of 925,000 shares of our common stock. The
options have an exercise price of $0.75 and expire March 26, 2006. Directors
received options for 35,000 shares for each full year of service and an
additional 40,000 shares for service on a board committee. On July 1, 2002, we
issued 250,000 options to the Board of Directors, including Roy Warren, for
services rendered as directors. Each director received options for 25,000 shares
of common stock at an exercise price of $0.60. The options can be exercised for
five years.
On January 13, 2004, the Board of Directors adopted a plan to convert on a
one for one basis the options granted to the present employees of our and the
directors currently serving on the Board into a like number of our restricted
shares of common stock. The issuance of such common stock to any individual
director or employee is conditioned upon the execution of the "lockup" agreement
by such director or employee, pursuant to which the recipients of such common
stock shall not sell, transfer, pledge or hypothecate such common stock for a
six month period, commencing on the issue date of such common stock. The
conversion plan adopted by the Board of Directors will result in the issuance of
5,200,000 shares of our restricted common stock to our present directors and
employees.
35
Directors / Senior Management
On April 6, 2005, our Directors voted to adopt a Stock Option Incentive
Plan for the grant of option to directors, employees and consultants for the
purchase of up to 10,397,745 shares of our common stock. On May 12, 2005, the
Board of Directors accepted and adopted the determination of the Compensation
Committee to grant 9,147,745 of the authorized option to our employees,
directors and senior management. The individual option contracts have not yet
been issued; we anticipate such issuance before December 31, 2005.
Employment contracts
o Roy G. Warren Chief Executive Officer
We had a one-year contract with Mr. Warren commencing January 1, 2003, at
an annual base salary of $220,000. The contract provides for the grant of
options for 1,000,000 shares of common stock at $0.50 per share, options for
1,000,000 shares of common stock at $1.50 per share and options for 100,000
shares of common stock at $0.75 per share. During his employment, he also will
receive five-year incentive options for an additional 400,000 shares in tranches
of 100,000, as the public trading price for our stock reaches $2.00, $3.00,
$4.00 and $5.00, respectively. The exercise price for these options will track
the market price for our common stock when granted. Mr. Warren's employment
contract provides for the payment of one year's salary plus medical insurance
costs for termination of employment owing to change of control in our company.
Mr. Warren's employment contract provides for the payment of one year's salary
plus medical insurance costs for termination of employment owing to change of
control. We converted these employment contract options to common stock pursuant
to a vote of the Board of Directors on January 13, 2004. Our Board of Directors
has extended this contract pending the execution of a replacement employment
contract.
Tommy E. Kee, Chief Accounting Officer,
Mr. Kee has an eighteen-month contract with our company commencing July 1,
2003 at an annual salary of $120,000. We granted options for 300,000 shares of
common stock as an incentive bonus pursuant to an employment contract. The first
100,000 share options tranche vested on July 1, 2003 at an exercise price of
$0.10 per share. The remaining options for 200,000 shares of common stock vest
as follows: options for 100,000 shares on each of December 31, 2003 and 2004,
respectively. All of these options expire five years from vesting. Mr. Kee's
employment contract provides for the payment of six months' salary plus medical
insurance costs for termination of employment owing to change of control in the
Company. We converted these employment contract options to common stock pursuant
to a vote of the Board of Directors on January 13, 2004. Our Board of Directors
has extended this contract pending the execution of a replacement employment
contract.
Roy D. Toulan, Jr., Vice President, General Counsel and Corporate
Secretary
Mr. Toulan has a two-year contract with our company commencing January 1,
2003 at an annual salary of $180,000. An incentive bonus of 100,000 common stock
shares was granted to Mr. Toulan in January 2003, valued at $0.28 per share. In
addition, we granted options for 100,000 shares of common stock as part of the
pursuant to an employment contract. These options vested immediately, expire on
December 30, 2007 and have an exercise price of $0.40 per share. We also granted
options for 200,000 shares of common stock at an exercise price of $0.40 per
share, which vest as follows: options for 100,000 shares on each of December 31,
2003 and 2004. Options for 100,000 shares expire on each of December 30, 2008
and 2009, respectively. Mr. Toulan's employment contract provides for the
payment of one year's salary plus medical insurance costs for termination of
employment owing to change of control in our company. We converted these
employment contract options to common stock pursuant to a vote of the Board of
Directors on January 13, 2004. Our Board of Directors has extended this contract
pending the execution of a replacement employment contract.
36
Jeffrey J. Kaplan, Chief Financial Officer
Mr. Kaplan's employment contract will be finalized and executed before
December 31, 2005 and will contain the following terms: three year term
agreement with salary of $180,000 in year one with a discretionary quarterly
bonus; $200,000 in year two with a bonus of $5,000 per quarter; $220,000 in year
three. Mr. Kaplan will receive the normal corporate benefits granted by us to
our senior management.
Securities authorized for issuance under equity compensation plans
The equity compensation reported in this section has been and will be
issued pursuant to individual compensation contracts and arrangements with
employees, directors, consultants, advisors, vendors, suppliers, lenders and
service providers. The equity is reported on an aggregate basis as of December
31, 2004. Our security holders have not approved the compensation contracts and
arrangements underlying the equity reported.
--------------------------- ------------------------- --------------------------- ------------------------------------
Number of securities to
be issued upon exercise Weighted average price of Number of securities remaining for
of options, warrants outstanding options, future issuance under equity
Compensation Plan Category and rights warrants and rights compensation plans
--------------------------- ------------------------- --------------------------- ------------------------------------
Directors (former) 325,000 $0.71 0 individual plans
--------------------------- ------------------------- --------------------------- -------------- ---------------------
Employees (former) 550,000 $0.87 60,000 individual plans
--------------------------- ------------------------- --------------------------- -------------- ---------------------
Directors/Management & 9,147,745 $0.245 1,250,000 2005 Stock Option
Employees Incentive Plan(1)
--------------------------- ------------------------- --------------------------- -------------- ---------------------
Consultants 460,000 $0.30 0 individual plans
--------------------------- ------------------------- --------------------------- -------------- ---------------------
Lender 25,000 $0.40 0 individual plan
--------------------------- ------------------------- --------------------------- -------------- ---------------------
Total 10,507,745 $0.77 1,310,000
--------------------------- ------------------------- --------------------------- -------------- ---------------------
(1) On April 6, 2005, our Directors voted to adopt a Stock Option Incentive Plan
for the grant of option to directors, employees and consultants for the purchase
of up to 10,397,745 shares of our common stock. On May 12, 2005, the Board of
Directors accepted and adopted the determination of the Compensation Committee
to grant 9,147,745 of the authorized option to our employees, directors and
senior management. The individual option contracts have not yet been issued; we
anticipate such issuance before December 31, 2005.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of our company's common
stock as of December 7, 2005, as to
o each person known to beneficially own more than 5% of the Company's
common stock
o each of our directors
o each executive officer
o all directors and officers as a group
The following conditions apply to all of the following tables:
o except as otherwise noted, the named beneficial owners have direct
ownership of the stock and have sole voting and investment power
with respect to the shares shown
o the class listed as "common" includes the shares of common stock
underlying the Company's issued convertible preferred stock, options
and warrants
37
Beneficial Owners
------------------------- ------------------------------------------ ----------------------------- ------------------------------
Title of Name and Address of Amount and Nature of Percent of
Class Beneficial Owner (1) Beneficial Ownership Class (2)
------------------------- ------------------------------------------ ----------------------------- ------------------------------
Common Mid-Am Capital, L.L.C. (3) 19,970,723 9.99%
Northpointe Tower
10220 North Ambassador Drive
Kansas City, MO 64190
------------------------- ------------------------------------------ ----------------------------- ------------------------------
Common Lombard Odier Darier Hentsch & Cie (4) 16,500,000 9.06%
Rue de la Corraterie 11
1204 Geneva
------------------------- ------------------------------------------ ----------------------------- ------------------------------
Common Magnetar Capital Master Fund, Ltd (4) 13,750,000 7.51%
1603 Orrington Avenue
13th Floor
Evanston, IL 60201
------------------------- ------------------------------------------ ----------------------------- ------------------------------
(1) Beneficial Ownership is determined in accordance with the rules of
the Securities and Exchange Commission and generally includes voting
or investment power with respect to securities. Shares of common
stock subject to options or warrants currently exercisable or
convertible, or exercisable or convertible within 60 days of
December 7, 2005 are deemed outstanding for computing the percentage
of the person holding such option or warrant but are not deemed
outstanding for computing the percentage of any other person.
(2) Percentage calculated from base of 181,753,751 shares of common
stock issued and outstanding.
(3) This owner is contractually limited to a beneficial ownership of our
equity not to exceed 9.99%. Equity listed consists of convertible
preferred, convertible debentures and/or warrants.
(4) Equity listed consists of common stock and warrants to purchase
common stock
38
Management Owners
----------------------------- ----------------------------------- ------------------------------- ------------------------------
Title of Class Name and Address of Amount and Nature Percent of
Management Owner (1) of Ownership Class (2)
----------------------------- ----------------------------------- ------------------------------- ------------------------------
Common Roy G. Warren 3,281,765 (3) 1.77%
11300 US Highway No.1
N. Palm Beach, FL
----------------------------- ----------------------------------- ------------------------------- ------------------------------
Common Robert Cummings 565,000 (4) Less than 1%
2829 N.E. 44th Street
Lighthouse Point, FL 33064
----------------------------- ----------------------------------- ------------------------------- ------------------------------
Common John McCormack 747,500 (4) Less than 1%
8750 South Grant
Burridge, IL 60521
----------------------------- ----------------------------------- ------------------------------- ------------------------------
Common Mr. Arthur W. Blanding 452,889 (5) Less than 1%
Janesville, WI 53545
----------------------------- ----------------------------------- ------------------------------- ------------------------------
Common Phillip Pearce 256,000 (6) Less than 1%
6624 Glenleaf Court
Charlotte, NC 28270
----------------------------- ----------------------------------- ------------------------------- ------------------------------
Common Stanley Hirschman 369,670 (7) Less than 1%
2600 Rutgers Court
Plano, Texas 75093
----------------------------- ----------------------------------- ------------------------------- ------------------------------
Common Roy D. Toulan, Jr. 1,015,121 (8) Less than 1%
VP, General Counsel
6 Wheelers Pt. Rd
Gloucester, MA 01930
----------------------------- ----------------------------------- ------------------------------- ------------------------------
Common Tommy Kee 442,385 (8) Less than 1%
Chief Accounting Officer
11300 US Highway 1
N. Palm Beach, FL 33408
----------------------------- ----------------------------------- ------------------------------- ------------------------------
Common Benjamin Patipa 758,700(8) Less than 1%
Chief Operating Officer
6139 Indian Forest Circle
Lake Worth, FL 33463
----------------------------- ----------------------------------- ------------------------------- ------------------------------
Common Michael Edwards 1,400,000(8) Less than 1%
Vice President Sales
4140 S.E. Old St. Lucie Blvd.
Stuart, FL 34996
----------------------------- ----------------------------------- ------------------------------- ------------------------------
Common Executive officers and directors as 9,289,030 4.86%
a group
----------------------------- ----------------------------------- ------------------------------- ------------------------------
Common Executive officers and directors as 17,109,061 9.02%
a group including 7,820,031 shares
under 2005 Incentive Stock Option
Plan
----------------------------- ----------------------------------- ------------------------------- ------------------------------
(1) Beneficial Ownership is determined in accordance with the rules of
the Securities and Exchange Commission and generally includes voting
or investment power with respect to securities. Shares of common
stock subject to options or warrants currently exercisable or
convertible, or exercisable or convertible within 60 days of
December 7, 2005 are deemed outstanding for computing the percentage
of the person holding such option or warrant but are not deemed
outstanding for computing the percentage of any other person.
(2) Percentage calculated from base of 181,753,751 shares of common
stock issued and outstanding.
(3) Does not include unissued options to purchase 2,500,00 shares of our
common stock pursuant to a 2005 Incentive Stock Option Plan adopted
by the Board of Directors on May 12, 2005.
(4) Does not include unissued options to purchase 565,038 shares of our
common stock pursuant to a 2005 Incentive Stock Option Plan adopted
by the Board of Directors on May 12, 2005.
39
(5) Does not include unissued options to purchase 494,408 shares of our
common stock pursuant to a 2005 Incentive Stock Option Plan adopted
by the Board of Directors on May 12, 2005.
(6) Does not include unissued options to purchase 706,297 shares of our
common stock pursuant to a 2005 Incentive Stock Option Plan adopted
by the Board of Directors on May 12, 2005.
(7) Does not include unissued options to purchase 670,982 shares of our
common stock pursuant to a 2005 Incentive Stock Option Plan adopted
by the Board of Directors on May 12, 2005.
(8) Does not include unissued options to purchase 600,000 shares of our
common stock pursuant to a 2005 Incentive Stock Option Plan adopted
by the Board of Directors on May 12, 2005.
There currently are no arrangements that may result in a change of
ownership or control.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
In April 2004, we entered into a Subscription Agreement with two
accredited investors for the sale of (i) $500,000 in convertible debentures and
(ii) warrants to buy 3,000,000 shares of our common stock. Longview Fund LP
purchased a convertible debenture in the amount of $250,000 and warrants to buy
1,500,000 shares of common stock. In June 2004 and October 2004, Longview Fund
LP purchased a convertible debenture in the aggregate amount of $200,000 and
received an warrants to purchase an aggregate of 2,050,000 shares of common
stock. Phillip Pearce, a director of our company and Stanley Hirschman, our
Chairman, serve on the Board of Directors of Redwood Grove Capital Management,
LLC, which has a management agreement with Longview Fund LP. In addition, Mr.
Pearce and Mr. Hirschman each own .05% of the outstanding membership interest of
Redwood Grove Capital Management, LLC.
DESCRIPTION OF SECURITIES TO BE REGISTERED
COMMON STOCK
We are authorized to issue up to 300,000,000 shares of Common Stock, par
value $.001. As of December 7, 2005, there were181,753,751 shares of common
stock outstanding. Holders of the common stock are entitled to one vote per
share on all matters to be voted upon by the stockholders. Holders of common
stock are entitled to receive ratably such dividends, if any, as may be declared
by the Board of Directors out of funds legally available therefor. Upon the
liquidation, dissolution, or winding up of our company, the holders of common
stock are entitled to share ratably in all of our assets which are legally
available for distribution after payment of all debts and other liabilities and
liquidation preference of any outstanding common stock. Holders of common stock
have no preemptive, subscription, redemption or conversion rights. The
outstanding shares of common stock are validly issued, fully paid and
nonassessable.
We have engaged American Stock Transfer & Trust Company located at 59
Maiden Lane, Plaza Level, New York, NY 10038, as independent transfer agent or
registrar.
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Our Articles of Incorporation, as amended, provide to the fullest extent
permitted by Delaware law, our directors or officers shall not be personally
liable to us or our shareholders for damages for breach of such director's or
officer's fiduciary duty. The effect of this provision of our Articles of
Incorporation, as amended, is to eliminate our rights and our shareholders
(through shareholders' derivative suits on behalf of our company) to recover
damages against a director or officer for breach of the fiduciary duty of care
as a director or officer (including breaches resulting from negligent or grossly
negligent behavior), except under certain situations defined by statute. We
believe that the indemnification provisions in our Articles of Incorporation, as
amended, are necessary to attract and retain qualified persons as directors and
officers.
40
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act" or "Securities Act") may be permitted to directors,
officers or persons controlling us pursuant to the foregoing provisions, or
otherwise, we have been advised that in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable.
PLAN OF DISTRIBUTION
The selling stockholders may, from time to time, sell any or all of their
shares of common stock on any stock exchange, market or trading facility on
which the shares are traded or in private transactions. If the shares of common
stock are sold through underwriters or broker-dealers, the selling stockholders
will be responsible for underwriting discounts or commissions or a gent's
commissions. These sales may be at fixed prices, at prevailing market prices at
the time of the sale, at varying prices determined at the time of sale, or
negotiated prices. The selling stockholders may use any one or more of the
following methods when selling shares:
o on any national securities exchange or quotation service on which the
securities may be listed or quoted at the time of sale;
o ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;
o block trades in which the broker-dealer will attempt to sell the shares as
agent but may position and resell a portion of the block as principal to
facilitate the transaction;
o purchases by a broker-dealer as principal and resale by the broker-dealer
for its account;
o in transactions otherwise than on these exchanges or systems or in the
over-the-counter market;
o through the writing of options, whether such options are listed on an
options exchange or otherwise;
o an exchange distribution in accordance with the rules of the applicable
exchange;
o privately negotiated transactions;
o purchases by a broker-dealer as principal and resale by the broker-dealer
for its account;
o short sales;
o broker-dealers may agree with the selling stockholders to sell a specified
number of such shares at a stipulated price per share;
o a combination of any such methods of sale; and
o any other method permitted pursuant to applicable law.
The selling stockholders may also sell shares under Rule 144 under the
Securities Act, if available, rather than under this prospectus.
The selling stockholders may also engage in short sales against the box,
puts and calls and other transactions in our securities or derivatives of our
securities and may sell or deliver shares in connection with these trades.
Broker-dealers engaged by the selling stockholders may arrange for other
brokers-dealers to participate in sales. Broker-dealers may receive commissions
or discounts from the selling stockholders (or, if any broker-dealer acts as
agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated. The selling stockholders do not expect these commissions and
discounts to exceed what is customary in the types of transactions involved. Any
profits on the resale of shares of common stock by a broker-dealer acting as
principal might be deemed to be underwriting discounts or commissions under the
Securities Act. Discounts, concessions, commissions and similar selling
expenses, if any, attributable to the sale of shares will be borne by a selling
stockholder. The selling stockholders may agree to indemnify any agent, dealer
or broker-dealer that participates in transactions involving sales of the shares
if liabilities are imposed on that person under the Securities Act.
41
In connection with sales of the shares of common stock or otherwise, the
selling stockholders may enter into hedging transactions with broker-dealers,
which may in turn engage in short sales of the shares of common stock in the
course of hedging in positions they assume. The selling stockholders may also
sell shares of common stock short and deliver shares of common stock covered by
this prospectus to close out short positions and to return borrowed shares in
connection with such short sales. The selling stockholders may also loan or
pledge shares of common stock to broker-dealers that in turn may sell such
shares.
The selling stockholders may from time to time pledge or grant a security
interest in some or all of the shares of common stock owned by them and, if they
default in the performance of their secured obligations, the pledgees or secured
parties may offer and sell the shares of common stock from time to time under
this prospectus after we have filed an amendment to this prospectus under Rule
424(b)(3) or other applicable provision of the Securities Act of 1933 amending
the list of selling stockholders to include the pledgee, transferee or other
successors in interest as selling stockholders under this prospectus.
The selling stockholders also may transfer the shares of common stock in
other circumstances, in which case the transferees, pledgees or other successors
in interest will be the selling beneficial owners for purposes of this
prospectus and may sell the shares of common stock from time to time under this
prospectus after we have filed an amendment to this prospectus under Rule
424(b)(3) or other applicable provision of the Securities Act of 1933 amending
the list of selling stockholders to include the pledgee, transferee or other
successors in interest as selling stockholders under this prospectus. The
selling stockholders also may transfer and donate the shares of common stock in
other circumstances in which case the transferees, donees, pledgees or other
successors in interest will be the selling beneficial owners for purposes of
this prospectus.
The selling stockholders and any broker-dealers or agents that are
involved in selling the shares of common stock may be deemed to be
"underwriters" within the meaning of the Securities Act in connection with such
sales. In such event, any commission paid, or any discounts or concessions
allowed to, such broker-dealers or agents and any profit on the resale of the
shares of common stock purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act. At the time a particular
offering of the shares of common stock is made, a prospectus supplement, if
required, will be distributed which will set forth the aggregate amount of
shares of common stock being offered and the terms of the offering, including
the name or names of any broker-dealers or agents, any discounts, commissions
and other terms constituting compensation from the selling stockholders and any
discounts, commissions or concessions allowed or reallowed or paid to
broker-dealers.
Under the securities laws of some states, the shares of common stock may
be sold in such states only through registered or licensed brokers or dealers.
In addition, in some states the shares of common stock may not be sold unless
such shares have been registered or qualified for sale in such state or an
exemption from registration or qualification is available and is complied with.
There can be no assurance that any selling stockholder will sell any or all of
the shares of common stock registered pursuant to the shelf registration
statement, of which this prospectus forms a part.
We are required to pay all fees and expenses incident to the registration
of the shares of common stock, including $10,000 of fees and disbursements of
counsel to the selling stockholders. We have agreed to indemnify the selling
stockholders against certain losses, claims, damages and liabilities, including
liabilities under the Securities Act.
If we are notified by any selling stockholder that any material
arrangement has been entered into with a broker-dealer for the sale of shares of
common stock, if required, we will file a supplement to this prospectus. If the
selling stockholders use this prospectus for any sale of the shares of common
stock, they will be subject to the prospectus delivery requirements of the
Securities Act.
42
The anti-manipulation rules of Regulation M under the Securities Exchange
Act of 1934 may apply to sales of our common stock and activities of the selling
stockholders, which may limit the timing of purchases and sales of any of the
shares of common stock by the selling stockholders and any other participating
person. Regulation M may also restrict the ability of any person engaged in the
distribution of the shares of common stock to engage in market-making activities
with respect to the shares of common stock. All of the foregoing may affect the
marketability of the shares of common stock and the ability of any person or
entity to engage in market-making activities with respect to the shares of
common stock.
Once sold under the registration statement, of which this prospectus forms
a part, the shares of common stock will be freely tradable in the hands of
persons other than our affiliates.
The anti-manipulation rules of Regulation M under the Securities Exchange
Act of 1934 may apply to sales of our common stock and activities of the selling
stockholders.
PENNY STOCK
The Securities and Exchange Commission has adopted Rule 15g-9 which
establishes the definition of a "penny stock," for the purposes relevant to us,
as any equity security that has a market price of less than $5.00 per share or
with an exercise price of less than $5.00 per share, subject to certain
exceptions. For any transaction involving a penny stock, unless exempt, the
rules require:
o that a broker or dealer approve a person's account for transactions
in penny stocks; and
o the broker or dealer receive from the investor a written agreement
to the transaction, setting forth the identity and quantity of the
penny stock to be purchased.
In order to approve a person's account for transactions in penny stocks,
the broker or dealer must
o obtain financial information and investment experience objectives of
the person; and
o make a reasonable determination that the transactions in penny
stocks are suitable for that person and the person has sufficient
knowledge and experience in financial matters to be capable of
evaluating the risks of transactions in penny stocks.
The broker or dealer must also deliver, prior to any transaction in a
penny stock, a disclosure schedule prescribed by the Commission relating to the
penny stock market, which, in highlight form:
o sets forth the basis on which the broker or dealer made the
suitability determination; and
o that the broker or dealer received a signed, written agreement from
the investor prior to the transaction.
Disclosure also has to be made about the risks of investing in penny
stocks in both public offerings and in secondary trading and about the
commissions payable to both the broker-dealer and the registered representative,
current quotations for the securities and the rights and remedies available to
an investor in cases of fraud in penny stock transactions. Finally, monthly
statements have to be sent disclosing recent price information for the penny
stock held in the account and information on the limited market in penny stocks.
43
SELLING STOCKHOLDERS
The table below sets forth information concerning the resale of the shares
of common stock by the selling stockholders. We will not receive any proceeds
from the resale of the common stock by the selling stockholders. We will receive
proceeds from the exercise of the warrants. Assuming the selling stockholders
sell all the shares registered below, none of the selling stockholders will
continue to own any shares of our common stock.
The following table also sets forth the name of each person who is
offering the resale of shares of common stock by this prospectus, the number of
shares of common stock beneficially owned by each person, the number of shares
of common stock that may be sold in this offering and the number of shares of
common stock each person will own after the offering, assuming they sell all of
the shares offered.
-------------------- ------------------ ----------- ------------------ ----------------- ----------- ----------- ----------
Percentage
Total of
Total Shares of Percentage Percentage Common
Common Stock of Common of Common Stock
outstanding and Stock, Beneficial Stock Beneficial Owned
issuable Upon Assuming Shares of Common Ownership Owned Ownership After
exercise of Full Stock Included Included in Before After the Offering
Name(2) Warrants Conversion* in Prospectus (1) Prospectus ** Offering Offering(2) 2)
-------------------- ------------------ ----------- ------------------ ----------------- ----------- ----------- ----------
Lombard Odier 16,500,000 8.86% Up to 16,500,000 16,500,000 8.86% -- --
Darier Hentsch & shares of common
Cie (4) stock
-------------------- ------------------ ----------- ------------------ ----------------- ----------- ----------- ----------
Magnetar Capital 13,750,000 7.41% Up to 13,750,000 13,750,000 7.41% -- --
Master Fund, Ltd shares of common
(5) stock
-------------------- ------------------ ----------- ------------------ ----------------- ----------- ----------- ----------
Kings Road 7,562,500 4.11% Up to 7,562,500 7,562,500 4.11% -- --
Investments Ltd. shares of common
(6) stock
-------------------- ------------------ ----------- ------------------ ----------------- ----------- ----------- ----------
Radcliffe SPC, Ltd 7,562,500 4.11% Up to 7,562,500 7,562,500 4.11% -- --
for and on behalf shares of common
of the Class A stock
Convertible
Crossover
Segregated
Portfolio (7)
-------------------- ------------------ ----------- ------------------ ----------------- ----------- ----------- ----------
Lagunitas Partners 1,727,435 *** Up to 1,727,435 1,727,435 *** -- --
LP (8) shares of common
stock
-------------------- ------------------ ----------- ------------------ ----------------- ----------- ----------- ----------
Gruber & McBaine 472,566 *** Up to 472,566 472,566 *** -- --
International (9) shares of common
stock
-------------------- ------------------ ----------- ------------------ ----------------- ----------- ----------- ----------
Jon D and Linda W 550,000 *** Up to 550,000 550,000 *** -- --
Gruber Trust (10) shares of common
stock
-------------------- ------------------ ----------- ------------------ ----------------- ----------- ----------- ----------
JMG Triton 1,100,000 *** Up to 1,100,000 1,100,000 *** -- --
Offshore Fund, shares of common
Ltd. (11) stock
-------------------- ------------------ ----------- ------------------ ----------------- ----------- ----------- ----------
JMG Capital 1,100,000 *** Up to 1,100,000 1,100,000 *** -- --
Partners, LP (12) shares of common
stock
-------------------- ------------------ ----------- ------------------ ----------------- ----------- ----------- ----------
Capital Ventures 1,650,000 *** Up to 1,650,000 1,650,000 *** -- --
International (13) shares of common
stock
-------------------- ------------------ ----------- ------------------ ----------------- ----------- ----------- ----------
UBS O'Connor LLC 1,650,000 *** Up to 1,650,000 1,650,000 *** -- --
FBO O'Connor PIPES shares of common
Corporate stock
Strategies Master
Limited (14)
-------------------- ------------------ ----------- ------------------ ----------------- ----------- ----------- ----------
Whalehaven Capital 1,375,000 *** Up to 1,375,000 1,375,000 *** -- --
Fund Limited(15) shares of common
stock
-------------------- ------------------ ----------- ------------------ ----------------- ----------- ----------- ----------
Alpha Capital 687,500 *** Up to 687,500 687,500 *** -- --
Aktiengesellschaft shares of common
(16) stock
-------------------- ------------------ ----------- ------------------ ----------------- ----------- ----------- ----------
Marvel 1,000,000 *** Up to 1,000,000 1,000,000 *** -- --
Enterprises, shares of common
Inc.(17) stock
-------------------- ------------------ ----------- ------------------ ----------------- ----------- ----------- ----------
SG Cowen & Co., 1,317,188 *** Up to 1,317,188 1,317,188 *** -- --
LLC (18) shares of common
stock
-------------------- ------------------ ----------- ------------------ ----------------- ----------- ----------- ----------
44
* Based upon 181,753,751 shares of common stock issued and outstanding on
December 7, 2005
** The number and percentage of shares beneficially owned is determined in
accordance with Rule 13d-3 of the Securities Exchange Act of 1934, and the
information is not necessarily indicative of beneficial ownership for any other
purpose. Under such rule, beneficial ownership includes any shares as to which
the selling stockholders has sole or shared voting power or investment power and
also any shares, which the selling stockholders has the right to acquire within
60 days.
***Less than one percent.
(1) The actual number of shares of common stock offered in this prospectus, and
included in the registration statement of which this prospectus is a part,
includes such additional number of shares of common stock as may be issued or
issuable upon the exercise of the related warrants by reason of any stock split,
stock dividend or similar transaction involving the common stock, in accordance
with Rule 416 under the Securities Act of 1933.
(2) Lombard Odier Darier Hentsch & Cie
Magnetar Financial LLC is the investment advisor of Magnetar Capital Master
Fund, Ltd ("Magnetar Master Fund") and consequently has voting control and
investment discretion over securities held by Magnetar Master Fund. Magnetar
Financial LLC disclaims beneficial ownership of the securities held by Magnetar
Master Fund. Alec Litowitz is the manager of Magnetar Capital Partners LLC,
which is the sole member of Magnetar Financial LLC. As a result, Mr. Litowitz
may be considered the beneficial owner of any shares deemed to be beneficially
owned by Magnetar Financial LLC. Mr. Litowitz disclaims beneficial ownership of
these shares.
Kings Road Investments Ltd. ("Kings Road") is a wholly-owned subsidiary of
Polygon Global Opportunities Master Fund ("Master Fund"). Polygon Investment
Partners LLP and Polygon Investment Partners LP (the "Investment Managers"),
Polygon Investments Ltd. (the "Manager"), the Master Fund, Alexander Jackson,
Reade Griffith and Paddy Dear share voting and dispositive power of the
securities held by Kings Road. The Investment Managers, the Manager, Alexander
Jackson, Reade Griffith and Paddy Dear disclaim beneficial ownership of the
securities held by Kings
Radcliffe SPC, Ltd. for and on behalf of the Class A Convertible Crossover
Segregated Portfolio. Pursuant to an investment management agreement, RG Capital
Management, L.P. ("RG Capital") serves as the investment manager of Radcliffe
SPC. Ltd's Class A Convertible Crossover Segregated Portfolio. RGC Management
Company, LLC ("Management") is the general partner of RG Capital. Steve
Katznelson and Gerald Stahlecker serve as the managing members of Management.
Each of RG Capital. Management and Messrs. Katznelson and Stahlecker disclaims
beneficial ownership of the securities owned by Radcliffe SPC, Ltd. for and on
behalf of the Class A Convertible Crossover Segregated Portfolio
45
Lagunitas Partners. Gruber & McBaine Cap Mgmt is the general partner for
Lagunitas Partners LP and the Investment advisor for Gruber & MCBaine
International having full power to vote and invest on their behalf. Gruber &
McBaine Cap Mgmt mangers Jon D Gruber & J Patterson McBaine oversee the voting
activity
Gruber & McBaine International. Gruber & McBaine Cap Mgmt is the general partner
for Lagunitas Partners LP and the Investment advisor for Gruber & MCBaine
International having full power to vote and invest on their behalf. Gruber &
McBaine Cap Mgmt mangers Jon D Gruber & J Patterson McBaine oversee the voting
activit
Jon D and Linda W Gruber Trust
JMG Triton Offshore Fund, Ltd. (the "Fund") is an international business company
organized under the laws of the British Virgin Islands. The Fund's investment
manager is Pacific Assets Management LLC, a Delaware limited liability company
(the "Manager") that has voting and dispositive power over the Fund's
investments, including the Registrable Securities. The equity interests of the
Manager are owned by Pacific Capital Management, Inc., a California corporation
("Pacific") and Asset Alliance Holding Corp., a Delaware corporation. The equity
interests of Pacific are owned by Messrs. Roger Richter, Jonathan M. Glaser and
Daniel A. David. Messrs. Glaser and Richter have sole investment discretion over
the Fund's portfolio holdings.
JMG Capital Partners, L.P. ("JMG Partners") is a California limited partnership.
Its general partner is JMG Capital Management, LLC (the "Manager"), a Delaware
limited liability company and an investment adviser that has voting and
dispositive power over JMG Partners' investments, including the Registrable
Securities. The equity interests of the Manager are owned by JMG Capital
Management, Inc., ("JMG Capital") a California corporation, and Asset Alliance
Holding Corp., a Delaware corporation. Jonathan M. Glaser is the Executive
Officer and Director of JMG Capital and has sole investment discretion over JMG
Partners' portfolio holdings.
Capital Ventures International. Heights Capital Management, Inc., the authorized
agent of Capital Ventures International ("CVI"), has discretionary authority to
vote and dispose of the shares held by CVI and may be deemed to be the
beneficial owners of these shares.
UBS O'Connor LLC is a wholly owned subsidiary of UBS AG which is listed and
traded on the NYSE. The Investment Manager (UBS O'Connor LLC) makes all of the
investment / voting decisions
Alpha Capital Aktiengesellschaft is a private investment fund that is owned by
all its investors and managed by Mr. Konrad Ackerman. Mr. Konrad Ackerman may be
deemed the control person of the shares owned by such entity, with final voting
power and investment control over such shares.
Whalehaven Funds Limited is a professional hedge fund incorporated in Bermuda.
The control persons are Evan Schemenauer, Arthur Jones, and Jennifer Kelly,
directors.
Marvel Entertainment, Inc. (formerly known as Marvel Enterprises, Inc.) is a
publicly-traded, NYSE-listed corporation and is owned by its stockholders.
Day-to-day investment decisions are made by Marvel Entertainment's senior
management
SG Cowen & Co., LLC. William Buchanan is the Head of Equity Capital Markets and
a Managing Director at SG Cowen & Co., LLC and is responsible for investment
decisions at SG Cowen.
(3) Assumes that all securities registered will be sold.
46
(4) Total shares being registered includes 12,000,000 shares of common stock
currently outstanding and 4,500,000 shares of common stock issuable upon
exercise of common stock purchase warrants exercisable at $0.80 per share.
(5) Total shares being registered includes 10,000,000 shares of common stock
currently outstanding and 3,750,000 shares of common stock issuable upon
exercise of common stock purchase warrants exercisable at $0.80 per share.
(6) Total shares being registered includes 5,500,000 shares of common stock
currently outstanding and 2,062,500 shares of common stock issuable upon
exercise of common stock purchase warrants exercisable at $0.80 per share.
(7) Total shares being registered includes 5,500,000 shares of common stock
currently outstanding and 2,062,500 shares of common stock issuable upon
exercise of common stock purchase warrants exercisable at $0.80 per share.
(8) Total shares being registered includes 1,253,316 shares of common stock
currently outstanding and 471,119 shares of common stock issuable upon exercise
of common stock purchase warrants exercisable at $0.80 per share.
(9) Total shares being registered includes 343,684 shares of common stock
currently outstanding and 128,882 shares of common stock issuable upon exercise
of common stock purchase warrants exercisable at $0.80 per share.
(10) Total shares being registered includes 400,000 shares of common stock
currently outstanding and 150,000 shares of common stock issuable upon exercise
of common stock purchase warrants exercisable at $0.80 per share.
(11) Total shares being registered includes 800,000 shares of common stock
currently outstanding and 300,000 shares of common stock issuable upon exercise
of common stock purchase warrants exercisable at $0.80 per share.
(12) Total shares being registered includes 800,000 shares of common stock
currently outstanding and 300,000 shares of common stock issuable upon exercise
of common stock purchase warrants exercisable at $0.80 per share.
(13) Total shares being registered includes 1,200,000 shares of common stock
currently outstanding and 450,000 shares of common stock issuable upon exercise
of common stock purchase warrants exercisable at $0.80 per share.
(14) Total shares being registered includes 1,200,000 shares of common stock
currently outstanding and 450,000 shares of common stock issuable upon exercise
of common stock purchase warrants exercisable at $0.80 per share.
(15) Total shares being registered includes 1,000,000 shares of common stock
currently outstanding and 375,000 shares of common stock issuable upon exercise
of common stock purchase warrants exercisable at $0.80 per share.
(16) Total shares being registered includes 500,000 shares of common stock
currently outstanding and 187,500 shares of common stock issuable upon exercise
of common stock purchase warrants exercisable at $0.80 per share.
(17) Total shares being registered includes 1,000,000 shares of common stock
issuable upon exercise of common stock purchase warrants exercisable at $0.05
per share.
(18) Total shares being registered includes 1,012,500 shares of common stock
issuable upon exercise of common stock purchase warrants exercisable at $0.50
per share and 304,688 shares of common stock issuable upon exercise of common
stock purchase warrants exercisable at $0.80 per share.
Terms of Financing
To obtain funding for our ongoing operations, we entered into the
following financing transaction:
On November 28, 2005, we closed a funding transaction with 13 accredited
institutional investors, for the issuance and sale of 40,500,000 shares of our
common stock for a purchase price of $20,250,000. In addition, we also issued
five-year warrants for the purchase of an additional 15,187,500 shares of common
stock at an exercise price of $0.80 per share. The securities are restricted and
have been issued pursuant to an exemption to the registration requirements of
Section 5 of the Securities Act of 1933 for "transactions of the issuer not
47
involving any public offering" provided in Section 4(2) of the Act and pursuant
to a Regulation D offering. In connection with this financing, we issued common
stock purchase warrants to purchase 1,012,500 shares of common stock at an
exercise price of $.50 per share and 304,688 shares of common stock at an
exercise price of $.80 per share to SG Cowen & Co., LLC, who acted as placement
agent for this financing.
The shares of common stock and the shares of common stock underlying the
warrants carry registration rights that obligate us to file a registration
statement within 45 days from closing and have the registration statement
declared effective within 120 days from closing.
Terms of Services Agreement
In June 2005, we entered into a Services Agreement with Marvel
Enterprises, Inc. pursuant to which Marvel Enterprises, Inc. agreed to provide
introductions to retailers and advise on creative design in consideration for a
common stock purchase warrant to purchase 1,000,000 shares of common stock at
$0.05 per share.
This prospectus relates to the resale of the shares of common stock and
the shares of common stock issuable upon exercise of warrants in connection with
this private placement and the shares of common stock issuable to Marvel
Enterprises, Inc. upon exercise of its common stock purchase warrants.
This prospectus relates to the resale of the shares of common stock issued
in connection with this finaincing and the shares of common stock issuable upon
exercise of the common stock purchase warrants.
LEGAL MATTERS
Sichenzia Ross Friedman Ference LLP, New York, New York will issue an
opinion with respect to the validity of the shares of common stock being offered
hereby.
EXPERTS
Lazar Levine & Felix LLP , Certified Public Accountants, have audited,
as set forth in their report thereon appearing elsewhere herein, our financial
statements at December 31, 2004 and 2003 and for the year then ended that
appears in the prospectus.
AVAILABLE INFORMATION
We have filed a registration statement on Form SB-2 under the Securities
Act of 1933, as amended, relating to the shares of common stock being offered by
this prospectus, and reference is made to such registration statement. This
prospectus constitutes the prospectus of Bravo! Foods International Corp., filed
as part of the registration statement, and it does not contain all information
in the registration statement, as certain portions have been omitted in
accordance with the rules and regulations of the Securities and Exchange
Commission.
We are subject to the informational requirements of the Securities
Exchange Act of 1934 which requires us to file reports, proxy statements and
other information with the Securities and Exchange Commission. Such reports,
proxy statements and other information may be inspected at public reference
facilities of the SEC at 100 F Street N.E., Washington D.C. 20549. Copies of
such material can be obtained from the Public Reference Section of the SEC at
100 F. Street N.E., Washington, D.C. 20549 at prescribed rates. Because we file
documents electronically with the SEC, you may also obtain this information by
visiting the SEC's Internet website at http://www.sec.gov.
48
INDEX TO FINANCIAL STATEMENTS
BRAVO! FOODS INTERNATIONAL CORP. AND SUBSIDIARY
FINANCIAL STATEMENTS
For the Nine Months Ended September 30, 2005
Consolidated Balance Sheets F-1
Consolidated Statements of Operations F-3
Consolidated Statements of Cash Flow F-4
Notes to Consolidated Financial Statements F-5
For the Years Ended December 31, 2004 and December 31, 2003
Report of Independent Registered Public Accounting Firm F-16
Consolidated Balance Sheets F-17
Consolidated Statements of Operations F-19
Consolidated Statement of Capital Deficit F-20
Consolidated Statements of Cash Flow F-21
Notes to Consolidated Financial Statements F-22
49
BRAVO! FOODS INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
2005 2004
------------ ------------
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 553,857 $ 113,888
Accounts receivable - net 201,249 51,968
Inventories 252,829 11,656
Prepaid expenses 1,724,422 551,510
------------ ------------
Total current assets 2,732,357 729,022
Furniture and equipment, net 173,078 111,206
License rights, net of accumulated amortization 362,285 67,301
Trademarks, net 67,958 10,249
Deferred product development costs 398,226 162,169
Deferred costs Master Distribution Agreement - net 11,800,833 --
Deposits 15,231 13,900
------------ ------------
Total assets $ 15,549,968 $ 1,093,847
============ ============
F-1
BRAVO! FOODS INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
2005 2004
------------ ------------
(unaudited)
Liabilities and Capital Deficit
Current liabilities:
Note payable to International Paper $ 187,743 $ 187,743
Note payable to Alpha Capital 100,000 217,954
Note payable to Mid-Am Capital LLC 112,480 111,262
Note payable to Libra Finance 43,750 40,106
Note payable to Longview 104,680 54,086
Note payable to Stonestreet -- 47,014
Note payable to Whalehaven -- 17,082
Note payable to Bi-Coastal 6,462 13,649
Note payable to Gem Funding -- 8,231
Note payable to Warner Brothers 147,115 147,115
Note payable to Gamma Capital -- 59,678
Note payable to Momona Capital -- 25,885
Note payable to Ellis International -- 25,885
Accounts payable 5,617,708 1,763,339
Accrued liabilities 518,273 375,962
------------ ------------
Total current liabilities 6,838,211 3,094,991
Dividends payable 1,167,380 928,379
Other notes payable -- 100,171
------------ ------------
Total liabilities 8,005,591 4,123,541
------------ ------------
Commitments and contingencies
Capital Surplus / (Deficit) (Note 2):
Series B convertible, 9% cumulative and redeemable preferred stock, stated
value $1.00 per share, 1,260,000 shares authorized, 107,440 shares issued
and outstanding, redeemable at $107,440 107,440 107,440
Series F convertible and redeemable preferred stock, stated value $10.00 per
share, 5,248 and 55,515 shares issued and outstanding 48,471 512,740
Series H convertible, 7% cumulative and redeemable preferred stock, stated
value $10.00 per share, 64,500 and 165,500 shares issued and outstanding 349,037 895,591
Series I convertible, 8% cumulative and redeemable preferred stock, stated
value $10.00 per share, 30,000 shares issued and outstanding -- 72,192
Series J convertible, 8% cumulative and redeemable preferred stock, stated
value $10.00 per share, 200,000 shares issued and outstanding 1,854,279 1,854,279
Series K convertible, 8% cumulative and redeemable preferred stock, stated
value $10.00 per share, 95,000 shares issued and outstanding 950,000 950,000
Common stock, par value $0.001 per share, 300,000,000 shares authorized,
137,798,337 and 57,793,501 shares issued and outstanding 137,798 57,794
Additional paid-in capital 45,606,762 26,257,299
Accumulated deficit (41,485,761) (33,737,029)
Translation adjustment (23,649) --
------------ ------------
Total capital surplus / (deficit) 7,544,377 (3,029,694)
------------ ------------
Total liabilities and capital surplus / (deficit) $ 15,549,968 $ 1,093,847
============ ============
See accompanying notes.
F-2
BRAVO! FOODS INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended Nine Months Ended
September 30, September 30,
2005 2004 2005 2004
------------- ------------- ------------- -------------
(unaudited) (unaudited) (unaudited) (unaudited)
Revenue - unit sales $ 3,245,305 $ 747,198 $ 6,558,343 $ 2,236,383
Revenue - gross kit sales -- 78,232 33,350 468,609
------------- ------------- ------------- -------------
Total revenue 3,245,305 825,430 6,591,693 2,704,992
Cost of sales (2,360,884) (628,747) (4,719,011) (1,893,834)
------------- ------------- ------------- -------------
Gross margin 884,421 196,683 1,872,682 811,158
Selling expenses 1,727,531 652,622 3,525,002 1,270,042
Product development 84,690 33,932 194,955 55,104
General and administrative expense 905,487 551,299 2,345,041 2,213,326
------------- ------------- ------------- -------------
Loss from operations (1,833,287) (1,041,170) (4,192,316) (2,727,314)
Other (income) expense
Non-recurring finder's fee 3,000,000 -- 3,000,000 --
Interest expense 73,169 79,822 293,415 154,817
------------- ------------- ------------- -------------
Loss before income taxes (4,906,456) (1,120,992) (7,485,371) (2,882,131)
Provision for income taxes -- -- -- --
------------- ------------- ------------- -------------
Net loss (4,906,456) (1,120,992) (7,485,371) (2,882,131)
Dividends accrued for Series B preferred stock (2,437) (2,437) (7,232) (7,259)
Dividends accrued for Series G preferred stock -- -- -- (15,633)
Dividends accrued for Series H preferred stock (11,434) (29,201) (67,857) (86,967)
Dividends accrued for Series I preferred stock (460) (6,049) (11,397) (18,017)
Dividends accrued for Series J preferred stock (49,972) (40,329) (119,671) (120,109)
Dividends accrued for Series K preferred stock (23,737) (19,156) (56,844) (43,475)
------------- ------------- ------------- -------------
Net loss applicable to common shareholders $ (4,994,496) $ (1,218,164) $ (7,748,732) $ (3,173,591)
============= ============= ============= =============
Weighted average number of common shares
outstanding 113,680,645 44,374,877 82,091,556 38,254,305
============= ============= ============= =============
Basic and diluted loss per share $ (0.04) $ (0.03) $ (0.09) $ (0.08)
============= ============= ============= =============
Comprehensive loss and its components
consist of the following:
Net loss $ (4,906,456) $ (1,120,992) $ (7,485,731) $ (2,882,131)
Foreign currency translation adjustment (5,670) -- (23,649) --
------------- ------------- ------------- -------------
Comprehensive loss $ (4,912,126) $ (1,120,992) $ (7,509,380) $ (2,882,131)
============= ============= ============= =============
See accompanying notes.
F-3
BRAVO! FOODS INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30
2005 2004
----------- -----------
(unaudited) (unaudited)
Cash flows from operating activities:
Net loss $(7,485,731) $(2,882,131)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 560,646 248,995
Stock issuance for compensation, finders' fee and due diligence fees 346,438 116,000
Increase (decrease) from changes in:
Accounts receivable (149,281) (8,490)
Inventories (241,173) (20,691)
Prepaid expenses (1,174,243) (271,323)
Accounts payable and accrued expenses 4,208,414 (224,031)
Deferred product development costs (1,021,518) (331,169)
----------- -----------
Net cash used in operating activities (4,956,448) (3,372,840)
----------- -----------
Cash flows from investing activities:
Purchase of equipment (90,583) (47,647)
----------- -----------
Net cash used in investing activities (90,583) (47,647)
----------- -----------
Cash flows from financing activities:
Proceeds of Series K preferred stock -- 950,000
Proceeds from conversion of warrants 2,958,509 --
Convert account payable into note payable -- 1,128,386
Convertible notes payable 2,350,000 2,639,999
Private placement financing 450,000 --
Payment of note payable, bank loan and license fee payable -- (1,278,386)
Redeem warrants (100,000) --
Registration costs for financing (147,860) (20,108)
----------- -----------
Net cash provided by financing activities 5,510,649 3,419,891
----------- -----------
Effect of changes in exchange rates on cash (23,649) --
----------- -----------
Net increase (decrease) in cash and cash equivalents 439,969 (596)
Cash and cash equivalents, beginning of period 113,888 58,859
----------- -----------
Cash and cash equivalents, end of period $ 553,857 $ 58,263
=========== ===========
See accompanying notes.
F-4
Note 1 -Interim Periods
The accompanying unaudited consolidated financial statements include the
accounts of Bravo! Foods International Corp. and its wholly owned subsidiary
Bravo! Brands (UK) Ltd. (collectively the "Company"). The Company is engaged in
the sale of flavored milk products and flavor ingredients in the United States,
the United Kingdom and various countries in the Middle East and is establishing
infrastructures to conduct business in Canada.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10QSB and Article 10 of
Regulation S-X. Accordingly, the accompanying financial statements do not
include all the information and footnotes required by generally accepted
accounting principles for complete financial statements. All significant
inter-company accounts and transactions have been eliminated in consolidation.
The consolidated financial statements are presented in U.S. dollars. In the
opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation have been included.
Operating results for the period ended September 30, 2005 are not necessarily
indicative of the results that may be expected for the year ending December 31,
2005. For further information, refer to the consolidated financial statements
and footnotes thereto included in the Company's annual report for the year ended
December 31, 2004.
As shown in the accompanying consolidated financial statements, the
Company has suffered operating losses and negative cash flow from operations
since inception and has an accumulated deficit of $41,485,761, negative working
capital of $4,105,854 and is delinquent on certain of its debts at September 30,
2005. Further, the Company's auditors stated in their report on the Company's
Consolidated Financial Statements for the year ended December 31, 2004, that
these conditions raise substantial doubt about the Company's ability to continue
as a going concern. Management plans to increase gross profit margins in its
U.S. business, grow its international business, obtain additional financing and
launch one new product line in the fourth quarter of 2005. While there is no
assurance that funding will be available or that the Company will be able to
improve its profit margins, the Company is continuing to actively seek equity
and/or debt financing and ,in January 2005, obtained financing of $2,350,000,
with $1,950,000 invested in the six months ending June 30, 2005 and the balance
invested in August 2005.
On July 13, 2005, Coca-Cola Enterprises Inc. (CCE) acquired options to
purchase shares of common stock, convertible securities and warrants, entitling
Coca-Cola Enterprises to purchase approximately 69,000,000 shares of common
stock from 9 non-affiliated shareholders of the Company (the "Options"),
representing approximately 23% of the authorized shares of the Company's common
stock. Coca-Cola Enterprises and the Company contemporaneously commenced
negotiations regarding a stock purchase agreement for the direct sale of
approximately 81 million shares of the Company's common stock to Coca-Cola
Enterprises. The consummation of the direct sale and the exercise of the Options
by Coca-Cola Enterprises would have resulted in Coca-Cola Enterprises holding
slightly in excess of 50% of the Company's equity on a fully diluted basis.
These transactions were contingent upon the execution of a Master Distribution
Agreement between the Company and Coca-Cola Enterprises. On July 29, 2005, the
Company and Coca-Cola Enterprises entered into a Letter of Intent memorializing
and confirming their intention to enter into the stock purchase agreement.
Subsequent to the execution of the Letter of Intent, in lieu of the
exercise of the Options and the stock purchase agreement, the parties agreed to
enter into the Master Distribution Agreement with the attendant grant of three
year warrants by the Company to Coca-Cola Enterprises for the right to purchase
F-5
30 million shares of the Company's common stock at an exercise price of $0.36
per share. On August 31, 2005, the Company issued the warrants to Coca-Cola
Enterprises, and the parties executed a ten year exclusive Master Distribution
Agreement that will significantly expand the distribution and sales of the
Company's products. The Company presently is seeking from $10 - $15 million in
new financing to promote the expanded sales anticipated with the implementation
of the Master Distribution Agreement and for general working capital.
The Company recorded a $3,000,000 one time, non-recurring finder's fee
payable to a third party in connection with the execution of the Master
Distribution Agreement with Coca-Cola Enterprises, Inc. in the quarter ending
September 30, 2005. In addition, the Company recorded $99,168, pro-rata, of an
$11,900,000 net charge in deferred distribution costs for the issuance of a
three year warrant to Coca-Cola Enterprises to purchase of 30,000,000 shares of
our common stock in connection with the execution of the Master Distribution
Agreement. The Company will recognize that cost as a selling expense over the
10-year term of the Master Distribution Agreement.
No assurances can be given that the Company will be successful in carrying
out its plans. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Revenue Recognition
The Company recognizes revenue in the United States at the gross amount of
its invoices for the sale of finished product to wholesale buyers. Commencing
with the first quarter 2004, the Company no longer uses the sale of "kits" as a
revenue event in the United States. Rather, the Company takes title to its
branded flavored milks when they are shipped by the Company's third party
processors and recognize as revenue the gross wholesale price charged to the
Company's wholesale customers. Expenses for slotting fees and certain promotions
are treated as a reduction of reported revenue. The Company determines gross
margin by deducting from the reported wholesale price the cost charged by the
Company's third party processors to produce the branded milk products. The sale
of "kits" will remain as the revenue model for the Company's international
business, with the exception of the United Kingdom and Canada, where the
domestic business model will be implemented.
The Company recognizes revenue for its international business at the gross
amount of its invoices for the sale of flavor ingredients and production rights
(collectively referred to as "kits") at the time of shipment of flavor
ingredients to processor dairies with whom the Company has production contracts
for extended shelf life and aseptic long life milk. The Company recognizes
revenue based upon its role as the principal in these transactions, its
discretion in establishing kit prices (including the price of flavor ingredients
and production rights fees), its development and refinement of flavors and
flavor modifications, its discretion in supplier selection and its credit risk
to pay for ingredients if processors do not pay ingredient suppliers. The
revenue generated by the production contracts under this model is allocated for
the processors' purchase of flavor ingredients and fees charged by the Company
to the processors for production rights. The Company formulates the price of
production rights to cover its royalties under intellectual property licenses,
which varies by licensor as a percentage of the total cost of a kit sold to the
processor dairy under the production agreement. The Company recognizes revenue
on the gross amount of "kit" invoices to the dairy processors and simultaneously
records as cost of goods sold the cost of flavor ingredients paid by the
processor dairies to ingredients suppliers. The recognition of revenue generated
from the sale of production rights associated with the flavor ingredients is
complete upon shipment of the ingredients to the processor, given the short
utilization cycle of the ingredients shipped. The criteria to meet this
guideline are: 1) persuasive evidence that an arrangement exists, 2) delivery
has occurred or services have been rendered, 3) the price to the buyer is fixed
or determinable and 4) collectibility is reasonably assured.
F-6
The Company follows the final consensus reached by the Emerging Issues
Task Force (EITF) 99-19, "Reporting Revenue Gross as a Principal versus Net as
an Agent". In certain circumstances in its U.S. business, the Company is
required to pay slotting fees, give promotional discounts or make marketing
allowances in order to secure wholesale customers. These payments, discounts and
allowances reduce the Company's reported revenue in accordance with the
guidelines set forth in EITF 01-9 and SEC Staff Accounting Bulletin No. 104.
Pursuant to EITF 99-19, international sales of kits made directly to customers
by the Company are reflected in the statements of operations on a gross basis,
whereby the total amount billed to the customer is recognized as revenue.
Stock-based Compensation
The Company has adopted the intrinsic value method of accounting for
employee stock options as permitted by Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-based Compensation" (SFAS No. 123) and
discloses the pro forma effect on net loss and loss per share as if the fair
value based method had been applied. For equity instruments, including stock
options issued to non-employees, the fair value of the equity instruments or the
fair value of the consideration received, whichever is more readily
determinable, is used to determine the value of services or goods received and
the corresponding charge to operations.
On April 6, 2005, the Company's Board of Directors voted to adopt a Stock
Incentive Plan for the issuance of incentive options for up to 10,397,745 shares
of the Company's common stock to management, employees and certain key third
party service providers. On May 12, 2005, the Board received and reviewed a
Report of the Compensation Committee recommending an allocation schedule for the
allotted incentive option shares and voted to implement the Stock Incentive Plan
for distribution of such options to the Corporation's present management,
employees, directors and service providers as set forth in the Compensation
Committee Report. The Company has not as yet issued the Incentive Stock Option
Grant contracts.
Note 2 - Transactions in Capital Deficit
Quarter Ending March 31, 2005
New Financing: January 2005 Convertible Notes . On January 31, 2005, we
closed a funding transaction with Longview Fund, LP, Longview Equity Fund, LP,
Longview International Equity Fund, LP, Alpha Capital Aktiengesellschaft and
Whalehaven Funds Limited, five institutional accredited investors, for the
issuance and sale to the Subscribers of up to $2,300,000 of principal amount of
promissory notes convertible into shares of our common stock, and Warrants to
purchase shares of common stock at 100% coverage of the common stock issuable in
accordance with the principal amount of the notes. One Million One Hundred Fifty
Thousand Dollars ($1,150,000) of the purchase price was paid on the initial
closing date, and One Million One Hundred Fifty Thousand Dollars ($1,150,000) of
the purchase price will be payable within five (5) business days after the
actual effectiveness of an SB-2 Registration Statement as defined in the
Subscription Agreement. The initial closing notes were at prime plus 4% interest
in the aggregate amount of $1,150,000, plus five-year Warrants for the purchase
of, in the aggregate, 9,200,000 shares of common stock, at the lesser of (i)
$0.16, or (ii) 101% of the closing bid price of the Common Stock as reported by
Bloomberg L.P. for the OTC Bulletin Board for the trading day preceding the
Closing Date. The notes are convertible into shares of our common stock at
$0.125 per common share. Conversions are limited to a maximum ownership of 9.99%
of the underlying common stock at any one time. The notes have a maturity date
two years from closing and are payable in twelve equal monthly installments,
commencing June 1, 2005. The installment payments consist of principal equal to
F-7
1/20(th) of the initial principal amount which, subject to certain conditions
concerning trading volume and price, can be paid in cash at 103% of the monthly
installment, or common stock or a combination of both. The notes have an
acceleration provision upon the change in a majority of the present Board of
Directors except as the result of the death of one or more directors, or a
change in the present CEO. In connection with this transaction, we issued
restricted common stock in the aggregate amount of 460,000 shares plus the
aggregate cash amount of $57,500 for due diligence fees to the investors in this
transaction. We issued the Convertible Promissory Note and the underlying common
stock upon conversion to an accredited investor, pursuant to a Regulation D
offering. The underlying common stock is now registered pursuant to a Form SB-2
registration statement declared effective August 2, 2005.
November 2003 Convertible Notes. We converted $25,000 of our November 2003
Convertible Promissory Notes into 549,340 shares of common stock pursuant to a
notice of conversion from Gamma Opportunity Capital Partners LP, at a fixed
conversion price of $0.05. The conversion included $2,467 of accrued and unpaid
interest on the converted amount. We issued the underlying common stock upon
conversion pursuant to a Form SB-2 registration statement, declared effective on
August 3, 2004.
April 2004 Convertible Notes. We converted $99,999 of our April 2004
Convertible Promissory Notes into 1,141,387 shares of common stock pursuant to
notices of conversion from Longview Fund LP, at a fixed conversion price of
$0.10. The conversions included $14,138 of accrued and unpaid interest. We
issued the underlying common stock upon conversion pursuant to our SB-2
registration statement, declared effective on August 3, 2004.
June 2004 Convertible Notes. We converted $41,666 of our June 2004
Convertible Promissory Notes into 430,327 shares of restricted common stock
pursuant to a notice of conversion from Longview Fund LP, at a fixed conversion
price of $0.15. The conversion included $22,822 of accrued and unpaid interest.
We issued the Convertible Promissory Note and the underlying common stock upon
conversion to an accredited investor, pursuant to a Regulation D offering. The
underlying common stock is now registered pursuant to a Form SB-2 registration
statement declared effective April 18, 2005.
Quarter Ending June 30, 2005
New Financing: April 2005 Convertible Note. On April 21, 2005, we closed a
funding transaction with Alpha Capital Aktiengesellschaft for the issuance of a
convertible 10% note in the aggregate amount of $300,000. The promissory note is
convertible into shares of common stock of the Company at $0.20 per common
share. Conversions are limited to a maximum ownership of 9.99% of the Company's
common stock at any one time. The note has an October 31, 2005 maturity and is
payable in five equal monthly installments, commencing June 1, 2005. The
installment payments consist of principal (equal to 1/5th of the initial
principal amount) plus accrued interest. Installments can be paid in cash or
common stock valued at the average closing price of the Company's common stock
during the five trading days immediately preceding the relevant installment due
date. The Company has repriced Class B Warrants issued on June 30, 2004 from
$2.00 per share to $0.125 per share and issued restricted common stock in the
aggregate amount of 93,750 shares for finder's fees to a third-party to
facilitate this transaction. The Company has the right to prepay the promissory
note by paying to the holder cash equal to 120% of the principal to be prepaid
plus accrued interest. The notes have an acceleration provision upon the change
in a majority of the present Board of Directors except as the result of the
death of one or more directors or a change in the present CEO of the Company.
The common stock underlying the note and the finder's fee common stock have
"piggy back" registration rights. We issued the convertible note and finder's
fee common stock to accredited investors, pursuant to a Regulation D offering.
New Financing: May 2005 Convertible Notes On May 23, 2005, we closed a
funding transaction (the "May '05 Transaction") with Longview Fund, LP,
Whalehaven Funds Limited, Ellis International Ltd., and Osher Capital Corp.,
four institutional accredited investors, for the issuance and sale to the
Subscribers of Five Hundred Thousand Dollars ($500,000) of principal amount of
F-8
promissory notes convertible into shares of our common stock and Warrants to
purchase shares of common stock at 100% coverage of the common stock issuable in
accordance with the principal amount of the notes. This May '05 Transaction was
a part of a January 23, 2005 funding transaction for an aggregate of Two Million
Three Hundred Thousand Dollars ($2,300,000), One Million One Hundred Fifty
Thousand Dollars ($1,150,000) of which was paid on the initial closing date, and
One Million One Hundred Fifty Thousand Dollars ($1,150,000) of which (the
"Second Tranche") was to be payable within five (5) business days after the
actual effectiveness of an SB-2 Registration Statement covering the aggregate
transaction, as defined in the Subscription Agreement. The May '05 Transaction
for Five Hundred Thousand Dollars ($500,000) is a partial interim closing of the
Second Tranche, which occurred prior to the anticipated effectiveness of the
SB-2 Registration Statement covering the aggregate transaction. Contemporaneous
with the May '05 Transaction, we agreed to a modification of the January 23,
2005 aggregate transaction for the substitution of Ellis International Ltd. and
Osher Capital Corp. in the place of Alpha Capital Aktiengesellschaft, one of the
original investors. The May '05 Transaction convertible notes are at prime plus
4% interest in the aggregate amount of $500,000, plus five-year Warrants for the
purchase of, in the aggregate, 4,000,000 shares of common stock, at an exercise
price of $0.129. The notes are convertible into shares of our common stock at
$0.125 per common share. Conversions are limited to a maximum ownership of 9.99%
of the underlying common stock at any one time. The notes have a maturity date
two years from closing and are payable in twelve equal monthly installments,
commencing June 1, 2005. The installment payments consist of principal equal to
1/20th of the initial principal amount which, subject to certain conditions
concerning trading volume and price, can be paid in cash at 103% of the monthly
installment or common stock or a combination of both. The notes have an
acceleration provision upon the change in a majority of the present Board of
Directors except as the result of the death of one or more directors, or a
change in the present CEO. In connection with this transaction, we issued
restricted common stock in the aggregate amount of 200,000 shares plus the
aggregate cash amount of $25,000 for due diligence fees to Longview Fund, LP,
Gem Funding LLC, Ellis International Ltd., and Osher Capital Corp. in this
transaction. The Second Tranche of the January 23, 2005 aggregate transaction,
now in the amount of $650,000, remains outstanding and will be triggered by the
effectiveness of the pending SB-2 registration statement.
Conversions: November 2003 Convertible Notes. We converted $50,000 of our
November 2003 Convertible Promissory Note into 1,106,740 shares of common stock
pursuant to a notice of conversion from Gamma Opportunity Capital Partners LP,
at a fixed conversion price of $0.05. The conversion included $5,337 of accrued
and unpaid interest. We issued the underlying common stock upon conversion
pursuant to a Form SB-2 registration statement, declared effective on August 3,
2004.
Warrant Exercise: November 2003 Warrant. We issued 1,000,000 shares of
common stock to Gamma Opportunity Capital Partners LP pursuant to the exercise
of a Warrant issued in connection with the November 2003 financing transaction,
and received $50,000 in warrant exercise payments. The shares of common stock
underlying the warrant were issued pursuant to a Form SB-2 shelf registration
statement, declared effective by the SEC on August 3, 2004.
Warrant Exercise: April 2004 Warrant. We issued 1,500,000 shares of common
stock to Longview Fund LP pursuant to the exercise of a Warrant issued in
connection with the April 2004 financing transaction, and received $225,000 in
warrant exercise payments. The shares of common stock underlying the warrant
were issued pursuant to a Form SB-2 shelf registration statement, declared
effective by the SEC on August 3, 2004.
Conversions: June 2004 Convertible Notes. We converted $528,573 of our
June 2004 Convertible Promissory Notes into 5,633,039 shares of common stock
pursuant to notices of conversion from Longview Fund LP, Gem Funding LLC,
Whalehaven Capital Fund Limited, Stonestreet Limited Partnership and Bi-Coastal
Consulting Corp. at a fixed conversion price of $0.10. The conversion included
$33,689 of accrued and unpaid interest. We issued the common stock upon
conversion pursuant to a Form SB-2 registration statement declared effective by
the Securities and Exchange Commission on April 18, 2005.
F-9
Warrant Exercise: June 2004 Warrant. We issued 2,200,000 shares of common
stock to Longview Fund LP, Whalehaven Capital Fund Limited and Stonestreet
Limited Partnership pursuant to the exercise of Warrants issued in connection
with the June 2004 financing transaction, and received $309,000 in warrant
exercise payments. The shares of common stock underlying the warrants were
issued pursuant to a Form SB-2 shelf registration statement, declared effective
by the SEC on April 18, 2005.
Conversions: October 2004 Convertible Notes. We converted $446,250 of our
October 2004 Convertible Promissory Notes into 4,718,514 shares of common stock
pursuant to notices of conversion from Longview Fund LP, Gem Funding LLC,
Whalehaven Capital Fund Limited, Stonestreet Limited Partnership and Bi-Coastal
Consulting Corp. at a fixed conversion price of $0.10. The conversion included
$25,602 of accrued and unpaid interest. We issued the common stock upon
conversion pursuant to a Form SB-2 registration statement declared effective by
the Securities and Exchange Commission on April 18, 2005.
Warrant Exercise: October 2004 Warrant. We issued 1,700,000 shares of
common stock to Longview Fund LP, Whalehaven Capital Fund Limited and
Stonestreet Limited Partnership pursuant to the exercise of Warrants issued in
connection with the October 2004 financing transaction, and received $248,700 in
warrant exercise payments. The shares of common stock underlying the warrants
were issued pursuant to a Form SB-2 shelf registration statement, declared
effective by the SEC on April 18, 2005.
Conversions: December 2004 Convertible Notes. We converted $210,000 of our
December 2004 Convertible Promissory Notes into 2,176,706 shares of common stock
pursuant to notices of conversion, to Momona Capital Corp. and Ellis
International Ltd Inc., at a fixed conversion price of $0.10 per share. The
conversion included $7,450 of accrued and unpaid interest. We issued the
underlying common stock upon conversion pursuant to a Form SB-2 registration
statement, declared effective on April 18, 2005.
Warrant Exercise: December 2004 Warrant. We issued 500,000 shares of
common stock to Momona Capital Corp. and Ellis International Ltd Inc., pursuant
to the exercise of Warrants issued in connection with the December 2004
financing transaction, and received $72,500 in warrant exercise payments. The
shares of common stock underlying the warrants were issued pursuant to a Form
SB-2 shelf registration statement, declared effective by the SEC on April 18,
2005.
Conversions: January 2005 Convertible Notes. We converted $534,304 of our
January 2005 Convertible Promissory Notes into 4,461,685 shares of restricted
common stock pursuant to notices of conversion, to Longview Fund LP, Longview
Equity Fund LP and Longview International Equity Fund LP at a fixed conversion
price of $0.125 per share. We issued the Convertible Promissory Note and the
underlying common stock upon conversion to an accredited investor, pursuant to a
Regulation D offering. The underlying common stock is now registered pursuant to
a Form SB-2 registration statement declared effective August 2, 2005.
Conversions: Series F Convertible Preferred. We converted 31,134 shares of
our Series F Convertible Preferred, having a stated value of $311,340 into
2,903,839 shares of common stock pursuant to notices of conversion, to
Austinvest Anstalt Balzers and Esquire Trade & Finance Inc. We issued the Series
F Convertible Preferred and the underlying common stock upon conversion to
accredited investors, pursuant to a Regulation D offering and Rule 144(k).
Conversions: Series H Convertible Preferred. We converted 100,000 shares
of our Series H Convertible Preferred, having a stated value of $1,000,000 into
2,500,000 shares of common stock pursuant to notices of conversion, to four
individual and two institutional investors. We issued the Convertible Preferred
and the underlying common stock upon conversion to accredited investors,
pursuant to a Regulation D offering and Rule 144(k).
F-10
Conversions: Series I Convertible Preferred. We converted 20,000 shares of
our Series I Convertible Preferred, having a stated value of $200,000 into
2,354,808 shares of common stock pursuant to a notice of conversion, to Alpha
Capital AG. We issued the Convertible Preferred and the underlying common stock
upon conversion to accredited investors, pursuant to a Regulation D offering and
Rule 144(k).
Warrant Exercise: Series I Warrant. We issued 1,333,333 shares of
restricted common stock to Alpha Capital AG, pursuant to the exercise of
Warrants issued in connection with the Series I financing transaction, and
received $133,333 in warrant exercise payments. The shares of common stock
underlying the warrants are now registered pursuant to a Form SB-2 shelf
registration statement, declared effective by the SEC on August 2, 2005.
Private Placements. On May 17, 2005 we issued the aggregate of 27,500
restricted shares of the Company's common stock, with a recorded value of
$4,950, to eleven product sales brokers as a bonus for the performance of
services for the Company. We issued the restricted common stock pursuant to
Section 4(6) of the Securities Act of 1933, which provides an exemption from the
registration requirements of the Act for transactions not involving a public
offering.
S-8 Registration. On April 14, 2005 and April 18, 2005, we issued 750,000
and 250,000 shares, respectively, of our common stock to Geoffrey Eiten, for
services rendered for strategic business planning. These shares were part of
1,500,000 shares of the Company's common stock registered under a Form S-8
registration statement filed December 23, 2004.
Warrant Issue. On June 20, 2005, we issued one year Warrant to Marvel
Enterprises Inc. to purchase 1,000,000 shares of our common stock a $0.05 per
share. This Warrant was issued in connection with the execution of a License
Agreement with Marvel for the United States, Canada and Mexico. We issued the
Warrant pursuant to Section 4(6) of the Securities Act of 1933, which provides
an exemption from the registration requirements of the Act for transactions not
involving a public offering.
Quarter Ending September 30, 2005
Warrant Exercise: Series D Warrant. We issued 696,042 shares of common
stock to Longview Fund LP, Longview Equity Fund LP, Longview International
Equity Fund LP and Esquire Trade & Finance Inc., pursuant to the cashless
exercises of warrants for 763,750 shares of common stock. We issued the Warrants
and the underlying common stock upon exercise to accredited investors, pursuant
to a Regulation D offering and Rule 144(k).
Conversions: Series F Convertible Preferred. We converted 19,133 shares of
our Series F Convertible Preferred, having a stated value of $191,330 into
804,752 shares of common stock pursuant to notices of conversion to Amro
International, SA. We issued the Series F Convertible Preferred and the
underlying common stock upon conversion to accredited investors, pursuant to a
Regulation D offering and Rule 144(k).
Warrant Exercise: Series F Warrant. We issued 3,345,417 shares of common
stock to Austinvest Anstalt Balzers and Esquire Trade & Finance Inc. and Libra
Finance, SA., pursuant to the cashless exercise of warrants for 3,676,518 shares
of common stock. We issued the Warrants and the underlying common stock upon
exercise to accredited investors, pursuant to a Regulation D offering and Rule
144(k).
Conversions: Series H Convertible Preferred. We converted 1,000 shares of
our Series H Convertible Preferred, having a stated value of $10,000 into 25,000
shares of common stock pursuant to notices of conversion, to one individual
investor. We issued the Convertible Preferred and the underlying common stock
upon conversion to accredited investors, pursuant to a Regulation D offering and
Rule 144(k).
F-11
Conversions: Series I Convertible Preferred. We converted 10,000 shares of
our Series I Convertible Preferred, having a stated value of $100,000 into
656,953 shares of common stock pursuant to a notice of conversion, to
Tradersbloom Limited. The conversion included $24,000 of accrued and unpaid
interest. We issued the Convertible Preferred and the underlying common stock
upon conversion to accredited investors, pursuant to a Regulation D offering and
Rule 144(k).
Conversions: April 2004 Convertible Notes. We converted $250,000 of our
April 2004 Convertible Promissory Notes into 2,808,219 shares of common stock
pursuant to notices of conversion from Osher Capital Inc., Ellis International
Ltd Inc. and Alpha Capital AG. The conversion included $3,082 of accrued and
unpaid interest on the converted amount. We issued the underlying common stock
upon conversion pursuant to a Form SB-2 registration statement, declared
effective on August 4, 2004.
Conversions: June 2004 Convertible Notes. We converted $250,000 of our
June 2004 Convertible Promissory Notes into 2,796,575 shares of common stock
pursuant to notices of conversion from Alpha Capital AG at a fixed conversion
price of $0.10. The conversion included $29,657 of accrued and unpaid interest
on the converted amount. We issued the common stock upon conversion pursuant to
a Form SB-2 registration statement declared effective by the Securities and
Exchange Commission on April 18, 2005.
Conversions: October 2004 Convertible Notes. We converted $125,000 of our
October 2004 Convertible Promissory Notes into 1,342,808 shares of common stock
pursuant to notices of conversion from Alpha Capital AG at a fixed conversion
price of $0.10. The conversion included $9,280 of accrued and unpaid interest on
the converted amount. We issued the common stock upon conversion pursuant to a
Form SB-2 registration statement declared effective by the Securities and
Exchange Commission on April 18, 2005.
Warrant Exercise: December 2004 Warrant. We issued 300,000 shares of
common stock to Momona Capital Corp. pursuant to the exercise of Warrants issued
in connection with the December 2004 financing transaction, and received $30,000
in warrant exercise payments. The shares of common stock underlying the warrants
were issued pursuant to a Form SB-2 shelf registration statement, declared
effective by the SEC on April 18, 2005.
Conversions: January 2005 Convertible Notes. We converted $500,071 of our
January 2005 Convertible Promissory Notes into 4,186,644 shares of restricted
common stock pursuant to notices of conversion, to Longview Fund LP, Longview
Equity Fund LP and Longview International Equity Fund LP at a fixed conversion
price of $0.125 per share. The conversion included $23,260 of accrued and unpaid
interest on the converted amount. We issued the common stock upon conversion
pursuant to a Form SB-2 registration statement declared effective by the
Securities and Exchange Commission on August 2, 2005.
Warrant Exercise: January 2005 Warrant. We issued 7,200,000 shares of
common stock to Whalehaven Capital Fund Limited, Longview Fund LP, Longview
Equity Fund LP and Longview International Equity Fund LP pursuant to the
exercise of Warrants issued in connection with the January 2005 financing
transaction, and received $720,000 in warrant exercise payments. The shares of
common stock underlying the warrants were issued pursuant to a Form SB-2 shelf
registration statement, declared effective by the SEC on August 2, 2005.
Conversions: April 2005 Convertible Notes. We converted $300,000 of our
April 2005 Convertible Promissory Note into 1,556,438 shares of restricted
common stock pursuant to notices of conversion, to Alpha Capital AG at a fixed
conversion price of $0.20 per share. The conversion included $11,288 of accrued
and unpaid interest on the converted amount. We issued the common stock upon
conversion pursuant to a Form SB-2 registration statement declared effective by
the Securities and Exchange Commission on August 2, 2005.
F-12
Conversions: May 2005 Convertible Notes. We converted $475,000 of our May
2005 Convertible Promissory Notes into 4,141,270 shares of restricted common
stock pursuant to notices of conversion, to Whalehaven Capital Fund Limited,
Ellis International Ltd, Longview Fund LP and Osher Capital Corp. The conversion
included $9,317 of accrued and unpaid interest on the converted amount. We
issued the common stock upon conversion pursuant to a Form SB-2 registration
statement declared effective by the Securities and Exchange Commission on August
2, 2005.
Warrant Exercise: May 2005 Warrant. We issued 4,000,000 shares of common
stock to Whalehaven Capital Fund Limited, Ellis International Ltd, Longview Fund
LP and Osher Capital Corp. pursuant to the exercise of Warrants issued in
connection with the January 2005 financing transaction, and received $400,000 in
warrant exercise payments. The shares of common stock underlying the warrants
were issued pursuant to a Form SB-2 shelf registration statement, declared
effective by the SEC on August 2, 2005.
New Financing: August 2005 Convertible Notes On August 18, 2005, we closed
a funding transaction (the "August '05 Transaction") with Longview Fund, LP,
Longview Equity Fund, LP and Longview International Equity Fund, LP, three
institutional accredited investors, for the issuance and sale to the Subscribers
of Six Hundred Fifty Thousand Dollars ($650,000) of principal amount of
promissory notes convertible into shares of our common stock and Warrants to
purchase shares of common stock at 100% coverage of the common stock issuable in
accordance with the principal amount of the notes. This August'05 Transaction
was a part of a January 23, 2005 funding transaction for an aggregate of Two
Million Three Hundred Thousand Dollars ($2,300,000). The August '05 Transaction
is the Second Tranche of the January '05 transaction, which occurred upon the
effectiveness of the SB-2 Registration Statement covering the aggregate
transaction. The August'05 Transaction convertible notes are at prime plus 4%
interest in the aggregate amount of $650,000, plus five-year Warrants for the
purchase of, in the aggregate, 5,200,000 shares of common stock, at an exercise
price of $0.129. The notes are convertible into shares of our common stock at
$0.125 per common share. Conversions are limited to a maximum ownership of 9.99%
of the underlying common stock at any one time. The notes have a maturity date
two years from closing and are payable in twelve equal monthly installments. The
installment payments consist of principal equal to 1/20th of the initial
principal amount which, subject to certain conditions concerning trading volume
and price, can be paid in cash at 103% of the monthly installment, or common
stock or a combination of both. The notes have an acceleration provision upon
the change in a majority of the present Board of Directors except as the result
of the death of one or more directors, or a change in the present CEO. In
connection with this transaction, we issued restricted common stock in the
aggregate amount of 260,000 shares plus the aggregate cash amount of $32,500 for
due diligence fees to Longview Fund companies. We issued the equity equivalents,
the underlying common stock upon conversion and the finders' fee common stock
pursuant to a Form SB-2 registration statement declared effective by the
Securities and Exchange Commission on August 2, 2005.
On September 30, 2005, we repaid $250,000 of the aggregate $650,000 of the
August '05 Transaction notes, as follows: $57,692 to Longview Fund, LP, $144,231
to Longview Equity Fund, LP and $ $48,077 to Longview International Equity Fund,
LP. The holders of these notes waived the prepayment premium in lieu of their
retention of warrants attached to August '05 Transaction.
Conversions: August 2005 Convertible Notes. We converted $91,217 of our
August 2005 Convertible Promissory Notes into 743,750 shares of restricted
common stock pursuant to a notice of conversion, to Longview Fund LP, at a fixed
conversion price of $0.125 per share. The conversion included $1,752 of accrued
and unpaid interest on the converted amount. We issued the common stock upon
conversion pursuant to a Form SB-2 registration statement declared effective by
the Securities and Exchange Commission on August 2, 2005.
F-13
Warrant Exercise: August 2005 Warrant. We issued 5,200,000 shares of
common stock to Longview Fund LP, Longview Equity Fund LP and Longview
International Equity Fund LP pursuant to the exercise of Warrants issued in
connection with the August 2005 financing transaction, and received $520,000 in
warrant exercise payments. The shares of common stock underlying the warrants
were issued pursuant to a Form SB-2 shelf registration statement, declared
effective by the SEC on August 2, 2005.
Private Placements. On August 3, 2005 we issued 500,000 restricted shares
of our common stock to Geoffrey Eiten, for services rendered for strategic
business planning. We issued the restricted common stock pursuant to Section
4(6) of the Securities Act of 1933, which provides an exemption from the
registration requirements of the Act for transactions not involving a public
offering.
On August 29 and September 19, 2005 we issued the aggregate of 1,000,000
restricted shares of our common stock to National Financial Communications Corp.
pursuant to the exercise of Warrants issued in connection with a consulting
agreement for services rendered for strategic business planning. We issued the
restricted common stock pursuant to Section 4(6) of the Securities Act of 1933,
which provides an exemption from the registration requirements of the Act for
transactions not involving a public offering.
On September 19, 2005, we issued 450,000 restricted shares of our common
stock to Alpha Capital AG, an accredited investor, in a sale not involving a
public offering at a price of $1.00 per share. We issued the common stock
pursuant to a Regulation D offering.
Warrant Issue. On August 31, 2005, we issued a three year Warrant to
Coca-Cola Enterprises Inc. to purchase 30,000,000 shares of our common stock a
$0.36 per share. During the first 18 months of the exercise period, the Company
has the option to "call" the exercise of up to 10,000,000 shares of common stock
issuable upon exercise of the Warrant, upon the Company's satisfaction of
certain conditions, including a trading price of not less than $1.08 per share
for 20 consecutive trading days. This Warrant was issued in connection with the
execution of a Master Distribution Agreement on August 31, 2005. We issued the
Warrant pursuant to Section 4(6) of the Securities Act of 1933, which provides
an exemption from the registration requirements of the Act for transactions not
involving a public offering. The Company will record an $11,900,000 net charge
in deferred distribution costs for the issuance of a three year warrant to
Coca-Cola Enterprises to purchase of 30,000,000 shares of our common stock in
connection with the Master Distribution Agreement. The Company will recognize
that cost as a selling expense over the 10-year term of the agreement.
Note 3 - Business Segment and Geographic Information
The Company operates principally in the single serve flavored milk
industry segment, under two distinct business models. In the United States, the
Company is responsible for the sale of finished Slammers(R) flavored milk
(referred to as "unit sales") to retail outlets. For these unit sales, the
Company recognizes as revenue the invoiced wholesale prices that the Company
charges to the retail outlets that purchase the Slammers(R) flavored milks. In
countries other than the United States, the Company's revenue generally is
generated by the sale of kits to dairy processors. Each kit consists of flavor
ingredients for the Company's Slammers(R) flavored milks and production rights
to manufacture and sell the milks. In line with the Company's revenue
recognition policies, the Company recognizes the full invoiced kit price as
revenue. In earlier periods, the Company reported the sale of kits to SADAFCO, a
third party dairy processor located in Saudi Arabia, for distribution to nine
Middle Eastern countries, and Neolac, a third party dairy processor located in
Mexico. The Company did not have sales to these third party processors in the
quarter ending September 30, 2005.
F-14
Note 4 - Subsequent Events
Conversions: January 2005 Convertible Notes. We converted $116,624 of our
January 2005 Convertible Promissory Notes into 945,348 shares of restricted
common stock pursuant to notices of conversion, to Longview Equity Fund LP and
Longview International Equity Fund LP at a fixed conversion price of $0.125 per
share. The conversion included $1,446 of accrued and unpaid interest on the
converted amount. We issued the common stock upon conversion pursuant to a Form
SB-2 registration statement declared effective by the Securities and Exchange
Commission on August 2, 2005.
Conversions: August 2005 Convertible Notes. We converted $307,692 of our
August 2005 Convertible Promissory Notes into 2,500,332 shares of restricted
common stock pursuant to a notice of conversion, to Longview Fund LP, Longview
Equity Fund LP and Longview International Equity Fund LP, at a fixed conversion
price of $0.125 per share.. The conversion included $4,850 of accrued and unpaid
interest on the converted amount. We issued the common stock upon conversion
pursuant to a Form SB-2 registration statement declared effective by the
Securities and Exchange Commission on August 2, 2005.
F-15
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders
Bravo! Foods International Corp.
North Palm Beach, Florida
We have audited the accompanying consolidated balance sheets of Bravo! Foods
International Corp. as of December 31, 2003 and 2004 and the related statements
of operations and comprehensive loss, shareholders' deficit and cash flows for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (U.S.). Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company's internal control
over financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Bravo! Foods International
Corp. as of December 31, 2003 and 2004 and the results of its operations and its
cash flows for the years then ended in conformity with accounting principles
generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the financial statements,
the Company has incurred a net loss of $3,799,926 for the year ended December
31, 2004 and as of that date had a working capital deficiency of $2,365,969 and
a shareholders' deficit of $3,029,694. The Company is also delinquent in payment
of certain debts. These conditions raise substantial doubt about their ability
to continue as a going concern. The financial statements do not include any
adjustments relating to the recoverability and classification of recorded
assets, or the amounts and classification of liabilities that might be necessary
in the event the Company cannot continue in existence. Management's actions in
regard to these matters are more fully described in Note 1.
/s/LAZAR LEVINE & FELIX LLP
---------------------------
LAZAR LEVINE & FELIX LLP
New York, New York
March 4, 2005
F-16
BRAVO! FOODS INTERNATIONAL CORP.
CONSOLIDATED BALANCE SHEETS
December 31,
-------------------------------
2003 2004
------------ ------------
Assets
Current assets:
Cash and cash equivalents $ 58,859 $ 113,888
Accounts receivable, net 25,921 51,968
Other receivables 6,331 --
Inventories 54,995 11,656
Prepaid expenses 201,617 551,510
------------ ------------
Total current assets 347,723 729,022
Furniture and equipment, net 68,623 111,206
License rights, net of accumulated amortization 24,065 67,301
Trademarks, net -- 10,249
Deferred product development costs 41,711 162,169
Deposits 10,736 13,900
------------ ------------
Total assets $ 492,858 $ 1,093,847
============ ============
F-17
BRAVO! FOODS INTERNATIONAL CORP.
CONSOLIDATED BALANCE SHEETS
December 31,
-------------------------------
2003 2004
------------ ------------
Liabilities and Capital Deficit
Current liabilities:
Note payable to International Paper $ 187,743 $ 187,743
Notes payable to Alpha Capital 100,000 217,954
Notes payable to Mid-Am Capital LLC 150,000 111,262
Notes Payable to Libra Finance -- 40,106
Notes Payable to Longview -- 54,086
Notes Payable to Stonestreet -- 47,014
Notes Payable to Whalehaven -- 17,082
Notes Payable to Bi-Coastal -- 13,649
Notes Payable to Gem Funding -- 8,231
License fee payable to Warner Brothers 147,115 147,115
Note Payable to Gamma -- 59,678
Note Payable to Momona -- 25,885
Note Payable to Ellis -- 25,885
Accounts payable 2,123,705 1,763,339
Accrued liabilities 610,665 375,962
------------ ------------
Total current liabilities 3,319,228 3,094,991
Dividends payable 582,823 928,379
Other notes payable 310,098 100,171
------------ ------------
Total liabilities 4,212,149 4,123,541
------------ ------------
Commitments and contingencies
Capital Deficit:
Series B convertible, 9% cumulative, and redeemable preferred stock, stated
value $1.00 per share, 1,260,000 shares authorized, 107,440
shares issued and outstanding, redeemable at $107,440 107,440 107,440
Series F convertible and redeemable preferred stock, stated value $10.00
per share, 130,515 and 55,515 shares issued and outstanding 1,205,444 512,740
Series G convertible, 8% cumulative and redeemable preferred stock,
stated value $10.00 per share, 58,810 shares issued and outstanding in 2003 520,604 --
Series H convertible, 7% cumulative and redeemable preferred stock,
stated value $10.00 per share, 165,500 shares issued and outstanding 895,591 895,591
Series I convertible, 8% cumulative and redeemable preferred stock,
stated value $10.00 per share, 30,000 shares issued and outstanding 72,192 72,192
Series J convertible, 8% cumulative and redeemable preferred stock,
stated value $10.00 per share, 200,000 shares issued and outstanding 1,854,279 1,854,279
Series K convertible, 8% cumulative and redeemable preferred stock,
stated value $10.00 per share, 95,000 shares issued and outstanding -- 950,000
Common stock, par value $0.001 per share, 300,000,000 shares authorized,
28,047,542 and 57,793,501 shares issued and outstanding 28,045 57,791
Additional paid-in capital 21,144,896 26,257,302
Accumulated deficit (29,548,471) (33,737,029)
Accumulated other comprehensive loss - translation adjustment 689 --
------------ ------------
Total capital deficit (3,719,291) (3,029,694)
------------ ------------
Total liabilities and capital deficit $ 492,858 $ 1,093,847
============ ============
See accompanying notes
F-18
BRAVO! FOODS INTERNATIONAL CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS
Years ended December 31,
-------------------------------
2003 2004
------------ ------------
Revenue - unit sales $ 356,985 $ 2,726,702
Revenue - net kit sales 2,737 --
Revenue - gross kit sales 840,420 617,997
------------ ------------
Total revenue 1,200,142 3,344,699
Cost of sales (192,498) (2,374,805)
------------ ------------
Gross margin 1,007,644 969,894
Selling expense 1,739,850 1,804,617
Product development 5,570 85,671
General and administrative expense 2,249,678 2,639,085
------------ ------------
Loss from operations (2,987,454) (3,559,479)
Other income (expense):
Interest expense, net 29,533 240,447
------------ ------------
Loss before income taxes (3,016,987) (3,799,926)
Provision for income taxes -- --
------------ ------------
Net loss (3,016,987) (3,799,926)
Dividends accrued for Series B preferred stock (9,669) (9,696)
Dividends accrued for Series G preferred stock (46,457) (15,633)
Dividends accrued for Series H preferred stock (120,818) (116,168)
Dividends accrued for Series I preferred stock (24,000) (24,066)
Dividends accrued for Series J preferred stock (138,960) (160,438)
Dividends accrued for Series K preferred stock -- (62,631)
Deemed dividend on Series J preferred stock (367,211) --
Deemed dividend on Series F preferred stock (195,353) --
------------ ------------
Net loss applicable to common shareholders $ (3,919,455) $ (4,188,558)
------------ ------------
Weighted average number of common shares outstanding 26,779,222 40,229,738
------------ ------------
Basic and diluted loss per share $ (0.15) $ (0.10)
------------ ------------
Comprehensive loss and its components consist of the following:
Net loss $ (3,016,987) $ (3,799,926)
Foreign currency translation adjustment 930 (689)
------------ ------------
Comprehensive loss $ (3,016,057) $ (3,800,615)
============ ============
See accompanying notes
F-19
BRAVO! FOODS INTERNATIONAL CORP.
STATEMENTS OF CAPITAL DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 2003 and 2004
Preferred Stock Common Stock
------------------------------- ------------------------------
Shares Amount Shares Amount
------------------------------- ------------------------------
Balance, December 31, 2002 613,663 $ 3,803,156 25,732,854 $ 25,730
Issuance of common stock for services -- -- 100,000 100
Conversion preferred stock (21,398) (147,606) 1,814,688 1,815
Issuance of Series J preferred stock 100,000 1,000,000 -- --
Finders' fees for financing -- -- 400,000 400
Issuance of warrants for convertible notes -- -- -- --
Beneficial conversion feature of convertible notes -- -- -- --
SEC registration costs for financing -- -- -- --
Conversion price changes for warrants -- -- -- --
Accrued Dividends - Series B -- -- -- --
Accrued Dividends - Series G -- -- -- --
Accrued Dividends - Series H -- -- -- --
Accrued Dividends - Series I -- -- -- --
Accrued Dividends - Series J -- -- -- --
Net loss for 2003 -- -- -- --
Translation adjustment -- -- -- --
Balance, December 31, 2003 692,265 $ 4,655,550 28,047,542 $ 28,045
------------------------------- ------------------------------
Issuance of common stock for services -- -- 9,332,300 9,332
Conversion preferred stock (133,810) (1,213,308) 15,897,701 15,898
Conversion notes payable -- -- 4,265,958 4,266
Issuance of Series K preferred stock 95,000 950,000 -- --
Private Placement financing -- -- 250,000 250
Issuance of warrants for convertible notes -- -- -- --
Beneficial conversion feature of convertible notes -- -- -- --
SEC registration costs for financing -- -- -- --
Conversion price changes for warrants -- -- -- --
Beneficial conversion price changes for warrants -- -- -- --
Stock option expense for consultants -- -- -- --
Accrued Dividends - Series B -- -- -- --
Accrued Dividends - Series G -- -- -- --
Accrued Dividends - Series H -- -- -- --
Accrued Dividends - Series I -- -- -- --
Accrued Dividends - Series J -- -- -- --
Accrued Dividends - Series K -- -- -- --
Net loss for 2004 -- -- -- --
Translation adjustment -- -- -- --
------------------------------- ------------------------------
Balance, December 31, 2004 653,455 $ 4,392,242 57,793,501 $ 57,791
=============================== ==============================
Additional Accumulated
Paid In Accumulated Comprehensive
Capital Deficit Loss Total
---------------------------------------------------------------------
Balance, December 31, 2002 $ 20,266,464 $(25,629,015) $ (241) $ (1,533,906)
Issuance of common stock for services 27,900 -- -- 28,000
Conversion preferred stock 169,538 -- -- 23,747
Issuance of Series J preferred stock 367,211 (367,211) -- 1,000,000
Finders' fees for financing 65,029 -- -- 65,429
Issuance of warrants for convertible notes 49,474 -- -- 49,474
Beneficial conversion feature of convertible notes 40,427 -- -- 40,427
SEC registration costs for financing (36,500) -- -- (36,500)
Conversion price changes for warrants 195,353 (195,353) -- --
Accrued Dividends - Series B -- (9,669) -- (9,669)
Accrued Dividends - Series G -- (46,457) -- (46,457)
Accrued Dividends - Series H -- (120,818) -- (120,818)
Accrued Dividends - Series I -- (24,000) -- (24,000)
Accrued Dividends - Series J -- (138,961) -- (138,961)
Net loss for 2003 -- (3,016,987) -- (3,016,987)
Translation adjustment -- -- 930 930
---------------------------------------------------------------------
Balance, December 31, 2003 $ 21,144,896 $(29,548,471) $ 689 $ (3,719,291)
Issuance of common stock for services 666,300 -- -- 675,632
Conversion preferred stock 1,240,485 -- -- 43,075
Conversion notes payable 132,917 -- -- 137,183
Issuance of Series K preferred stock -- -- -- 950,000
Private Placement financing 29,750 -- -- 30,000
Issuance of warrants for convertible notes 2,778,557 -- -- 2,778,557
Beneficial conversion feature of convertible notes 141,277 -- -- 141,277
SEC registration costs for financing (40,656) -- -- (40,656)
Conversion price changes for warrants 105,911 -- -- 105,911
Beneficial conversion price changes for warrants 373 -- -- 373
Stock option expense for consultants 57,492 -- -- 57,492
Accrued Dividends - Series B -- (9,696) -- (9,696)
Accrued Dividends - Series G -- (15,633) -- (15,633)
Accrued Dividends - Series H -- (116,168) -- (116,168)
Accrued Dividends - Series I -- (24,066) -- (24,066)
Accrued Dividends - Series J -- (160,438) -- (160,438)
Accrued Dividends - Series K -- (62,631) -- (62,631)
Net loss for 2004 -- (3,799,926) -- (3,799,926)
Translation adjustment -- -- (689) (689)
---------------------------------------------------------------------
Balance, December 31, 2004 $ 26,257,302 $(33,737,029) $ -- $ (3,029,694)
=====================================================================
See accompanying notes
F-20
BRAVO! FOODS INTERNATIONAL CORP.
STATEMENTS OF CASH FLOWS
Years ended December 31,
-----------------------------
2003 2004
----------- -----------
Cash flows from operating activities:
Net loss $(3,016,987) $(3,799,926)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 101,207 374,215
Stock issuance for compensation and financing finders' fees 93,428 600,632
Options issued for compensation -- 57,492
Registration costs for financing (36,500) (40,656)
Loss on disposal of fixed assets 15,134 6,216
Increase (decrease) from changes in:
Accounts receivable 210,228 (26,047)
Other receivable 8,331 6,331
Advance to vendors 8,719 --
Inventories 67 43,339
Prepaid expenses (189,748) (353,057)
Accounts payable and accrued expenses 1,285,443 (593,475)
Deferred product and development costs (41,711) (397,894)
----------- -----------
Net cash used in operating activities (1,562,389) (4,122,830)
----------- -----------
Cash flows from investing activities:
Purchase of equipment (31,323) (78,952)
----------- -----------
Net cash used in investing activities (31,323) (78,952)
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of Series J preferred stock 1,000,000 --
Borrowings 150,000 --
Proceeds of Series K preferred stock -- 950,000
Convertible notes payable 400,000 3,427,500
Private placement financing -- 30,000
Payment of note payable, bank loan and license fee payable (122,938) (150,000)
----------- -----------
Net cash provided by financing activities 1,427,062 4,257,500
----------- -----------
Effect of changes in exchange rate on cash 930 (689)
----------- -----------
Net (decrease) / increase in cash and cash equivalents (165,720) 55,029
Cash and cash equivalents, beginning of period 224,579 58,859
----------- -----------
Cash and cash equivalents, end of period $ 58,859 $ 113,888
=========== ===========
Cash paid during the year for interest $ -- $ 51,301
Non-cash investing and financing activities:
Stock granted in exchange of debt and payables and services $ 93,428 $ 600,632
Preferred stock and accrued dividends converted to common stock $ 171,353 $ --
Beneficial conversion feature $ 133,611 $ 141,650
See accompanying notes
F-21
BRAVO! FOODS INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Organization, Businesses and Going Concern Uncertainty
Bravo! Foods International Corp., formerly known as China Premium Food
Corporation, was incorporated under the laws of the State of Delaware on April
26, 1996. We are engaged in the sale of branded flavored milk products and
flavor ingredients in the United States, the Middle East, Canada and Mexico.
In December 1999, we obtained Chinese government approval for the registration
of China Premium Food Corp (Shanghai) Co. Ltd., a wholly owned subsidiary, in
the Wai Gao Qiao free trade zone in Shanghai, China. This subsidiary was formed
to import, export and distribute food products and flavored milk ingredients on
a wholesale level in China. We ceased all business activities of this Chinese
subsidiary in the second quarter 2004 and did not generate revenue in 2004 from
our China operation.
In January 2005, we formed Bravo! Brands (UK) Ltd., a registered United Kingdom
subsidiary. The company formed this subsidiary to operate our branded flavored
milk business in the United Kingdom. On February 4, 2005, we executed a license
agreement with Marvel Enterprises, Inc., for the use of Marvel Heroes(R) comic
book characters on our products.
Going Concern Uncertainty
As shown in the accompanying consolidated financial statements, we have suffered
operating losses and negative cash flow from operations since inception and have
an accumulated deficit of $33,737,029, a capital deficit of $3,029,694, negative
working capital of $2,365,969 and are delinquent on certain of our debts at
December 31, 2004. Further, our auditors stated in their report on our
Consolidated Financial Statements for the year ended December 31, 2004, that
these conditions raise substantial doubt about our ability to continue as a
going concern. Management plans to increase gross profit margins in our U.S.
business and obtain additional financing and is continuing to reposition our
products with the launch of three new product lines in the first and second
quarters of 2005. While there is no assurance that funding will be available or
that the Company will be able to improve its profit margins, management is
continuing to actively seek equity and/or debt financing, and the Company
received $1,150,000 in the first quarter 2005 as part of a $2,300,000
convertible debt financing. No assurances can be given that the Company will be
successful in carrying out our plans. The consolidated financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Among the more significant estimates included in
these financial statements are the estimated allowance for doubtful accounts
receivable and the deferred income tax asset valuation allowance. Actual results
could differ materially from those estimates.
Fair Value of Financial Instruments
The carrying amount of cash, receivables, accrued liabilities and notes payable
are reasonable estimates of their fair value because of the short maturity of
these items.
F-22
BRAVO! FOODS INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cash and Cash Equivalents
We consider all highly liquid investments purchased with a remaining maturity of
three months or less to be cash equivalents.
Accounts Receivable and Concentration of Credit Risk
Our financial instruments that are exposed to concentrations of credit risk
primarily consist of cash and accounts receivable.
During the normal course of business, we extend unsecured credit to our
customers who are located in various geographical areas. Typically credit terms
require payments to be made by the thirtieth day following the sale. We
regularly evaluate and monitor the creditworthiness of each customer on a
case-by-case basis. We provide an allowance for doubtful accounts based on our
continuing evaluation of our customers' credit risk. As of December 31, 2004,
the allowance of doubtful accounts aggregated $90,396. We maintain cash accounts
with high credit quality financial institutions. The FDIC insures total cash
balances up to $100,000 per bank. Cash balances in any one financial institution
were not in excess of this limit at December 31, 2004.
Inventory
Inventory, which consists primarily of packing materials and flavor ingredients,
is stated at the lower of cost on the first in, first-out method or market.
Furniture and Equipment
Furniture and equipment are stated at cost. Depreciation is computed primarily
utilizing the straight-line method over a period of seven years for furniture
and five years for equipment.
Maintenance, repairs and minor renewals are charged directly to expenses as
incurred. Additions and betterments to property and equipment are capitalized.
When assets are disposed of, the related cost and accumulated depreciation
thereon are removed from the accounts, and any resulting gain or loss is
included in the statement of operations.
Impairment of Long-Lived Assets
Effective January 1, 2002, we began applying the provisions of Statement of
Financial Accounting Standard No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" ("SFAS No. 144"). SFAS No. 144 requires that
long-lived assets be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable through the estimated undiscounted cash flows expected to result
from the use and eventual disposition of the assets. Whenever any such
impairment exists, an impairment loss will be recognized for the amount by which
the carrying value exceeds the fair value.
Revenue Recognition
We sell flavor ingredients and production rights (collectively referred to as
"kits") to processor dairies in Mexico and nine Middle East counties and also
sell flavored milk products in the U.S. We recognize revenue when goods are
shipped, and title and the risk and reward of ownership have been passed to the
customer and possible return of goods can be reasonably estimated. The criteria
to meet this guideline are: 1) persuasive evidence of an arrangement exists, 2)
delivery has occurred or services have been rendered, 3) the price to the buyer
is fixed or determinable and 4) collectibility is reasonably assured.
F-23
BRAVO! FOODS INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
We follow the final consensus reached by the Emerging Issues Task Force (EITF)
99-19, "Reporting Revenue Gross as a Principal versus Net as an Agent". Pursuant
to EITF 99-19, our sales of kits made directly to customers are reflected in the
statement of operations on a gross basis, whereby the total amount billed to the
customer is recognized as revenue. Sales of kits made through intermediaries, in
whom our role is similar to that of an agent, are reflected on a net basis,
which represents the amount earned by us in the transaction.
We have production agreements with processors of dairy products pursuant to
which we sell flavored milk products to retail stores (referred to as "unit
sales"). We benefit from the difference between the prices charged by the dairy
processor to produce the product for us and the price paid by retail stores to
purchase the product. We bear the responsibility for paying food brokers fees,
transportation and delivery expenses and sample expense, etc. We recognize
revenue on the gross basis and recognize the aforementioned expenses as selling
expenses.
Shipping and Handling Costs
Shipping and handling costs incurred by us are included in selling expenses and
aggregated $504,971 and $ 498,313 for 2003 and 2004, respectively.
Advertising and Promotion Costs
Advertising and promotion costs, which are included in selling expenses, are
expensed as incurred and aggregated $342,367 and $656,614 for 2003 and 2004,
respectively.
Income Taxes
We account for income taxes using the liability method, which requires an entity
to recognize deferred tax liabilities and assets. Deferred income taxes are
recognized based on the differences between the tax bases of assets and
liabilities and their reported amounts in the financial statements that will
result in taxable or deductible amounts in future years. Further, the effects of
enacted tax laws or rate changes are included as part of deferred tax expense or
benefit in the period that covers the enactment date. A valuation allowance is
recognized if it is more likely than not that some portion, or all, of a
deferred tax asset will not be realized.
Earnings (Loss) Per Share
Basic earnings (loss) per common share is computed by dividing the loss
applicable to common stockholders by the weighted average number of common
shares outstanding for the period.
For the years ended December 31, 2003 and 2004, potential common shares arising
from our stock options, stock warrants and convertible preferred stock of
39,611,363 and 65,089,658, respectively, were not included in the computation of
diluted earnings per share because their effect was antidilutive.
Stock-based Compensation
We have adopted the intrinsic value method of accounting for employee stock
options as permitted by Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-based Compensation" (SFAS No. 123) and disclose the pro
forma effect on net loss and loss per share as if the fair value based method
had been applied. For equity instruments, including stock options, issued to
non-employees, the fair value of the equity instruments or the fair value of the
consideration received, whichever is more readily determinable, is used to
determine the value of services or goods received and the corresponding charge
to operations. (SFAS 123 was amended further in December 2004; see below -
Recent Accounting Pronouncements).
F-24
BRAVO! FOODS INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table illustrates the effect on net loss and loss per share as if
we had applied the fair value recognition provision of SFAS No. 123 to
stock-based employee compensation.
Year ending December 31,
---------------------------------
2003 2004
------------- -------------
Net loss applicable to common shareholders: as reported $ (3,919,455) $ (4,188,558)
Add: total stock based employee compensation expense determined under
fair value method for all awards -- --
------------- -------------
Pro forma net loss $ (3,919,455) $ (4,188,558)
============= =============
Loss per share:
As reported $ (0.15) $ (0.10)
Pro forma $ (0.15) $ (0.10)
Recent Accounting Pronouncements
In December 2004, the FASB issued Statement No. 152, "Accounting for Real Estate
Time-Sharing Transactions". This statement amends SFAS No. 66 (Accounting for
Sales of Real Estate) and SFAS No. 67 (Accounting for Costs and Initial Rental
Operations of Real Estate Projects). This standard, which is effective for
financial statements for fiscal years beginning after June 15, 2005, is not
applicable to the Company's current operations.
In December 2004, the FASB issued SFAS No. 153 "Exchange of Non-Monetary Assets
- an amendment of APB Opinion No. 29". Statement 153 eliminates the exception to
fair value for exchanges of similar productive assets and replaces it with a
general exception for exchange transactions that do not have commercial
substance, defined as transactions that are not expected to result in
significant changes in the cash flows of the reporting entity. This statement is
effective for exchanges of non-monetary assets occurring after June 15, 2005.
The application of this statement is not expected to have an impact on the
Company's financial statements considering the Company's intermittent
participation in exchanges of non-monetary assets.
In December 2004, the FASB issued a revision of SFAS No. 123 "Share-Based
Payment" (No. 123R). The statement establishes standards for the accounting for
transactions in which an entity exchanges its equity instruments for goods and
services. It also addresses transactions in which an entity incurs liabilities
in exchange for goods or services that are based on the fair value of the
entity's equity instruments or that may be settled by the issuance of those
equity instruments. The statement does not change the accounting guidance for
share-based payments with parties other than employees. The statement requires a
public entity to measure the cost of employee service received in exchange for
an award of equity instruments based on the grant-date fair value of the award
(with limited exception). That cost will be recognized over the period during
which an employee is required to provide service in exchange for the award
(usually the vesting period). A public entity will initially measure the cost of
employee services received in exchange for an award of a liability instrument
based on its current fair value; the fair value of that award will be remeasured
F-25
BRAVO! FOODS INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
subsequently at each reporting date through the settlement date. Changes in fair
value during the requisite service period will be recognized as compensation
over that period. The grant-date fair value of employee share options and
similar instruments will be estimated using option-pricing models adjusted for
the unique characteristics of these instruments. According to management, this
pronouncement, which becomes effective for the Company for periods beginning
after December 15, 2005, is not expected to have a material effect on their
financial position.
Note 2 - Fixed Assets
Fixed assets are comprised of the following:
2003 2004
-------------------------
Furniture and fixtures $ 79,841 $ 150,871
Office equipment 166,179 151,577
Leasehold improvements 21,321 23,714
Purchased software -- 3,223
-------------------------
267,341 329,385
Less: accumulated depreciation and amortization (198,718) (218,179)
-------------------------
$ 68,623 $ 111,206
=========================
Depreciation and amortization expense of fixed assets aggregated $37,168 and
$30,153 for 2003 and 2004, respectively.
Note 3 - Licensing Agreements
Warner Brothers Consumer Products Co.
On January 1, 1999, we entered into a licensing agreement (the Original
Agreement) with Warner Brothers Consumer Products Co. (Warner) for the right to
utilize Looney Tunes(TM) images and names, as defined in the Agreement, on our
products in Shanghai and Hangzhou, China. We recorded license rights of $300,000
and amortized the rights over a period of three years. On November 21, 2000, we
entered into an amendment of the Original Agreement with Warner. Per the
amendment, the term of the agreement was extended to June 30, 2003 with the
guaranteed consideration being increased to $400,000. The Original Agreement, as
amended, was extended to October 29, 2003, at which time it expired. As of
December 31, 2003, the outstanding obligation under this agreement was $147,115.
We decided not to seek another license from Warner Bros. for China beyond the
October 2003 expiration based upon the lack of sales in our China markets and
what we perceived to be the licensor's continuing overall lack of brand support
in China. The Company and Warner Bros. dispute the contractual necessity of the
payment of the balance owed on the China license as a result of the above
circumstances. As of December 31, 2004, we reserved and continue to reserve
$147,116 for this obligation, representing a total $183,343 balance of
guaranteed royalties, which includes $36,227 for the legally allowed default
penalty.
On July 26, 2000, we entered into a license agreement with Warner Bros. and
obtained rights to utilize Looney Tunes(TM) character images and names in the
United States in connection with specified categories of products sold by
Bravo!. The license agreement was originally effective from January 1, 2000 to
December 31, 2002 and was extended to December 31, 2003. We recorded total
license rights for this U.S. license of $750,000.
F-26
BRAVO! FOODS INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In September 2001, we entered into a licensing agreement with Warner for the
right to utilize Looney Tunes(TM) character images and names, as defined in the
agreement, on our products sold in Mexico, with a minimum total guaranteed
consideration of $145,000, which we amortized over a period of three years. This
licensing agreement was effective through May 31, 2004.
In May 2002, we entered into a licensing agreement with Warner to utilize Looney
Tunes(TM) characters and names on milk products sold in specified retail outlets
throughout Canada, for the period March 1, 2002 to March 31, 2004. We recorded a
license right of $32,720 upon execution of the agreement.
Our experience with Warner Bros. licenses, as a function of sales of the
flavored milks, has not supported the guaranteed royalty structure required by
Warner Bros. for its licenses. As a result, we decided to exploit our own
Slammers(R) brand, which was developed in 2003, and commenced negotiations for
licenses with Marvel Comics and Moon Pie. For these reasons, we decided not to
accept the offer of Warner Bros. to renew the U.S. license.
Marvel Enterprises, Inc.
In January 2004, we commenced a license agreement with Marvel Enterprises, Inc.
for the right to use certain Marvel Super Heroes in the United States (including
its territories) and nine Middle East countries for a one-year (renewable) term.
We agreed to a royalty rate of 11% on the amount invoiced to dairy processors
for "kits" and 4% of net wholesale sales in the United States. We have recorded
$100,000 and $75,000 for 750,000 shares and options for an additional 750,000
shares as license fees.
On February 4, 2005, we entered into a two-year license agreement for the
utilization of Marvel Heroes characters on our flavored milks in the United
Kingdom and Ireland. We agreed to a royalty rate of 4% of net wholesale sales in
the territory against the prepayment of a guaranteed minimum royalty amount of
approximately $240,000.
We currently are negotiating with Marvel to conclude a new one-year license for
the United States, Mexico and Canada and a two-year license for the Middle East.
Chattanooga Bakery, Inc.( Moon Pie(R) )
In October 2003, we commenced a two-year license agreement with MD Enterprises,
Inc. on behalf of Chattanooga Bakery for the right to manufacture, distribute,
market and sell Moon Pie(R) flavored milk products in the United States. We
agreed to a variable royalty rate of 3% to 2% of net wholesale sales, depending
upon volume.
Masterfoods USA (Starburst(R), Milky Way(R), 3 Musketeers(R))
On September 21, 2004, we entered into a licensing agreement with Masterfoods
USA, a division of Mars, Incorporated, for the use of Masterfood's Milky Way(R),
Starburst(R) and 3 Musketeers(R) trademarks in connection with the manufacture,
marketing and sale of single serve flavored milk drinks in the United States,
its Possessions and Territories, and US Military installations worldwide. We
have agreed to pay a royalty based upon the total net sales value of the
licensed products sold and advance payments of certain agreed upon guaranteed
royalties and recorded license fees of $50,000 in 2004 and $25,000 in the first
quarter of 2005.
F-27
BRAVO! FOODS INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4 - Default of Note Payable to International Paper
In 1999, we issued a promissory note to assume existing debt owed by our then
Chinese joint venture subsidiary to a supplier, International Paper. The face
value of that unsecured note was $282,637 at an interest rate of 10.5% per
annum. The note originally required 23 monthly payments of $7,250 and a balloon
payment of $159,862 due on July 15, 2000. During 2000, we negotiated an
extension of this note to July 1, 2001. International Paper imposed a charge of
$57,000 to renegotiate the note, which amount represents interest due through
the extension date. The current balance due on this note is $187,743 at December
31, 2004, all of which is delinquent. We have not had any communication with
International Paper during the last three years. Although International Paper
has not pursued collection of the note, it is possible that they could do so in
the future and, if they do, such collection effort may have a significant
adverse impact on the liquidity of the Company. We have not accrued interest as
of December 31, 2003 and December 31, 2004.
Note 5 - Notes Payable to Individual Lenders
On November 6 and 7, 2001, respectively, we received the proceeds of two loans
aggregating $100,000 from two offshore lenders. The two promissory notes, one
for $34,000 and the other for $66,000, were payable on February 1, 2002 with
interest at an annual rate of 8%. These loans are secured by a general security
interest in all of our assets. These lenders have agreed to extend the notes
without default on a demand basis. Interest accrued and unpaid as December 31,
2004 aggregated $25,380.
On May 9, 2004 we received the proceeds of a $750,000 loan from Mid-Am Capital,
payable September 3, 2004, with an interest rate of 8%. This loan is secured by
a general security interest in all of our assets. Mid-Am has agreed to extend
the note to January 31, 2005. Interest accrued and unpaid as December 31, 2004
aggregated $10,121.
Note 6 - Capital Deficit
2003
On January 2, 2003, we issued 100,000 shares of common stock to an
employee. This common stock was registered under a Form S-8 registration
statement in December 2004. In January 2003, we recorded $28,000 of compensation
expense based upon a signing bonus for this grant. In addition, we granted
options for 100,000 shares of common stock to the employee pursuant to an
employment contract. These options vested immediately, expire on December 30,
2007 and have an exercise price of $0.40 per share. We also granted options for
200,000 shares of common stock at an exercise price of $0.40 per share and vest
as follows: options for 100,000 shares on each of December 31, 2003 and 2004,
and 100,000 expire on each of December 30, 2008 and 2009, respectively.
On February 4, 2003, we issued 30,000 shares of common stock to Keshet,
LP, upon the conversion of 480 shares of Series G Convertible Preferred stock,
at a conversion price of $0.196. The conversion included accrued and unpaid
dividends on the preferred converted.
On February 21, 2003, we issued 50,000 shares of non-voting Series J 8%
Convertible Preferred stock, having a stated value of $10.00 per Preferred J
share, and common stock warrants to Mid-Am Capital, L.L.C. ("Mid-Am") for the
aggregate purchase price of $500,000. Each preferred share is convertible to 40
shares of our common stock at a per common share conversion price of $0.25,
representing 2,000,000 shares of common stock underlying the preferred. The
F-28
BRAVO! FOODS INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
issued warrants entitle the holder to purchase 33.33 shares of common stock for
each share of Series J Convertible Preferred stock issued at an exercise price
of $0.30 per common stock share, representing 1,666,667 shares of common stock
underlying the warrants. The warrants are exercisable for a five-year period.
The February 21, 2003 closing market trading price was $0.23 per share. This
private offering was made to Mid-Am, an accredited investor, pursuant to Rule
506 of Regulation D and Section 4(2) of the Securities Act of 1933. In
accordance with EITF 00-27, we recorded a deemed dividend of $274,720 related to
a beneficial conversion feature.
On April 14, 2003, we issued 50,000 shares of common stock to Keshet, LP,
upon the conversion of 596 shares of Series G Convertible Preferred, at a
conversion price of $0.148. The conversion included accrued and unpaid dividends
on the preferred converted.
On April 22, 2003, we issued 50,000 shares of common stock to The Keshet
Fund, LP, upon the conversion of 595 shares of Series G Convertible Preferred,
at a conversion price of $0.148. The conversion included accrued and unpaid
dividends on the preferred converted.
On May 22, 2003, we issued 100,000 shares of common stock to Keshet, LP,
upon the conversion of 607 shares of Series G Convertible Preferred, at a
conversion price of $0.076. The conversion included accrued and unpaid dividends
on the preferred converted.
On May 22, 2003, we issued 100,000 shares of common stock to The Keshet
Fund, LP, upon the conversion of 607 shares of Series G Convertible Preferred,
at a conversion price of $0.076. The conversion included accrued and unpaid
dividends on the preferred converted.
On May 29, 2003, we issued 50,000 shares of non-voting Series J 8%
Convertible Preferred stock, having a stated value of $10.00 per Preferred J
share, and common stock warrants to Mid-Am Capital, L.L.C. for the aggregate
purchase price of $500,000. Each preferred share is convertible to 50 shares of
our common stock at a conversion price of $0.20, representing 2,500,000 shares
of common stock underlying the preferred. The issued warrants entitle the holder
to purchase 40 shares of common stock for each share of Series J Convertible
Preferred stock issued at an exercise price of $0.25 per common stock share,
representing 2,000,000 shares of common stock underlying the warrants. The
warrants are exercisable for a five-year period. The May 22, 2003 closing market
trading price was $0.12 per share. In addition, we made the following
adjustments to prior issued warrants for the purpose of facilitating future fund
raising by us arising out of the exercise of the warrants by Holder. The
purchase price, as defined in the Warrants No. 1 and 2, has been reduced to
$0.25, subject to further adjustment as described in the warrants. The warrant
stock provided for in Warrant No.1 has been increased by 1,500,000 shares. The
warrant stock provided for in Warrant No. 2 has been increased by 333,333
shares. The expiration date, as defined in the respective warrants, remains as
stated. The trading price call option trigger set forth in Section 9 (b) of the
warrants has been reduced from $1.75 to $0.75 per share. This private offering
was made to Mid-Am, an accredited investor, pursuant to Rule 506 of Regulation D
and Section 4(2) of the Securities Act of 1933. The value of the warrants,
$92,491, was determined using the Black-Scholes model.
On August 12, 2003, we issued 1,200,000 shares of common stock based upon
Series G notices of conversion received in June and July 2003. The issuance of
common stock was delayed in order to determine the accuracy of the conversion
variables contained in the respective notices of conversion, as follows:
We issued 200,000 shares of common stock to Keshet, LP, upon the
conversion of 1,209 shares of Series G Convertible Preferred, at a conversion
price of $0.076. The conversion included accrued and unpaid dividends on the
preferred converted.
F-29
BRAVO! FOODS INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
We issued 200,000 shares of common stock to The Keshet Fund, LP, upon the
conversion of 1,209 shares of Series G Convertible Preferred, at a conversion
price of $0.076. The conversion included accrued and unpaid dividends on the
preferred converted.
We issued 150,000 shares of common stock to The Keshet Fund, LP, upon the
conversion of 773 shares of Series G Convertible Preferred, at a conversion
price of $0.0653. The conversion included accrued and unpaid dividends on the
preferred converted.
We issued 250,000 shares of common stock to Keshet, LP, upon the
conversion of 1,289 shares of Series G Convertible Preferred, at a conversion
price of $0.0653. The conversion included accrued and unpaid dividends on the
preferred converted.
We issued 200,000 shares of common stock to Talbiya B. Investments, Ltd.,
upon the conversion of 1,031 shares of Series G Convertible Preferred, at a
conversion price of $0.0653. The conversion included accrued and unpaid
dividends on the preferred converted.
We issued 200,000 shares of common stock to Nesher. Ltd., upon the
conversion of 1,031 shares of Series G Convertible Preferred, at a conversion
price of $0.0653. The conversion included accrued and unpaid dividends on the
preferred converted.
On September 15, 2003, we issued 213,750 shares of common stock to Michael
Willms, upon the conversion of 7,500 shares of Series H Convertible Preferred,
at the fixed conversion price of $0.40. The conversion included accrued and
unpaid dividends on the preferred converted.
On September 29, 2003, we issued 70,938 shares of common stock to The
Dennis H. Willms Irrevocable Trust, Michael Willms, Trustee, upon the conversion
of 2,500 shares of Series H Convertible Preferred, at the fixed conversion price
of $0.40. The conversion included accrued and unpaid dividends on the preferred
converted.
On November 21, 2003, we entered into a Subscription Agreement with Gamma
Opportunity Capital Partners, LP for the sale of a convertible note in the
amount of $200,000 and warrants to purchase 5,000,000 shares of common stock, at
$1.00 per share. The convertible note is convertible into shares of our common
stock at the lesser of $0.05 or 75% of the average of the three lowest closing
bid prices for the thirty trading days prior to but not including the conversion
date. During the 180 days following the issuance of the convertible note, the
conversion price shall not be less than $.03 per share if no event of default
exists. This 180 day period shall be extended indefinitely if no event of
default exists, the closing trading price for any 15 day consecutive trading
period is $0.20 or higher, the daily trading volume for the 15 days is at least
300,000 and a registration statement registering the convertible note is
effective. In connection with this transaction, we issued 400,000 shares of our
common stock and a warrant to purchase 2,000,000 shares of common stock at $.05
per share.
On November 21, 2003, we also entered into a Subscription Agreement with
Mid-Am Capital, LLC for the sale of a convertible note in the amount of $200,000
and warrants to purchase 5,000,000 shares of common stock, at $1.00 per share.
The convertible note is convertible into shares of our common stock at the
lesser of $0.05 or 75% of the average of the three lowest closing bid prices for
the thirty trading days prior to but not including the conversion date. During
the 180 days following the issuance of the convertible note, the conversion
price shall not be less that $.03 per share if no event of default exists. This
180 day period shall be extended indefinitely if no event of default exists, the
closing trading price for any 15 day consecutive trading period is $0.20 or
higher, the daily trading volume for the 15 days is at least 300,000 and a
registration statement registering the convertible note is effective.
F-30
BRAVO! FOODS INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2004
On February 1, 2004, we agreed to issue 750,000 shares of our common stock
and warrants to purchase an additional 750,000 shares of common stock to Marvel
Enterprises, Inc. We issued this equity in connection with the grant of an
intellectual property license by Marvel on January 17, 2004, giving us the right
to use certain Marvel Comics characters on our Slammers(R) line of flavored
milks. The warrants have an exercise price of $0.10 per share for the first year
and, upon the occurrence of certain conditions tied to the royalty performance
under the license, can be extended for an additional year with an exercise price
of $0.14 per share. We made this private offering to Marvel Enterprises, an
accredited investor, pursuant to Rule 506 of Regulation D and Section 4(2) of
the Securities Act of 1933.
On February 12, 2004, we held a special meeting of shareholders at which
the shareholders approved an increase of our authorized common stock from
50,000,000 shares to 300,000,000 shares.
On February 17, 2004, we converted 875 shares of Series G Convertible
Preferred Stock into 215,164 shares of common stock pursuant to a January 12,
2004 notice of conversion from Nesher, LP, at a conversion price of $0.0407. The
conversion included accrued and unpaid dividends on the converted preferred. We
delayed processing this notice in light of our special meeting of shareholders
held February 12, 2004. The shares of common stock issued pursuant to this
conversion were retired and cancelled on March 5, 2004 and issued to third
parties on that date in accordance with the instructions of Nesher, LP.
On February 17, 2004, we converted 1,400 shares of Series G Convertible
Preferred Stock into 343,980 shares of common stock pursuant to a January 12,
2004 notice of conversion from Talbiya Investments, Ltd., at a conversion price
of $0.0407. The conversion included accrued and unpaid dividends on the
converted preferred. We delayed processing this notice in light of our special
meeting of shareholders held February 12, 2004. The shares of common stock
issued pursuant to this conversion were retired and cancelled on March 5, 2004
and issued to third parties on that date in accordance with the instructions of
Talbiya Investments, Ltd.
On February 17, 2004, we converted 700 shares of Series G Convertible
Preferred Stock into 172,162 shares of common stock pursuant to a January 12,
2004 notice of conversion from The Keshet Fund, LP, at a conversion price of
$0.0407. The conversion included accrued and unpaid dividends on the converted
preferred. We delayed processing this notice in light of our special meeting of
shareholders held February 12, 2004. The shares of common stock issued pursuant
to this conversion were retired and cancelled on March 5, 2004 and issued to
third parties on that date in accordance with the instructions of The Keshet
Fund, LP.
On February 17, 2004, we converted 2,025 shares of Series G Convertible
Preferred Stock into 497,951 shares of common stock pursuant to a January 12,
2004 notice of conversion from Keshet LP, at a conversion price of $0.0407. The
conversion included accrued and unpaid dividends on the converted preferred. We
delayed processing this notice in light of our special meeting of shareholders
held February 12, 2004. The shares of common stock issued pursuant to this
conversion were retired and cancelled on March 5, 2004 and issued to third
parties on that date in accordance with the instructions of Keshet, LP.
On March 1,2004, we issued 80,000 shares of non-voting Series K 8%
Convertible Preferred stock, to Mid-Am Capital, LLC, having a stated value of
$10.00 per Preferred K share, for the aggregate purchase price of $800,000. Each
preferred share is convertible to 100 shares of our common stock at a conversion
price of $0.10, representing 8,000,000 shares of common stock underlying the
preferred. In addition, we made the following adjustments to prior issued
warrants for the purpose of facilitating future fund raising by us arising out
of the exercise of the warrants by Holder. The purchase price, as defined in the
Warrant No. 2003-B-002, has been reduced to $0.10, subject to further adjustment
as described in the warrant. The expiration date, as defined in the warrant,
remains as stated. This private offering was made to Mid-Am, an accredited
investor, pursuant to Rule 506 of Regulation D and Section 4(2) of the
Securities Act of 1933.
F-31
BRAVO! FOODS INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On March 9, 2004, we converted 5,000 shares of Series F Convertible
Preferred Stock into 1,315,789 shares of common stock pursuant to a January 8,
2004 notice of conversion from Esquire Trade & Finance Inc., at a conversion
price of $0.038. The conversion did not include accrued and unpaid dividends on
the converted preferred. We delayed processing this notice in light of our
special meeting of shareholders held February 12, 2004. The shares of common
stock issued pursuant to this conversion were issued to third parties on that
date in accordance with the instructions of Esquire Trade & Finance Inc.
On April 1 2004, we converted 5,000 shares of Series F Convertible
Preferred Stock into 1,315,789 shares of common stock pursuant to a January 27,
2004 notice of conversion from Austinvest Anstalt Balzers, at a conversion price
of $0.038. The conversion did not include accrued and unpaid dividends on the
converted preferred. We delayed processing this notice in light of our special
meeting of shareholders held February 12, 2004. The shares of common stock
issued pursuant to this conversion were issued to third parties on that date in
accordance with the instructions of Austinvest Anstalt Balzers. We issued the
preferred and the underlying common stock upon conversion to an accredited
investor, pursuant to a Regulation D offering.
On April 2, 2004, the Comoany and Mid-Am Capital, LLC entered into
Supplement No.1 to the Series K Convertible Preferred Subscription Agreement, by
which we sold an additional 15,000 shares of our Series K Convertible Preferred
Stock utilizing the proceeds from a certain promissory note issued by us to
Mid-Am in the face amount of $150,000. With the consummation of this sale, the
$150,000 promissory note was deemed paid by us in full. We issued the preferred
and the underlying common stock upon conversion to an accredited investor,
pursuant to a Regulation D offering.
On April 8, 2004, we converted 4,862 shares of Series G Convertible
Preferred Stock into 700,000 shares of common stock pursuant to a March 25, 2004
notice of conversion from Nesher, LP, at a conversion price of $0.0853. The
conversion included accrued and unpaid dividends of $11,089 on the preferred
converted. We issued the preferred and the underlying common stock upon
conversion to an accredited investor, pursuant to a Regulation D offering.
On April 8, 2004, we converted 4,478 shares of Series G Convertible
Preferred Stock into 650,000 shares of common stock pursuant to a March 25, 2004
notice of conversion from Talbiya B. Investments, Ltd., at a conversion price of
$0.0853. The conversion included accrued and unpaid dividends of $10,662 on the
preferred converted. We issued the preferred and the underlying common stock
upon conversion to an accredited investor, pursuant to a Regulation D offering.
On April 8, 2004, we converted 1,919 shares of Series G Convertible
Preferred Stock into 275,000 shares of common stock pursuant to a March 25, 2004
notice of conversion from The Keshet Fund, LP, at a conversion price of $0.0853.
The conversion included accrued and unpaid dividends of $4,265 on the preferred
converted. We issued the preferred and the underlying common stock upon
conversion to an accredited investor, pursuant to a Regulation D offering.
On April 8, 2004, we converted 7,677 shares of Series G Convertible
Preferred Stock into 1,100,000 shares of common stock pursuant to a March 25,
2004 notice of conversion from Keshet, LP, at a conversion price of $0.0853. The
conversion included accrued and unpaid dividends of $17,060 on the preferred
converted. We issued the preferred and the underlying common stock upon
conversion to an accredited investor, pursuant to a Regulation D offering.
F-32
BRAVO! FOODS INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On April 20, 2004, we entered into a Subscription Agreement with Longview
Fund, LP and Alpha Capital Aktiengesellschaft for the issuance of two
convertible 10% notes in the amount of $250,000 each and five-year warrants for
the purchase of, in the aggregate, 3,000,000 shares of common stock, at $0.15
per share. The notes are convertible into shares of our common stock at $0.10
per common share. Conversions are limited to a maximum ownership of 9.99% of the
underlying common stock at any one time. The notes are payable in twelve equal
monthly installments, commencing November 1, 2004. The installment payments
consist of principal and a "premium" of 20% of the principal paid per
installment. We have the option to defer such payment until the note's maturity
date on October 1, 2005, if our common stock trades above $0.20 for the five
trading days prior to the due date of an installment payment. In connection with
this transaction, we issued two additional notes in the aggregate amount of
$50,000, upon identical terms as the principal notes, as a finder's fee, and
paid $20,000 in legal fees. The common stock underlying all notes and warrants
carry registration rights. We issued the convertible notes and warrants to
accredited investors, pursuant to a Regulation D offering.
On April 30, 2004, we converted 20,000 shares of Series F Convertible
Preferred Stock into 1,945,525 shares of common stock pursuant to an April 27,
2004 notice of conversion from Esquire Trade & Finance Inc., at a conversion
price of $0.1028. We issued the preferred and the underlying common stock upon
conversion to an accredited investor, pursuant to a Regulation D offering.
On April 30, 2004, we converted 20,000 shares of Series F Convertible
Preferred Stock into 1,945,525 shares of common stock pursuant to an April 27,
2004 notice of conversion from Austinvest Anstalt Balzers, at a conversion price
of $0.1028. We issued the preferred and the underlying common stock upon
conversion to an accredited investor, pursuant to a Regulation D offering.
On April 30, 2004, we converted 2,500 shares of Series F Convertible
Preferred Stock into 243,191 shares of common stock pursuant to an April 27,
2004 notice of conversion from Esquire Trade & Finance Inc., at a conversion
price of $0.1028. We issued the preferred and the underlying common stock upon
conversion to an accredited investor, pursuant to a Regulation D offering.
On April 30, 2004, we converted 2,500 shares of Series F Convertible
Preferred Stock into 243,191 shares of common stock pursuant to an April 27,
2004 notice of conversion from Austinvest Anstalt Balzers, at a conversion price
of $0.1028. We issued the preferred and the underlying common stock upon
conversion to an accredited investor, pursuant to a Regulation D offering.
On May 20, 2004, we converted 9,226 shares of Series G Convertible
Preferred Stock into 620,578 shares of common stock pursuant to a May 19, 2004
notice of conversion from Nesher, LP, at a conversion price of $0.148. The
conversion did not include accrued and unpaid dividends on the converted
preferred. We issued the preferred and the underlying common stock upon
conversion to an accredited investor, pursuant to a Regulation D offering.
On May 20, 2004, we converted 13,972 shares of Series G Convertible
Preferred Stock into 939,782 shares of common stock pursuant to a May 19, 2004
notice of conversion from Keshet, LP, at a conversion price of $0.148. The
conversion did not include accrued and unpaid dividends on the converted
preferred. We issued the preferred and the underlying common stock upon
conversion to an accredited investor, pursuant to a Regulation D offering.
F-33
BRAVO! FOODS INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On June 17, 2004, we issued 87,195 of our common stock to Stephen Nollau,
a former consultant, for services rendered. We issued the common stock pursuant
to a Form S-8 registration statement, filed by us on June 16, 2004.
On June 29, 2004, we converted 234 shares of Series G Convertible
Preferred Stock into 13,604 shares of common stock pursuant to a June 15, 2004
notice of conversion from Nesher, LP, at a conversion price of $0.172. The
conversion did not include accrued and unpaid dividends on the converted
preferred. We issued the preferred and the underlying common stock upon
conversion to an accredited investor, pursuant to a Regulation D offering. This
conversion exhausted the outstanding Series G convertible preferred held by this
investor.
On June 29, 2004, we converted 1,850 shares of Series G Convertible
Preferred Stock into 107,558 shares of common stock pursuant to a June 15, 2004
notice of conversion from Keshet, LP, at a conversion price of $0.172. The
conversion did not include accrued and unpaid dividends on the converted
preferred. We issued the preferred and the underlying common stock upon
conversion to an accredited investor, pursuant to a Regulation D offering. This
conversion exhausted the outstanding Series G convertible preferred held by this
investor.
On June 29, 2004, we converted 3,472 shares of Series G Convertible
Preferred Stock into 201,860 shares of common stock pursuant to a June 15, 2004
notice of conversion from The Keshet Fund, LP, at a conversion price of $0.172.
The conversion did not include accrued and unpaid dividends on the converted
preferred. We issued the preferred and the underlying common stock upon
conversion to an accredited investor, pursuant to a Regulation D offering. This
conversion exhausted the outstanding Series G convertible preferred held by this
investor.
On June 29, 2004, we converted 8,091 shares of Series G Convertible
Preferred Stock into 470,406 shares of common stock pursuant to a June 15, 2004
notice of conversion from Talbiya B. Investments, Ltd, at a conversion price of
$0.172. The conversion did not include accrued and unpaid dividends on the
converted preferred. We issued the preferred and the underlying common stock
upon conversion to an accredited investor, pursuant to a Regulation D offering.
This conversion exhausted the outstanding Series G convertible preferred held by
this investor.
On June 30, 2004, we entered into Subscription Agreements with Longview
Fund, LP, Alpha Capital Aktiengesellschaft, Whalehaven Funds Limited,
Stonestreet Limited Partnership and Mid-Am Capital L.L.C for the issuance of
convertible 10% notes in the aggregate amount of $1,300,000 and five-year "A"
warrants for the purchase of, in the aggregate, 5,200,000 shares of common
stock, at $0.25 per share, and five-year "B" warrants for the purchase of, in
the aggregate, 13,000,000 shares of common stock, at $2.00 per share. The notes
are convertible into shares of our common stock at $0.15 per common share.
Conversions are limited to a maximum ownership of 9.99% of the underlying common
stock at any one time. The notes are payable in twelve equal monthly
installments, commencing January 1, 2005. The installment payments consist of
principal and a "premium" of 20% of the principal paid per installment. We have
the option to defer such payment until the note's maturity date on December 1,
2005, if our common stock trades above $0.20 for the five trading days prior to
the due date of an installment payment. In connection with this transaction, we
issued additional notes in the aggregate amount of $40,000 to Gem Funding, LLC,
Bi-Coastal Consulting Corp., Stonestreet Limited Partnership and Libra Finance,
S.A upon identical terms as the principal notes, as a finder's fee, and paid
$12,500 in legal fees. The common stock underlying all notes and warrants carry
registration rights. We issued the convertible notes and warrants to accredited
investors, pursuant to a Regulation D offering.
On August 9, 2004, we converted $50,000 of our November 2003 Convertible
Promissory Note into 1,000,000 shares of common stock pursuant to an August 5,
2004 notice of conversion from Gamma Opportunity Capital Partners LP, at a fixed
conversion price of $0.05. The conversion did not include accrued and unpaid
interest on the converted amount. We issued the underlying common stock upon
conversion pursuant to our SB-2 registration statement, declared effective on
August 3, 2004.
F-34
BRAVO! FOODS INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On August 23, 2004, we converted $50,000 of our April 2004 Convertible
Promissory Note into 500,000 shares of common stock pursuant to an August 5,
2004 notice of conversion from Longview Fund LP, at a fixed conversion price of
$0.10. The conversion did not include accrued and unpaid interest on the
converted amount. We issued the underlying common stock upon conversion pursuant
to our SB-2 registration statement, declared effective on August 3, 2004.
On September 27, 2004, we converted $50,000 of our April 2004 Convertible
Promissory Note into 500,000 shares of common stock pursuant to a September 21,
2004 notice of conversion from Longview Fund LP, at a fixed conversion price of
$0.10. The conversion did not include accrued and unpaid interest on the
converted amount. We issued the underlying common stock upon conversion pursuant
to our SB-2 registration statement, declared effective on August 3, 2004.
On October 6, 2004, we converted $25,000 of our November 2003 Convertible
Promissory Note into 500,000 shares of common stock pursuant to a September 23,
2004 notice of conversion from Gamma Opportunity Capital Partners LP, at a fixed
conversion price of $0.05. The conversion did not include accrued and unpaid
interest on the converted amount. We issued the underlying common stock upon
conversion pursuant to our SB-2 registration statement, declared effective on
August 3, 2004.
On October 6, 2004, we issued 500,000 shares of our common stock to
Knightsbridge Holdings, LLC, pursuant to a consulting agreement dated November
10, 2003. We issued the common stock pursuant to our SB-2 registration
statement, declared effective on August 3, 2004. The issued and outstanding
equity reported in our Form 10QSB for the period ended March 31, 2004 reflects
these shares of common stock.
On October 13, 2004, we issued 250,000 restricted shares of our common
stock in a private placement to Arthur Blanding, at the market price of $0.12
per share, pursuant to Section 4(2) of the Securities Act of 1934. Mr. Blanding,
who solicited the purchase, is an accredited investor and has been a director of
the Company since 1999.
On October 15, 2004, we issued 750,000 shares of our common stock to
Marvel Enterprises, Inc., as partial compensation under a license agreement
dated February 1, 2004. We issued the common stock pursuant to our SB-2
registration statement, declared effective on August 3, 2004. The issued and
outstanding equity reported in our Form 10QSB for the period ended March 31,
2004 reflects these shares of common stock.
On October 29, 2004, we entered into Subscription Agreements with Longview
Fund, LP, Alpha Capital Aktiengesellschaft, Whalehaven Funds Limited and
Stonestreet Limited Partnership for the issuance of convertible 10% notes in the
aggregate amount of $550,000 and five-year "C" warrants for the purchase of, in
the aggregate, 2,200,000 shares of common stock, at $0.15 per share, and the
repricing of five-year "A" warrants, issued June 30, 2004 for the purchase of,
in the aggregate, 3,200,000 shares of common stock, from $0.25 to $0.15 per
share. The notes are convertible into shares of our common stock at $0.10 per
common share. Conversions are limited to a maximum ownership of 9.99% of the
underlying common stock at any one time. The notes are payable in twelve equal
monthly installments, commencing May 1, 2005. The installment payments consist
of principal and a "premium" of 20% of the principal paid per installment. We
have the option to defer such payment until the note's maturity date on April
30, 2006, if our common stock trades above $0.15 for the five trading days prior
to the due date of an installment payment and the underlying common stock is
registered. In connection with this transaction, we issued additional notes,
without attached warrants, in the aggregate amount of $27,500 to Gem Funding,
LLC, Bi-Coastal Consulting Corp., Stonestreet Limited Partnership and Libra
Finance, S.A upon identical terms as the principal notes, as a finder's fee, and
paid $12,500 in legal fees. The common stock underlying all notes and warrants
carry registration rights. We issued the convertible notes and warrants to
accredited investors, pursuant to a Regulation D offering.
F-35
BRAVO! FOODS INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On December 17, 2004, we converted $50,000 of our April 2004 Convertible
Promissory Note into 500,000 shares of common stock pursuant to a December 8,
2004 notice of conversion from Longview Fund LP, at a fixed conversion price of
$0.10. The conversion did not include accrued and unpaid interest on the
converted amount. We issued the underlying common stock upon conversion pursuant
to our SB-2 registration statement, declared effective on August 3, 2004.
On December 20, 2004, we converted $25,000 of our April 2004 Convertible
Promissory Note into 265,958 shares of common stock pursuant to a December 9,
2004 notice of conversion from Bi Coastal Consulting Corp., at a fixed
conversion price of $0.10. The conversion included $1,595.89 accrued and unpaid
interest on the converted amount. We issued the underlying common stock upon
conversion pursuant to our SB-2 registration statement, declared effective on
August 3, 2004.
On December 20, 2004, we converted $50,000 of our November 2003
Convertible Promissory Note into 1,000,000 shares of common stock pursuant to a
December 8, 2004 notice of conversion from Gamma Opportunity Capital Partners
LP, at a fixed conversion price of $0.05. The conversion did not include accrued
and unpaid interest on the converted amount. We issued the underlying common
stock upon conversion pursuant to our SB-2 registration statement, declared
effective on August 3, 2004.
On December 27, 2004, we converted 10,000 shares of Series F Convertible
Preferred Stock into 1,290,323 shares of common stock pursuant to a December 27,
2004 notice of conversion from Austinvest Anstalt Balzers, at a conversion price
of $0.0775. The conversion did not include accrued and unpaid dividends on the
converted preferred. We issued the preferred and the underlying common stock
upon conversion to an accredited investor, pursuant to a Regulation D offering
and Rule 144.
On December 27, 2004, we converted 10,000 shares of Series F Convertible
Preferred Stock into 1,290,323 shares of common stock pursuant to a December 27,
2004 notice of conversion from Esquire Trade & Finance Inc., at a conversion
price of $0.0775. The conversion did not include accrued and unpaid dividends on
the converted preferred. We issued the preferred and the underlying common stock
upon conversion to an accredited investor, pursuant to a Regulation D offering
and Rule 144.
On December 29, 2004, we closed a funding transaction with Momona Capital
Corp. and Ellis International Ltd. for the issuance of convertible 10% notes in
the aggregate amount of $200,000 and five-year "C" warrants for the purchase of,
in the aggregate, 800,000 shares of common stock, at $0.15 per share. The notes
are convertible into shares of our common stock at $0.10 per common share.
Conversions are limited to a maximum ownership of 9.99% of the underlying common
stock at any one time. The notes are payable in twelve equal monthly
installments, commencing May 1, 2005. The installment payments consist of
principal and a "premium" of 20% of the principal paid per installment. We have
the option to defer such payment until the note's maturity date on April 30,
2006, if our common stock trades above $0.15 for the five trading days prior to
the due date of an installment payment, and the underlying common stock is
registered. In connection with this transaction, we issued additional notes,
without attached warrants, in the aggregate amount of $10,000 to the investors
upon identical terms as the principal notes, as a finder's fee, and paid $3,500
in legal fees. The common stock underlying all notes and warrants carry
registration rights. We issued the convertible notes and warrants to accredited
investors, pursuant to an amendment to an October 29, 2004 Regulation D
offering.
F-36
BRAVO! FOODS INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On December 31, 2004, we issued 8,095,105 shares of our common stock and
options for 150,000 shares at an exercise price of $0.25 per share, pursuant to
a Form S-8 registration statement filed December 23, 2004, as follows:
Description Employee / Consultant Common Shares
Compensation Plan: issue common for
existing options
Arthur W. Blanding - Director 170,000
Robert J. Cummings - Director 255,000
Paul Downes - Director 205,000
Michael Edwards - VP 600,000
Stanley A. Hirschman - Director 100,000
Tommy E. Kee - CFO 300,000
John J. McCormack - Director 205,000
Benjamin Patipa - VP 300,000
Phillip Pearce - Director 205,000
Roy D. Toulan, Jr. VP- General Counsel
300,000
Roy Warren - CEO, Director 2,755,000
Compensation Plan: issue common in lieu
of 10% of salary Roy Warren - CEO 291,282
Tommy E. Kee - CFO 87,385
Roy D. Toulan, Jr. VP- General Counsel
196,615
Michael Edwards - VP 149,282
Benjamin Patipa - VP 87,385
Bryce Boynton 29,128
Nicole Warren 21,486
Employment Contract Roy D. Toulan, Jr. VP- General Counsel
100,000
Employment Contract Michael Edwards - VP 116,189
Common in lieu of cash - consultants
and non-fund raising service providers
Joseph Zappulla - public relations 111,111
Stanley Harris - marketing 75,227
David Uhlman - operations 40,000
Timothy Preuniger - operations 50,000
Roy D. Toulan, Jr. - legal 303,506
Marc J. Ross - legal 250,000
Option for common stock in lieu of cash Options for 150,000
- consultants) Tim Ransom shares @ $0.25/share
Consultant Agreements Knightsbridge Capital, LLC, alter ego for
Robert Press, financial advisor; corporate
planning 250,000
Black Dog Communications Group, Inc.,
alter ego for Shep Doniger, public
relations 41,509
Geoffrey Eiten, strategic planning; part 500,000
of 1,500,000 shares registered under Form
S-8
F-37
BRAVO! FOODS INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 7 - Stock Warrants and Options
2003
On January 2, 2003, we granted options for 100,000 shares of common stock
to an employee pursuant to an employment contract. These options vested
immediately, expire on December 30, 2007 and have an exercise price of $0.40 per
share. We also granted options for 200,000 shares of common stock at an exercise
price of $0.40 per share and vest as follows: options for 100,000 shares on each
of December 31, 2003 and 2004, and 100,000 expire on each of December 30, 2008
and 2009, respectively.
On February 21, 2003, we issued a warrant for 1,666,667 shares of common
stock to Mid-Am, in connection with the issuance of 50,000 shares of non-voting
Series J 8% Convertible Preferred stock, having a stated value of $10.00 per
Preferred J share, for the aggregate purchase price of $500,000. The warrants
have an exercise price of $0.30 per common stock share, and are exercisable for
a five-year period. The February 21, 2003 closing market trading price was $0.23
per share. In accordance with EITF 00-27, we recorded a deemed dividend of
$274,720 related to a beneficial conversion feature.
On May 29, 2003, we issued a warrant for 2,000,000 shares of common stock
to Mid-Am, in connection with the issuance of 50,000 shares of non-voting Series
J 8% Convertible Preferred stock, having a stated value of $10.00 per Preferred
J share, for the aggregate purchase price of $500,000. The warrants entitle the
holder to purchase 40 shares of common stock for each share of Series J
Convertible Preferred stock issued at an exercise price of $0.25 per common
stock share, and are exercisable for a five-year period. The May 22, 2003
closing market trading price was $0.12 per share. In addition, we made the
following adjustments to prior issued warrants for the purpose of facilitating
future fund raising by us arising out of the exercise of the warrants by Holder.
The purchase price, as defined in the Warrants No. 1 (issued September 2002) and
2 (issued February 2003), was reduced to $0.25, subject to further adjustment as
described in the warrants. The warrant stock provided for in Warrant No.1 was
increased by 1,500,000 shares. The warrant stock provided for in Warrant No. 2
was increased by 333,333 shares. The expiration date, as defined in the
respective warrants, remains as stated. The trading price call option trigger
set forth in Section 9 (b) of all of the warrants has been reduced from $1.75 to
$0.75 per share. The value of the warrants, $92,491, was determined using the
Black-Scholes model.
On November 21, 2003, we issued two "A" warrants for the aggregate amount
of 2,000,000 shares of common stock, and two "B" warrants for the aggregate
amount of 10,000,000 shares of common stock to Mid-Am Capital, L.L.C. and Gamma
Opportunity Capital Partners, LP, in connection with the issuance of two
convertible notes in the aggregate face amount of $400,000. The "A" warrants
have an exercise price of $0.05 per share and the "B" warrants have an exercise
price of $1.00 per share. In connection with this transaction, we issued a
warrant to purchase 2,000,000 shares of common stock at $0.05 per share, as a
finder's fee. All warrants issued in connection with this transaction are
exercisable for five years.
F-38
BRAVO! FOODS INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2004
On February 1, 2004, we agreed to issue warrants to purchase 750,000
shares of common stock to Marvel Enterprises, Inc. We issued this equity in
connection with the grant of an intellectual property license by Marvel on
January 17, 2004, giving us the right to use certain Marvel Comics characters on
our Slammers(R) line of flavored milks. The warrants have an exercise price of
$0.10 per share for the first year and, upon the occurrence of certain
conditions tied to the royalty performance under the license, can be extended
for an additional year with an exercise price of $0.14 per share. We made this
private offering to Marvel Enterprises, an accredited investor, pursuant to Rule
506 of Regulation D and Section 4(2) of the Securities Act of 1933.
On April 20, 2004, we entered into a Subscription Agreement with Longview
Fund, LP and Alpha Capital Aktiengesellschaft for the issuance of two
convertible 10% notes in the amount of $250,000 each and five-year warrants for
the purchase of, in the aggregate, 3,000,000 shares of common stock, at $0.15
per share. The common stock underlying all notes and warrants carry registration
rights. We issued the convertible notes and warrants to accredited investors,
pursuant to a Regulation D offering.
On May 9, 2004 we received the proceeds of a $750,000 loan from Mid-Am
Capital, payable September 3, 2004, with an interest rate of 8%. This loan is
secured by a general security interest in all of our assets. Mid-Am has agreed
to extend the note without to January 31, 2005. We issued one-year warrants for
3,000,000 shares of common stock at $0.25 per share to Mid-Am Capital in
connection with this loan.
On June 30, 2004, we entered into Subscription Agreements with Longview
Fund, LP, Alpha Capital Aktiengesellschaft, Whalehaven Funds Limited,
Stonestreet Limited Partnership and Mid-Am Capital L.L.C for the issuance of
convertible 10% notes in the aggregate amount of $1,300,000 and five-year "A"
warrants for the purchase of, in the aggregate, 5,200,000 shares of common
stock, at $0.25 per share, and five-year "B" warrants for the purchase of, in
the aggregate, 13,000,000 shares of common stock, at $2.00 per share. The common
stock underlying all notes and warrants carry registration rights. We issued the
convertible notes and warrants to accredited investors, pursuant to a Regulation
D offering.
On October 29, 2004, we entered into Subscription Agreements with Longview
Fund, LP, Alpha Capital Aktiengesellschaft, Whalehaven Funds Limited and
Stonestreet Limited Partnership for the issuance of convertible 10% notes in the
aggregate amount of $550,000 and five-year "C" warrants for the purchase of, in
the aggregate, 2,200,000 shares of common stock, at $0.15 per share, and the
repricing of five-year "A" warrants, issued June 30, 2004 for the purchase of,
in the aggregate, 3,200,000 shares of common stock, from $0.25 to $0.15 per
share. The common stock underlying all notes and warrants carry registration
rights. We issued the convertible notes and warrants to accredited investors,
pursuant to a Regulation D offering.
On November 19, 2004, we agreed to grant incentive stock options to
National Financial Communications Corp. for the purchase of the aggregate of
1,000,000 shares of our common stock at an exercise price of $.25 per share in
connection with a public relations and corporate communications services
agreement. The options are exercisable during the period commencing on the
agreement date and ending three years subsequent to the termination date of the
agreement. The grant of options shall be as follows: (i) options for 250,000
shares upon the execution of the agreement, and (ii) beyond the first ninety
(90) days of the agreement, the balance of 750,000 shares on a pro rata
quarterly basis at the rate of 250,000 per quarter, conditioned upon the
continuation of the agreement.
On December 29, 2004, we closed a funding transaction with Momona Capital
Corp. and Ellis International Ltd. for the issuance of convertible 10% notes in
the aggregate amount of $200,000 and five-year "C" warrants for the purchase of,
F-39
BRAVO! FOODS INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
in the aggregate, 800,000 shares of common stock, at $0.15 per share. The common
stock underlying all notes and warrants carry registration rights. We issued the
convertible notes and warrants to accredited investors, pursuant to an amendment
to an October 29, 2004 Regulation D offering.
On December 31, 2004, we issued five-year options for 150,000 shares of
common stock at an exercise price of $0.25 per share to Tim Ransom for graphic
design services, pursuant to a Form S-8 registration statement
The assumptions used in the Black Scholes option pricing model in 2003 and 2004
were as follows:
December 31,
-------------------------------------------
2003 2004
------------------- -------------------
Discount rate - bond yield rate 2.35 - 4.9% 2.33 - 3.25%
Volatility 69 - 88% 110 - 120%
Expected life 2.25 - 3.75 years 0.75 - 3.75 years
Expected dividend yield -- --
A summary of the status of our stock options and warrants as of December 31,
2003 and 2004 with changes during the years then ended are presented below:
Weighted
Average
Shares Price
----------- -----------
Total warrants and options outstanding at December 31, 2002 21,157,803 $ 0.70
Warrants and options granted 18,668,337 0.13
Warrants and options exercised --
Warrants and options expired (214,777) (1.03)
----------- -----------
Total warrants and options outstanding at December 31, 2003 39,611,363 0.28
Warrants and options granted 33,565,000 .87
Warrants and options exercised (5,895,000) (.06)
Warrants and options expired (2,191,705) (1.03)
Total warrants and options outstanding at December 31, 2004 65,089,658 $ 0.56
=========== ===========
The following table summarizes information about stock options and warrants
outstanding at December 31, 2004:
Warrants/Options Outstanding Options/Warrants Exercisable
------------------------------------------------ ----------------------------------
Weighted Weighted Weighted
Average Average Average
Number Remaining Exercise Number Exercise
Exercise Price Outstanding Life (Years) Price Exercisable Price
$0.00 to $0.75 46,724,658 3.0 $ 0.31 46,724,658 $ 0.31
$0.75 to 2.00 18,365,000 1.0 $ 1.56 18,365,000 $ 1.56
-------------- --------------- ------------ ---------------- -------------
65,089,658 2.6 $ 0.56 65,089,658 $ 0.56
============== =============== ============ ================ =============
F-40
BRAVO! FOODS INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 8 - Income Taxes
We are subject to Federal income taxes. As we have experienced operating losses
for the years of 2003 and 2004, we have not provided for income tax .
We have gross deferred tax assets of approximately $6.8 million and $8.1 million
at December 31, 2003 and 2004, respectively, relating principally to tax effects
of net operating loss carry forwards. In assessing the recoverability of
deferred tax assets, management considers whether it is more likely than not
that the assets will be realized. The ultimate realization of deferred tax
assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Management
considers projected future taxable income and tax planning strategies in making
this assessment. Based upon the level of historical taxable loss and projections
for future taxable income over the periods in which the deferred tax items are
recognizable for tax reporting purposes, it is more likely than not that we will
not realize the benefits of these deferred tax assets existing at December 31,
2003 and 2004. As such, management has recorded a valuation allowance for the
full amount of deferred tax assets at December 31, 2003 and 2004.
At December 31, 2004, we had available net operating losses of approximately $19
million for federal income tax purposes, to offset future taxable income, if
any, which will expire at various dates through the year 2023 for federal income
tax purposes. The utilization of net operating losses, however, may be subject
to certain limitations as prescribed by Section 382 of the Internal Revenue
Code.
Note 9 - Business Segment and Geographic Information
We operate principally in one industry segment. The following sales information
is based on customer location rather than subsidiary location.
2004 United Middle Total
States Canada Mexico East Company
----------- ----------- ----------- ----------- -----------
Revenue - unit sales $ 2,726,702 $ -- $ -- $ -- $ 2,726,702
Revenue - gross kit sales 44,379 -- 119,968 453,650 617,997
----------- ----------- ----------- ----------- -----------
Total revenue 2,771,081 -- 119,968 453,650 3,344,699
Cost of goods sold (2,262,055) -- (55,609) (57,141) (2,374,805)
----------- ----------- ----------- ----------- -----------
Gross margin $ 509,026 $ -- $ 64,359 $ 396,509 $ 969,894
=========== =========== =========== =========== ===========
United Middle Total
2003 States Canada Mexico East Company
----------- ----------- ----------- ----------- -----------
Revenue -unit sales $ 356,985 $ -- $ -- $ -- $ 356,985
Revenue -net kit sales 2,737 -- -- -- 2,737
Revenue -gross kit sales 629,999 43,745 145,362 21,314 840,420
----------- ----------- ----------- ----------- -----------
Total revenue 989,721 43,745 145,362 21,314 1,200,142
Cost of goods sold (127,647) (10,403) (45,247) (9,201) (192,498)
----------- ----------- ----------- ----------- -----------
Gross margin $ 862,074 $ 33,342 $ 100,115 $ 12,113 $ 1,007,644
=========== =========== =========== =========== ===========
F-41
BRAVO! FOODS INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10 - Commitments and Contingencies
Commitments
We lease office space at our corporate office in Florida under an original
operating lease that expired March 8, 2004. We have renewed the operating lease
for an additional six-year period that will expire October 30, 2010.
Future minimum rental payments required under the operating lease as of December
31, 2004 are as follows:
Years ending December 31, Amount
------------------------- -----------
2005 $ 89,616
2006 $ 89,616
2007 $ 89,616
2008 $ 89,616
2009 $ 89,616
2010 Partial year $ 74,680
Rental expense for the years ended December 31, 2003 and 2004 was $75,270 and
$68,784, respectively.
Note 11 - Subsequent Events
On January 18, 2005, we converted $35,931 of our April 2004 Convertible
Promissory Note into 500,000 shares of common stock pursuant to a January 14,
2005 notice of conversion from Longview Fund LP, at a fixed conversion price of
$0.10. The conversion included $14,068 of accrued and unpaid interest on the
converted amount. We issued the underlying common stock upon conversion pursuant
to our SB-2 registration statement, declared effective on August 3, 2004.
On January 19, 2005, we converted $64,068 of our April 2004 Convertible
Promissory Note into 641,387 shares of common stock pursuant to a January 19,
2005 notice of conversion from Longview Fund LP, at a fixed conversion price of
$0.10. The conversion included $70 of accrued and unpaid interest on the
converted amount. We issued the underlying common stock upon conversion pursuant
to our SB-2 registration statement, declared effective on August 3, 2004.
On January 31, 2005, we closed a funding transaction with Longview Fund,
LP, Longview Equity Fund, LP, Longview International Equity Fund, LP, Alpha
Capital Aktiengesellschaft and Whalehaven Funds Limited, five institutional
accredited investors, for the issuance and sale to the Subscribers of up to
$2,300,000 of principal amount of promissory notes convertible into shares of
our common stock, and Warrants to purchase shares of common stock at 100%
coverage of the common stock issuable in accordance with the principal amount of
the notes. One Million One Hundred Fifty Thousand Dollars ($1,150,000) of the
purchase price was paid on the initial closing date, and One Million One Hundred
Fifty Thousand Dollars ($1,150,000) of the purchase price will be payable within
five (5) business days after the actual effectiveness of an SB-2 Registration
Statement as defined in the Subscription Agreement. The initial closing notes
were at prime plus 4% interest in the aggregate amount of $1,150,000, plus
five-year Warrants for the purchase of, in the aggregate, 9,200,000 shares of
common stock, at the lesser of (i) $0.16, or (ii) 101% of the closing bid price
of the Common Stock as reported by Bloomberg L.P. for the OTC Bulletin Board for
the trading day preceding the Closing Date. The notes are convertible into
shares of common stock of we at $0.125 per common share. Conversions are limited
F-42
BRAVO! FOODS INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
to a maximum ownership of 9.99% of the underlying common stock at any one time.
The notes have a maturity date two yeas from closing and are payable in twelve
equal monthly installments, commencing June 1, 2005. The installment payments
consist of principal equal to 1/20th of the initial principal amount which,
subject to certain conditions concerning trading volume and price, can be paid
in cash at 103% of the monthly installment, or common stock or a combination of
both. The notes have an acceleration provision upon the change in a majority of
the present Board of Directors except as the result of the death of one or more
directors, or a change in the present CEO. In connection with this transaction,
we issued restricted common stock in the aggregate amount of 460,000 shares plus
the aggregate cash amount of $57,500 for due diligence fees to the investors in
this transaction
On February 14, 2005, we converted $41,666 of our June 2004 Convertible
Promissory Note into 430,327 shares of restricted common stock pursuant to a
February 9, 2005 notice of conversion from Longview Fund LP, at a fixed
conversion price of $0.15. The conversion included $22,882 of accrued and unpaid
interest on the converted amount. We issued the Convertible Promissory Note and
the underlying common stock upon conversion to an accredited investor, pursuant
to a Regulation D offering
On February 16, 2005, we converted $25,000 of our November 2003
Convertible Promissory Note into 549,340 shares of common stock pursuant to a
February 15, 2005 notice of conversion from Gamma Opportunity Capital Partners
LP, at a fixed conversion price of $0.05. The conversion included $2,467 of
accrued and unpaid interest on the converted amount. We issued the underlying
common stock upon conversion pursuant to our SB-2 registration statement,
declared effective on August 3, 2004.
F-43
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Our Articles of Incorporation, as amended, provide to the fullest extent
permitted by Delaware law, our directors or officers shall not be personally
liable to us or our shareholders for damages for breach of such director's or
officer's fiduciary duty. The effect of this provision of our Articles of
Incorporation, as amended, is to eliminate our right and our shareholders
(through shareholders' derivative suits on behalf of our company) to recover
damages against a director or officer for breach of the fiduciary duty of care
as a director or officer (including breaches resulting from negligent or grossly
negligent behavior), except under certain situations defined by statute. We
believe that the indemnification provisions in its Articles of Incorporation, as
amended, are necessary to attract and retain qualified persons as directors and
officers.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth an itemization of all estimated expenses,
all of which we will pay, in connection with the issuance and distribution of
the securities being registered:
NATURE OF EXPENSE AMOUNT
SEC Registration fee $ 4,511.75
Accounting fees and expenses 10,000.00*
Legal fees and expenses 35,000.00*
Miscellaneous 5,000.00
-------------
TOTAL $ 54,511.75*
=============
* Estimated.
1
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
On January 2, 2002, we issued options for 3,714 shares of common stock having an
exercise price of $0.35 and exercisable for five years, pursuant to an
employment agreement.
On January 18, 2002, we issued 238,334 shares of common stock to Austinvest
Anstalt Balzers, upon the conversion of 5,000 shares of Series D Convertible
Preferred, at a conversion price of $0.2453. The conversion included accrued and
unpaid dividends on the preferred converted in the amount of $8,463.34.
On January 18, 2002, we issued 238,334 shares of common stock to Esquire Trade &
Finance, Inc., upon the conversion of 5,000 shares of Series D Convertible
Preferred, at a conversion price of $0.2453. The conversion included accrued and
unpaid dividends on the preferred converted in the amount of $8,463.34.
On January 28, 2002, we issued 40,000 shares of common stock to The Keshet Fund
LP, upon the conversion of 883 shares of Series G Convertible Preferred, at a
conversion price of $0.2453. The conversion included accrued and unpaid
dividends on the preferred converted in the amount of $984.83.
On January 28, 2002, we issued 136,038 shares of common stock to Amro
International, S.A., upon the conversion of 2,840 shares of Series D Convertible
Preferred, at a conversion price of $0.2453. The conversion included accrued and
unpaid dividends on the preferred converted in the amount of $4,970.00.
On January 30, 2002, we issued 15,000 shares of its Series H convertible
preferred stock, having a conversion price of $0.40 per share of common stock,
and warrants for 375,000 shares at $0.50 per share. The Series H convertible
preferred stock and warrants were priced at $10.00 per unit, and resulted in
proceeds of $150,000 in cash.
On February 4, 2002, we issued 206,700 shares of common stock to Austinvest
Anstalt Balzers, upon the conversion of 4,375 shares of Series D Convertible
Preferred, at a conversion price of $0.2480. The conversion included accrued and
unpaid dividends on the preferred converted in the amount of $7,511.60.
On February 4, 2002, we issued 206,700 shares of common stock to Esquire Trade &
Finance, Inc., upon the conversion of 4,375 shares of Series D Convertible
Preferred, at a conversion price of $0.2480. The conversion included accrued and
unpaid dividends on the preferred converted in the amount of $7,511.60.
On February 5, 2002, we issued 20,000 shares of common stock to The Keshet Fund
LP, upon the conversion of 492 shares of Series G Convertible Preferred, at a
conversion price of $0.2453. The conversion included accrued and unpaid
dividends on the preferred converted in the amount of $496.03.
On February 15, 2002, we issued 5,000 shares of its Series H convertible
preferred stock, having a conversion price of $0.40 per share of common stock,
and warrants for 125,000 shares at $0.50 per share to a sophisticated and
accredited investor. The Series H convertible preferred stock and warrants were
priced at $10.00 per unit, and resulted in proceeds of $50,000 in cash.
On February 20, 2002, we issued 35,000 shares of common stock to The Keshet Fund
LP, upon the conversion of 832 shares of Series G Convertible Preferred, at a
conversion price of $0.2949. The conversion included accrued and unpaid
dividends on the preferred converted in the amount of $952.05.
On February 29, 2002, we issued 279,795 shares of common stock to Amro
International, S.A, upon the conversion of 7,160 shares of Series D Convertible
Preferred, at a conversion price of $0.3013. The conversion included accrued and
unpaid dividends on the preferred converted in the amount of $12,711.00.
On March 1, 2002, we issued 20,000 shares of common stock to The Keshet Fund LP,
upon the conversion of 536 shares of Series G Convertible Preferred, at a
conversion price of $0.2993. The conversion included accrued and unpaid
dividends on the preferred converted in the amount of $630.20.
2
On March 1, 2002, we issued warrants for 25,000 shares of common stock, having
an exercise price of $0.40 per share. The warrants are immediately exercisable
and have an expiration date of February 28, 2007. These warrants were issued to
the lender in connection with a December 27, 2001 loan of $250,000 to us.
On March 15, 2002, we issued 20,000 shares of common stock to The Keshet Fund
LP, upon the conversion of 532 shares of Series G Convertible Preferred, at a
conversion price of $0.2973. The conversion included accrued and unpaid
dividends on the preferred converted in the amount of $633.70.
On March 18, 2002, we issued 50,000 shares of its Series H convertible preferred
stock, having a conversion price of $0.40 per share of common stock, and
warrants for 1,250,000 shares at $0.50 per share to a sophisticated and
accredited investor. The Series H convertible preferred stock and warrants were
priced at $10.00 per unit, and resulted in proceeds of $500,000 in cash.
On April 19, 2002, we issued 10,000 shares of common stock to The Keshet Fund
LP, upon the conversion of 252 shares of Series G Convertible Preferred, at a
conversion price of $0.2840. The conversion included accrued and unpaid
dividends on the preferred converted in the amount of $320.80.
On April 19, 2002, we issued 10,000 shares of common stock to The Keshet Fund
LP, upon the conversion of 234 shares of Series G Convertible Preferred, at a
conversion price of $0.2640. The conversion included accrued and unpaid
dividends on the preferred converted in the amount of $299.40.
On April 24, 2002 our Board of Directors voted to extend options for 1,383,705
shares of common stock issued on April 29 and December 15, 1997 to Tamarind
Management, Ltd. (an affiliate of Mr. Paul Downes, a founder of the Company) and
options for 700,000 shares of common stock issued on December 15, 1997 to Mr.
Dale Reese (a founder of the Company), for services rendered to us. These
extended options, which had original expiration dates of April 29 and December
15, 2002, respectively, retain an exercise price of $1.00 and are exercisable
upon the following conditions: The expiration dates for these options are
extended for a two year period, commencing upon the effective date of a
registration statement for the resale of the common stock underlying the
options; the options will not be exercised during a one year lockup period
commencing on the 1st day after our common stock trades during a 90 day period
at a moving average of at least $1.00; we have the option to call the options
commencing on the 1st day after our common stock trades during a 90 day period
at a moving average of at least $2.00.
On May 3, 2002, we issued 52,730 shares of common stock to Amro International,
S.A, upon the conversion of 1,000 shares of Series D Convertible Preferred, at a
conversion price of $0.22. The conversion included accrued and unpaid dividends
on the preferred converted in the amount of $1,811.51.
On May 7, 2002, we issued 10,000 shares of common stock to The Keshet Fund LP,
upon the conversion of 215 shares of Series G Convertible Preferred, at a
conversion price of $0.2427. The conversion included accrued and unpaid
dividends on the preferred converted in the amount of $277.44.
On May 13, 2002, we issued 10,000 shares of common stock to The Keshet Fund LP,
upon the conversion of 158 shares of Series G Convertible Preferred, at a
conversion price of $0.1787. The conversion included accrued and unpaid
dividends on the preferred converted in the amount of $207.77.
On May 13, 2002, we issued 10,000 shares of common stock to The Keshet Fund LP,
upon the conversion of 158 shares of Series G Convertible Preferred, at a
conversion price of $0.1787. The conversion included accrued and unpaid
dividends on the preferred converted in the amount of $207.77.
On May 13, 2002, we issued 20,000 shares of common stock to Keshet LP, upon the
conversion of 316 shares of Series G Convertible Preferred, at a conversion
price of $0.1787. The conversion included accrued and unpaid dividends on the
preferred converted in the amount of $416.07.
On May 13, 2002, we issued 15,000 shares of common stock to Keshet LP, upon the
conversion of 237 shares of Series G Convertible Preferred, at a conversion
price of $0.1787. The conversion included accrued and unpaid dividends on the
preferred converted in the amount of $312.45.
3
On May 17, 2002, we issued 131,239 shares of common stock to Amro International,
S.A, upon the conversion of 2,000 shares of Series D Convertible Preferred, at a
conversion price of $0.18. The conversion included accrued and unpaid dividends
on the preferred converted in the amount of $3,623.00.
On May 17, 2002, we issued 278,498 shares of common stock to Amro International,
S.A, upon the conversion of 4,000 shares of Series D Convertible Preferred, at a
conversion price of $0.17. The conversion included accrued and unpaid dividends
on the preferred converted in the amount of $7,344.00.
On May 20, 2002, we issued 10,000 shares of common stock to Keshet LP, upon the
conversion of 158 shares of Series G Convertible Preferred, at a conversion
price of $0.1787. The conversion included accrued and unpaid dividends on the
preferred converted in the amount of $209.37.
On May 20, 2002, we issued 10,000 shares of common stock to Keshet LP, upon the
conversion of 131 shares of Series G Convertible Preferred, at a conversion
price of $0.1680. The conversion included accrued and unpaid dividends on the
preferred converted in the amount of $372.82.
On May 23, 2002, we issued 63,454 shares of common stock to Austinvest Anstalt
Balzers, upon the conversion of 1,000 shares of Series D Convertible Preferred,
at a conversion price of $0.1787. The conversion included accrued and unpaid
dividends on the preferred converted in the amount of $7,494.00.
On May 23, 2002, we issued 63,454 shares of common stock to Esquire Trade &
Finance, Inc., upon the conversion of 1,000 shares of Series D Convertible
Preferred, at a conversion price of $0.1787. The conversion included accrued and
unpaid dividends on the preferred converted in the amount of $7,494.00.
On May 24, 2002, we issued 15,000 shares of common stock to Keshet LP, upon the
conversion of 237 shares of Series G Convertible Preferred, at a conversion
price of $0.1787. The conversion included accrued and unpaid dividends on the
preferred converted in the amount of $312.85.
On May 24, 2002, we issued 15,000 shares of common stock to The Keshet Fund LP,
upon the conversion of 157 shares of Series G Convertible Preferred, at a
conversion price of $0.1680. The conversion included accrued and unpaid
dividends on the preferred converted in the amount of $449.88.
On May 29, 2002, we issued 652,178 shares of common stock to Amro International,
S.A, upon the conversion of 9,642 shares of Series D Convertible Preferred, at a
conversion price of $0.168. The conversion included accrued and unpaid dividends
on the preferred converted in the amount of $13,146.
On May 29, 2002, we issued 652,178 shares of common stock to Esquire Trade &
Finance, Inc., upon the conversion of 9,642 shares of Series D Convertible
Preferred, at a conversion price of $0.168. The conversion included accrued and
unpaid dividends on the preferred converted in the amount of $13,146.
On May 30, 2002, we issued 652,178 shares of common stock to Austinvest Anstalt
Balzers, upon the conversion of 9,642 shares of Series D Convertible Preferred,
at a conversion price of $0.168. The conversion included accrued and unpaid
dividends on the preferred converted in the amount of $13,146.
On June 13, 2002, we issued 10,000 shares of common stock to The Keshet Fund LP,
upon the conversion of 126 shares of Series G Convertible Preferred, at a
conversion price of $0.1627. The conversion included accrued and unpaid
dividends on the preferred converted in the amount of $366.70.
On June 13, 2002, we issued 10,000 shares of common stock to The Keshet Fund LP,
upon the conversion of 130 shares of Series G Convertible Preferred, at a
conversion price of $0.1680. The conversion included accrued and unpaid
dividends on the preferred converted in the amount of $381.12.
On June 17, 2002, we received sufficient consents to file an amended certificate
of incorporation, which increased our authorized common stock from 20,000,000 to
50,000,000 shares.
4
On June 17, 2002, we issued 30,000 shares of its Series I 8% convertible
preferred stock and warrants for 2,000,000 shares at $0.50 per share,
exercisable within three years from issue, to two sophisticated and accredited
investors, pursuant to Rule 506, Regulation D and Section 4(2) of the Securities
Act of 1933. The conversion of the preferred into common stock shall be at a per
common share conversion price of 75% of the average of the three lowest closing
bid prices for the thirty day period immediately preceding conversion. The
conversion price is subject to a maximum of $0.50 per share and a minimum of
$0.30 per share, which minimum conversion price shall govern for the 270 days
immediately following the issue date of the Series I preferred shares. The
minimum conversion price shall be extended indefinitely upon the occurrence of
certain defined events, including the effectiveness of a registration statement
for the resale of the common stock underlying the preferred and a trading price
of our common stock at $0.50 or higher for fifteen consecutive days. We have the
ability to compel the exercise of the warrants in tranches of not more than
500,000 warrants each, if the trading price of our common stock equals or
exceeds $1.00 for thirty consecutive trading days and a registration statement
for the underlying common is effective. The Series I convertible preferred stock
and warrants were priced at $10.00 per unit, and resulted in gross cash proceeds
of $300,000, less expenses of $12,000.
On June 18, 2002, we agreed to extend the expiration dates of warrants issued in
connection with our Series D and F preferred until June 17, 2005 and to reduce
the exercise price of certain of those warrants to $1.00. In consideration for
this warrant modification, the holders of two promissory notes executed by us
aggregating $100,000, dated November 6 and 7, 2001, respectively, agreed to
extend the maturity dates of the notes to December 31, 2002. In addition, the
holders of our Series D and F preferred stock agreed to waive all potential
penalties associated with the Series D and F preferred, including the
abandonment of a certain SB-2 registration statement filed in connection with
the resale of the common stock underlying the Series D and F preferred. Below is
a table containing the warrant modifications.
WARRANT COMMON UNMODIFIED
ISSUE SHARES UPON PURCHASE
WARRANTHOLDER (Series) DATE EXERCISE PRICE
---------------------- ------- ----------- ----------
Austinvest Anstalt Balzers (D) 3-9-99 16,250 $2.96
Austinvest Anstalt Balzers (D) 4-23-99 8,125 $2.96
Austinvest Anstalt Balzers (D) 2-1-00 422,500 $0.625*
Austinvest Anstalt Balzers (F) 4-7-00 1,000,000 $1.00
Austinvest Anstalt Balzers (F) 10-13-00 38,259 $0.9825*
Esquire Trade & Finance, Inc. (D) 3-9-99 16,250 $2.96
Esquire Trade & Finance, Inc. (D) 4-23-99 8,125 $2.96
Esquire Trade & Finance, Inc. (D) 2-1-00 422,500 $0.625*
Esquire Trade & Finance, Inc. (F) 4-7-00 1,000,000 $1.00
Esquire Trade & Finance, Inc. (F) 10-13-00 38,259 $0.9625*
Libra Finance, S.A . (F) 4-7-00 1,600,000 $0.84*
Amro International, S.A. (D) 2-1-00 455,000 $0.625*
Amro International, S.A. (F) 4-7-00 1,000,000 $1.00
Amro International, S.A. (F) 10-13-00 38,259 $0.9625*
Amro International, S.A. (D) 3-9-99 17,500 $2.96
Amro International, S.A. (D) 4-23-99 8,750 $2.96
* Exercise price not adjusted
On June 19, 2002, we issued 33,333 shares of restricted common stock to
Tradersbloom Limited, as a finder fee in connection with the issuance of our
Series I preferred stock. Tradersbloom Limited is a sophisticated and accredited
investor.
On June 19, 2002, we issued 66,667 shares of restricted common stock to Libra
Finance, S.A., as a finder fee in connection with the issuance of our Series I
preferred stock. Libra Finance, S.A. is a sophisticated and accredited investor.
5
On June 21, 2002, we issued 10,000 shares of common stock to The Keshet Fund LP,
upon the conversion of 135 shares of Series G Convertible Preferred, at a
conversion price of $0.1760. The conversion included accrued and unpaid
dividends on the preferred converted in the amount of $402.29.
On July 1, 2002, the Company issued 500,000 shares of common stock to Esquire
Trade & Finance, Inc., upon the conversion of 8,250 shares of Series D
Convertible Preferred, at a conversion price of $0.165. The conversion did not
include accrued and unpaid dividends on the preferred converted.
On July 1, 2002, the Company issued 500,000 shares of common stock to Austinvest
Anstalt Balzers, upon the conversion of 8,250 shares of Series D Convertible
Preferred, at a conversion price of $0.165. The conversion did not include
accrued and unpaid dividends on the preferred converted.
On July 23, 2002, the Company issued 475,000 shares of common stock to The
Keshet Fund LP, upon the conversion of 6,172 shares of Series G Convertible
Preferred, at a conversion price of $0.1680. The conversion included accrued and
unpaid dividends on the preferred converted in the amount of $18,083.72.
On July 23, 2002, the Company issued 475,000 shares of common stock to Keshet
LP, upon the conversion of 6,172 shares of Series G Convertible Preferred, at a
conversion price of $0.1680. The conversion included accrued and unpaid
dividends on the preferred converted in the amount of $18,083.72.
On September 26, 2002, the Company issued 154,171 shares of common stock to Amro
International, SA, upon the conversion of 2,500 shares of Series D Convertible
Preferred, at a conversion price of $0.187. The conversion included accrued and
unpaid dividends on the preferred converted in the amount of $3,830.
On September 26, 2002, the Company issued 396,053 shares of common stock to Amro
International, SA, upon the conversion of 7,108 shares of Series D Convertible
Preferred, at a conversion price of $0.208. The conversion included accrued and
unpaid dividends on the preferred converted in the amount of $11,299.
On September 30, 2002, the Company issued 100,000 shares of non-voting Series J
Convertible Preferred stock, having a stated value of $10.00 per Preferred J
share, and common stock warrants to Mid-Am Capital, L.L.C.
("Mid-Am") for the aggregate purchase price of $1,000,000. Each preferred share
is convertible to 40 shares of the Company's common stock of at a per common
share conversion price of $0.25, representing 4,000,000 shares of common stock
underlying the preferred. The issued warrants entitle the holder to purchase 25
shares of common stock for each share of Series J Convertible Preferred stock
issued at an exercise price of $0.40 per common stock share, representing
2,500,000 shares of common stock underlying the warrants. The warrants are
exercisable for a five-year period . The blended per share price for the common
stock underlying the preferred and the warrants is $0.307; the September 30,
2002 closing market trading price was $0.29 per share. This private offering was
made to Mid-Am, an accredited investor, pursuant to Rule 506 of Regulation D and
Section 4(2) of the Securities Act of 1933.
The common stock issued by the Company in the fourth quarter 2002 resulted from
conversions by the holders of Series F and G convertible preferred stock. The
common stock and the preferred converted were issued to sophisticated and
accredited investors, who had appropriate access to information concerning the
Company's operations and financial condition in a rule 506 private offering.
Holders of the Series F and G preferred can convert such equity into common
shares at 75% of the average of the three lowest bid trading prices of the
Company's common shares measured during a 20 day lookback period.
On November 8, 2002, the Company issued 160,112 shares of common stock to
Austinvest Anstalt Balzers, upon the conversion of 2,642 shares of Series F
Convertible Preferred, at a conversion price of $0.165. The Series F preferred
does not include dividends.
On November 8, 2002, the Company issued 160,112 shares of common stock to
Esquire Trade & Finance, Inc., upon the conversion of 2,642 shares of Series F
Convertible Preferred, at a conversion price of $0.165. The Series F preferred
does not include dividends.
6
On November 18, 2002, the Company issued 26,000 shares of common stock to
Nesher, Ltd., upon the conversion of 377 shares of Series G Convertible
Preferred, at a conversion price of $0.1963. The conversion included accrued and
unpaid dividends on the preferred converted in the amount of $1,333.92.
On November 18, 2002, the Company issued 11,240 shares of common stock to
Talbiya B. Investments, Ltd., upon the conversion of 163 shares of Series G
Convertible Preferred, at a conversion price of $0.1963. The conversion included
accrued and unpaid dividends on the preferred converted in the amount of
$577.16.
On November 18, 2002, the Company issued 10,000 shares of common stock to
Nesher, Ltd., upon the conversion of 145 shares of Series G Convertible
Preferred, at a conversion price of $0.1963. The conversion included accrued and
unpaid dividends on the preferred converted in the amount of $515.68.
On November 18, 2002, the Company issued 6,000 shares of common stock to Talbiya
B. Investments, Ltd., upon the conversion of 87 shares of Series G Convertible
Preferred, at a conversion price of $0.1963. The conversion included accrued and
unpaid dividends on the preferred converted in the amount of $309.67.
On November 18, 2002, the Company issued 8,000 shares of common stock to The
Keshet Fund LP, upon the conversion of 116 shares of Series G Convertible
Preferred, at a conversion price of $0.1963. The conversion included accrued and
unpaid dividends on the preferred converted in the amount of $413.25.
On November 18, 2002, the Company issued 14,440 shares of common stock to
Keshet, LP, upon the conversion of 208 shares of Series G Convertible Preferred,
at a conversion price of $0.1960. The conversion included accrued and unpaid
dividends on the preferred converted in the amount of $747.92.
On November 18, 2002, the Company issued 6,000 shares of common stock to Keshet,
LP, upon the conversion of 93 shares of Series G Convertible Preferred, at a
conversion price of $0.2093. The conversion included accrued and unpaid
dividends on the preferred converted in the amount of $332.70.
On November 20, 2002, the Company issued 2,000,000 shares of common stock to
Amro International, SA, upon the conversion of 39,200 shares of Series F
Convertible Preferred, at a conversion price of $0.1960. The Series F preferred
does not include dividends.
On November 27, 2002, the Company issued 16,000 shares of common stock to
Keshet, LP, upon the conversion of 257 shares of Series G Convertible Preferred,
at a conversion price of $0.2093. The conversion included accrued and unpaid
dividends on the preferred converted in the amount of $931.69.
On November 27, 2002, the Company issued 15,000 shares of common stock to
Keshet, LP, upon the conversion of 273 shares of Series G Convertible Preferred,
at a conversion price of $0.2480. The conversion included accrued and unpaid
dividends on the preferred converted in the amount of $994.59.
On December 24, 2002, the Company issued 8,000 shares of common stock to The
Keshet Fund LP, upon the conversion of 144 shares of Series G Convertible
Preferred, at a conversion price of $0.2467. The conversion included accrued and
unpaid dividends on the preferred converted in the amount of $534.17.
On December 24, 2002, the Company issued 45,000 shares of common stock to
Nesher, LP, upon the conversion of 750 shares of Series G Convertible Preferred,
at a conversion price of $0.2293. The conversion included accrued and unpaid
dividends on the preferred converted in the amount of $2,815.26.
On December 24, 2002, the Company issued 90,000 shares of common stock to
Keshet, LP, upon the conversion of 1,501 shares of Series G Convertible
Preferred, at a conversion price of $0.2293. The conversion included accrued and
unpaid dividends on the preferred converted in the amount of $5,630.52.
On December 24, 2002, the Company issued 45,000 shares of common stock to
Talbiya B. Investments, Ltd, upon the conversion of 750 shares of Series G
Convertible Preferred, at a conversion price of $0.2293. The conversion included
accrued and unpaid dividends on the preferred converted in the amount of
$2,815.26.
7
On January 2, 2003 the Company granted options for 100,000 shares of common
stock to Mr. Toulan pursuant to an employment contract. These options vested
immediately, expire on December 30, 2007 and have an exercise price of $0.40 per
share.
On January 2, 2003 the Company granted options for 100,000 shares of common
stock to Mr. Toulan pursuant to an employment contract. These options vest on
December 31, 2003, expire on December 30, 2008 and have an exercise price of
$0.40 per share.
On January 2, 2003 the Company granted options for 100,000 shares of common
stock to Mr. Toulan pursuant to an employment contract. These options vest on
December 31, 2004, expire on December 30, 2009 and have an exercise price of
$0.40 per share.
On February 4, 2003, the Company issued 30,000 shares of common stock to Keshet,
LP, upon the conversion of 480 shares of Series G Convertible Preferred, at a
conversion price of $0.1960. The conversion included accrued and unpaid
dividends on the preferred converted.
On February 21, 2003, the Company issued 50,000 shares of non-voting Series J 8%
Convertible Preferred stock, having a stated value of $10.00 per Preferred J
share, and common stock warrants to Mid-Am Capital, L.L.C.
("Mid-Am") for the aggregate purchase price of $500,000. Each preferred share is
convertible to 40 shares of the Company's common stock of at a per common share
conversion price of $0.25, representing 2,000,000 shares of common stock
underlying the preferred. The issued warrants entitle the holder to purchase
33.33 shares of common stock for each share of Series J Convertible Preferred
stock issued at an exercise price of $0.30 per common stock share, representing
1,666,667 shares of common stock underlying the warrants. The warrants are
exercisable for a five-year period. The February 21, 2003 closing market trading
price was $0.23 per share. This private offering was made to Mid-Am, an
accredited investor, pursuant to Rule 506 of Regulation D and Section 4(2) of
the Securities Act of 1933.
On April 14, 2003, the Company issued 50,000 shares of common stock to Keshet,
LP, upon the conversion of 596 shares of Series G Convertible Preferred, at a
conversion price of $0.148. The conversion included accrued and unpaid dividends
on the preferred converted.
On April 22, 2003, the Company issued 50,000 shares of common stock to The
Keshet Fund, LP, upon the conversion of 595 shares of Series G Convertible
Preferred, at a conversion price of $0.148. The conversion included accrued and
unpaid dividends on the preferred converted.
On May 22, 2003, the Company issued 100,000 shares of common stock to Keshet,
LP, upon the conversion of 607 shares of Series G Convertible Preferred, at a
conversion price of $0.076. The conversion included accrued and unpaid dividends
on the preferred converted.
On May 22, 2003, the Company issued 100,000 shares of common stock to The Keshet
Fund, LP, upon the conversion of 607 shares of Series G Convertible Preferred,
at a conversion price of $0.076. The conversion included accrued and unpaid
dividends on the preferred converted.
On May 29, 2003, the Company issued 50,000 shares of non-voting Series J 8%
Convertible Preferred stock, having a stated value of $10.00 per Preferred J
share, and common stock warrants to Mid-Am Capital, L.L.C. ("Mid-Am") for the
aggregate purchase price of $500,000. Each preferred share is convertible to 50
shares of the Company's common stock of at a per common share conversion price
of $0.20, representing 2,500,000 shares of common stock underlying the
preferred. The issued warrants entitle the holder to purchase 40 shares of
common stock for each share of Series J Convertible Preferred stock issued at an
exercise price of $0.25 per common stock share, representing 2,000,000 shares of
common stock underlying the warrants. The warrants are exercisable for a
five-year period. The May 22, 2003 closing market trading price was $0.22 per
share. In addition, the following adjustments were made to prior issued Warrants
for the purpose of facilitating future fund raising by the Company arising out
of the exercise of the Warrants by Holder. The Purchase Price, as defined in the
Warrants No. 1 and 2, has been reduced to $0.25, subject to further adjustment
as described in the Warrants. The Warrant Stock provided for in Warrant No.1 has
been increased by 1,500,000 shares. The Warrant Stock provided for in Warrant
No. 2 has been increased by 333,333 shares. The Expiration Date, as defined in
8
the respective Warrants, remains as stated. The aforementioned adjustments
resulted in a total of 6,000,000 shares of common stock underlying Warrant No. 1
and Warrant No. 2. Those warrants were valued using the Black-Scholes model as
of May 22, 2003. No adjustments resulted from that valuation. The trading price
Call Option trigger set forth in Section 9 (b) of the Warrants has been reduced
from $1.75 to $0.75 per share. This private offering was made to Mid-Am, an
accredited investor, pursuant to Rule 506 of Regulation D and Section 4(2) of
the Securities Act of 1933.
On August 12, 2003, the Company issued 1,200,000 shares of common stock upon the
conversion of 6,542 shares of Series G Convertible Preferred. The conversions
were based upon notices of conversion received in June and July 2003, and was
delayed in order to determine the accuracy of the conversion variables contained
in the respective notices of conversion. The conversion-based issuances of
common were as follows:
o The Company issued 200,000 shares of common stock to Keshet, LP,
upon the conversion of 1,209 shares of Series G Convertible
Preferred, at a conversion price of $0.076. The conversion included
accrued and unpaid dividends on the preferred converted.
o The Company issued 200,000 shares of common stock to The Keshet
Fund, LP, upon the conversion of 1,209 shares of Series G
Convertible Preferred, at a conversion price of $0.076. The
conversion included accrued and unpaid dividends on the preferred
converted.
o The Company issued 150,000 shares of common stock to The Keshet
Fund, LP, upon the conversion of 773 shares of Series G Convertible
Preferred, at a conversion price of $0.0653. The conversion included
accrued and unpaid dividends on the preferred converted.
o The Company issued 250,000 shares of common stock to Keshet, LP,
upon the conversion of 1,289 shares of Series G Convertible
Preferred, at a conversion price of $0.0653. The conversion included
accrued and unpaid dividends on the preferred converted.
o The Company issued 200,000 shares of common stock to Talbiya B.
Investments, Ltd., upon the conversion of 1,031 shares of Series G
Convertible Preferred, at a conversion price of $0.0653. The
conversion included accrued and unpaid dividends on the preferred
converted.
o The Company issued 200,000 shares of common stock to Nesher. Ltd.,
upon the conversion of 1,031 shares of Series G Convertible
Preferred, at a conversion price of $0.0653. The conversion included
accrued and unpaid dividends on the preferred converted.
On September 15, 2003, the Company issued 213,750 shares of common stock to
Michael Willms, upon the conversion of 7,500 shares of Series H Convertible
Preferred, at the fixed conversion price of $0.40. The conversion included
accrued and unpaid dividends on the preferred converted.
On September 29, 2003, the Company issued 70,938 shares of common stock to The
Dennis H. Willms Irrevocable Trust, Michael Willms, Trustee, upon the conversion
of 2,500 shares of Series H Convertible Preferred, at the fixed conversion price
of $0.40. The conversion included accrued and unpaid dividends on the preferred
converted.
To obtain funding for our ongoing operations, we entered into a Subscription
Agreement with two accredited investors in November 2003 for the sale of (i)
$400,000 in convertible debentures, (ii) class A warrants to buy 2,000,000
shares of our common stock and (iii) class B warrants to buy 10,000,000 shares
of common stock. In connection with this financing, we paid a finders fee to an
accredited investor, which included (i) 400,000 shares of common stock, (ii)
class A warrant to purchase 2,000,000 shares of common stock and (iii) 10% of
the proceeds received by us in connection with the exercise of the class B
warrants, which is payable in shares of common stock at the rate of one share of
common stock for every ten shares of common stock actually issued upon exercise
of the class B warrants.
In April 2004, we entered into a Subscription Agreement with two
accredited investors for the sale of (i) $500,000 in convertible debentures and
(ii) warrants to buy 3,000,000 shares of our common stock. In connection with
this financing, we paid a fee in the amount of $50,000 in the form of a
convertible debentures.
9
The debentures issued in connection with the April 2004 financing bear interest
at 10%. The principal on the notes is due in equal monthly installments
commencing on November 1, 2004 until October 1, 2005. On October 1, 2005, all
principal and interest shall become due. In the event that our common stock has
a closing price in excess of $.20 for the five days preceding the monthly
payment, then, within our discretion, the monthly payment may be deferred. and
the notes are convertible into our common stock at $0.10 per share.
Marvel License
On February 1, 2004, we entered into a license agreement with Marvel
Enterprises, Inc. In consideration for the use of proprietary information, we
issued Marvel 750,000 shares of our common stock and a common stock purchase
warrant to purchase 750,000 shares of our common stock. The warrants have an
exercise price of $.10 per share for the first year and, upon the occurrence of
certain conditions tied to the royalty performance under the license, can be
extended for an additional year with an exercise price of $.14 per share.
June 2004
In June 2004, we entered into a Subscription Agreement with Longview Fund,
LP, Alpha Capital Aktiengesellschaft, Whalehaven Funds Limited and Stonestreet
Limited Partnership for the issuance of convertible 10% notes in the aggregate
amount of $800,000 and five-year "A" warrants for the purchase of, in the
aggregate, 3,200,000 shares of common stock, at $0.25 per share, and five-year
"B" warrants for the purchase of, in the aggregate, 8,000,000 shares of common
stock, at $2.00 per share. In addition, in a separate private placement, Mid-Am
Capital L.L.C. invested $500,000 in exchange for convertible 10% notes,
5,000,000 "A" warrants and 2,000,000 "A" warrants, which had identical terms to
that of the other investors. In consideration for the investors providing us
with additional financing in the aggregate amount of $550,000 in October 2004,
we subsequently amended the exercise price to $.15 for the "A" warrants and to
$.125 for the "B" warrants issued to Longview Fund, LP, Alpha Capital
Aktiengesellschaft, Whalehaven Funds Limited and Stonestreet Limited
Partnership. The notes are convertible into shares of common stock of the
Company at $0.10 per common share. The notes are payable in twelve equal monthly
installments, commencing January 1, 2005. The installment payments consist of
principal and a "premium" of 20% of the principal paid per installment. We have
the option to defer such payment until the note's maturity date on December 1,
2005, if our common stock trades above $0.20 for the five trading days prior to
the due date of an installment payment.
The investors have contractually agreed to restrict their ability to
convert or exercise their warrants and receive shares of our common stock such
that the number of shares of common stock held by them and their affiliates
after such conversion or exercise does not exceed 9.99% of the then issued and
outstanding shares of common stock.
October 2004
On October 29, 2004, we entered into Subscription Agreements with Longview
Fund, LP, Alpha Capital Aktiengesellschaft, Whalehaven Funds Limited and
Stonestreet Limited Partnership for the issuance of convertible 10% notes in the
aggregate amount of $550,000 and five-year "C" warrants for the purchase of, in
the aggregate, 2,200,000 shares of common stock, at $0.15 per share, and the
repricing of five-year "A" warrants, issued June 30, 2004 for the purchase of,
in the aggregate, 3,200,000 shares of common stock, from $0.25 to $0.15 per
share. The notes are convertible into shares of common stock at $0.10 per common
share. The notes are payable in twelve equal monthly installments, commencing
May 1, 2005. The installment payments consist of principal and a "premium" of
20% of the principal paid per installment. We have the option to defer such
payment until the note's maturity date on April 30, 2006, if our common stock
trades above $0.15 for the five trading days prior to the due date of an
installment payment and the underlying common stock is registered. In connection
with this transaction, we issued additional notes, without attached warrants, in
the aggregate amount of $27,500 to Gem Funding, LLC, Bi-Coastal Consulting
Corp., Stonestreet Limited Partnership and Libra Finance, S.A upon identical
terms as the principal notes, as a finder's fee, and paid $12,500 in legal fees.
The common stock underlying all notes and warrants carry registration rights.
10
The investors have contractually agreed to restrict their ability to
convert or exercise their warrants and receive shares of our common stock such
that the number of shares of common stock held by them and their affiliates
after such conversion or exercise does not exceed 9.99% of the then issued and
outstanding shares of common stock.
December 2004
In December 2004, we entered into Subscription Agreements with Momona
Capital Corp. and Ellis International Ltd. for the issuance of convertible 10%
notes in the aggregate amount of $400,000 and five-year "C" warrants for the
purchase of, in the aggregate, 800,000 shares of common stock, at $0.15 per
share The notes are convertible into shares of common stock at $0.10 per common
share. The notes are payable in twelve equal monthly installments, commencing
May 1, 2005. The installment payments consist of principal and a "premium" of
20% of the principal paid per installment. We have the option to defer such
payment until the note's maturity date on April 30, 2006, if our common stock
trades above $0.15 for the five trading days prior to the due date of an
installment payment and the underlying common stock is registered. In connection
with this transaction, we issued additional notes, without attached warrants, in
the aggregate amount of $10,000 to Momona Capital Corp. and Ellis International
Ltd. upon identical terms as the principal notes, as a finder's fee. The common
stock underlying all notes and warrants carry registration rights.
The investors have contractually agreed to restrict their ability to
convert or exercise their warrants and receive shares of our common stock such
that the number of shares of common stock held by them and their affiliates
after such conversion or exercise does not exceed 9.99% of the then issued and
outstanding shares of common stock.
January 2005
On January 31, 2005, we closed a funding transaction with Longview Fund,
LP, Longview Equity Fund, LP, Longview International Equity Fund, LP, Alpha
Capital Aktiengesellschaft and Whalehaven Funds Limited (collectively, the
"January 2005 Investors"), five institutional accredited investors, for the
issuance and sale to the January 2005 Investors of up to $2,300,000 of principal
amount of convertible notes convertible into shares of our common stock, and
common stock purchase warrants to purchase 18,400,000 shares of common stock. In
April 2005, Alpha Capital Aktiengesellschaft assigned its right to participate
in the second closing to Ellis International Ltd. and Osher Capital Group. The
exercise price for the common stock purchase warrants is $0.129. Pursuant to the
Subscription Agreement as modified, $1,150,000 of the purchase price was paid on
the initial closing date, $500,000 of the purchase price was paid in May 2005
and $650,000 of the purchase price was paid within five business days after the
actual effectiveness of the registration statement that registered these
securities.
The notes have a maturity date two years from closing, have an interest
rate of 4% and are payable in 12 equal monthly installments, commencing June 1,
2005. The installment payments consist of principal equal to 1/20th of the
initial principal amount which can be paid in cash at 103% of the monthly
installment, or common stock, or a combination of both. The notes are
convertible into shares of our common stock at $0.125 per common share. However,
in the event that the average of the five lowest closing bid prices of our
common stock for the 20 consecutive trading days immediately preceding the
conversion date is less than $0.144 or certain volume criteria are not
satisfied, then the conversion price shall be 80% of the average of the five
lowest closing bid prices of our common stock for the 20 trading days
immediately preceding the conversion date.
The investors have contractually agreed to restrict their ability to
convert or exercise their warrants and receive shares of our common stock such
that the number of shares of common stock held by them and their affiliates
after such conversion or exercise does not exceed 9.99% of the then issued and
outstanding shares of common stock.
April 2005
On April 21, 2005, we closed a funding transaction with Alpha Capital
Aktiengesellschaft ("Alpha") for the issuance of a 10% convertible note in the
amount of $300,000. The convertible note has an October 31, 2005 maturity date
and is payable in five equal monthly installments, commencing June 1, 2005. The
installment payments consist of principal (equal to 1/5th of the initial
principal amount) plus accrued interest. We can elect to pay the installments in
11
cash or common stock valued at the average closing price of our common stock
during the five trading days immediately preceding the relevant installment due
date. We have the right to prepay the convertible note by paying to Alpha cash
equal to 120% of the principal to be prepaid plus accrued interest. Prior to the
installment date becoming due, Alpha may elect to convert the convertible note
into shares of common stock of our company at $0.20 per common share.
Alpha contractually agreed to restrict its ability to convert or exercise
their warrants and receive shares of our common stock such that the number of
shares of common stock held by them and its affiliates after such conversion or
exercise does not exceed 9.99% of the then issued and outstanding shares of
common stock.
On May 17, 2005 we issued the aggregate of 27,500 restricted shares of the
Company's common stock to eleven product sales brokers as a bonus for the
performance of services for the Company. We issued the restricted common stock
pursuant to Section 4(6) of the Securities Act of 1933, which provides an
exemption from the registration requirements of the Act for transactions not
involving a public offering.
We issued 696,042 shares of common stock to Longview Fund LP, Longview
Equity Fund LP, Longview International Equity Fund LP and Esquire Trade &
Finance Inc., pursuant to the cashless exercises of warrants for 763,750 shares
of common stock. We issued the Warrants and the underlying common stock upon
exercise to accredited investors, pursuant to a Regulation D offering and Rule
144(k).
We converted 19,133 shares of our Series F Convertible Preferred, having a
stated value of $191,330 into 804,752 shares of common stock pursuant to notices
of conversion to Amro International, SA. We issued the Series F Convertible
Preferred and the underlying common stock upon conversion to accredited
investors, pursuant to a Regulation D offering and Rule 144(k).
We issued 3,345,417 shares of common stock to Austinvest Anstalt Balzers
and Esquire Trade & Finance Inc. and Libra Finance, SA., pursuant to the
cashless exercise of warrants for 3,676,518 shares of common stock. We issued
the Warrants and the underlying common stock upon exercise to accredited
investors, pursuant to a Regulation D offering and Rule 144(k).
We converted 1,000 shares of our Series H Convertible Preferred, having a
stated value of $10,000 into 25,000 shares of common stock pursuant to notices
of conversion, to one individual investor. We issued the Convertible Preferred
and the underlying common stock upon conversion to accredited investors,
pursuant to a Regulation D offering and Rule 144(k).
We converted 10,000 shares of our Series I Convertible Preferred, having a
stated value of $100,000 into 656,953 shares of common stock pursuant to a
notice of conversion, to Tradersbloom Limited. The conversion included $24,000
of accrued and unpaid interest. We issued the Convertible Preferred and the
underlying common stock upon conversion to accredited investors, pursuant to a
Regulation D offering and Rule 144(k).
On August 3, 2005 we issued 500,000 restricted shares of our common stock
to Geoffrey Eiten, for services rendered for strategic business planning. We
issued the restricted common stock pursuant to Section 4(6) of the Securities
Act of 1933, which provides an exemption from the registration requirements of
the Act for transactions not involving a public offering.
On August 29 and September 19, 2005 we issued the aggregate of 1,000,000
restricted shares of our common stock to National Financial Communications Corp.
pursuant to the exercise of Warrants issued in connection with a consulting
agreement for services rendered for strategic business planning. We issued the
restricted common stock pursuant to Section 4(6) of the Securities Act of 1933,
which provides an exemption from the registration requirements of the Act for
transactions not involving a public offering.
On September 19, 2005, we issued 450,000 restricted shares of our common
stock to Alpha Capital AG, an accredited investor, in a sale not involving a
public offering at a price of $1.00 per share. We issued the common stock
pursuant to a Regulation D offering.
12
On August 31, 2005, we issued three year Warrant to Coca-Cola Enterprises
Inc. to purchase 30,000,000 shares of our common stock a $0.36 per share. During
the first 18 months of the exercise period, the Company has the option to "call"
the exercise of up to 10,000,000 shares of common stock issuable upon exercise
of the Warrant, upon the Company's satisfaction of certain conditions, including
a trading price of not less than $1.08 per share for 20 consecutive trading
days. This Warrant was issued in connection with the execution of a Master
Distribution Agreement on August 31, 2005. We issued the Warrant pursuant to
Section 4(6) of the Securities Act of 1933, which provides an exemption from the
registration requirements of the Act for transactions not involving a public
offering.
November 2005
On November 28, 2005, we closed a funding transaction with 13 accredited
institutional investors, for the issuance and sale of 40,500,000 shares of our
common stock for a purchase price of $20,250,000. In addition, we also issued
five-year warrants for the purchase of an additional 15,187,500 shares of common
stock at an exercise price of $0.80 per share. The securities are restricted and
have been issued pursuant to an exemption to the registration requirements of
Section 5 of the Securities Act of 1933 for "transactions of the issuer not
involving any public offering" provided in Section 4(2) of the Act and pursuant
to a Regulation D offering. In connection with this financing, we issued common
stock purchase warrants to purchase 1,012,500 shares of common stock at an
exercise price of $.50 per share and 304,688 shares of common stock at an
exercise price of $.80 per share to SG Cowen & Co., LLC, who acted as placement
agent for this financing.
The shares of common stock and the shares of common stock underlying the
warrants carry registration rights that obligate us to file a registration
statement within 45 days from closing and have the registration statement
declared effective within 120 days from closing.
In June 2005, we entered into a Services Agreement with Marvel
Enterprises, Inc. pursuant to which Marvel Enterprises, Inc. agreed to provide
introductions to retailers and advise on creative design in consideration for a
common stock purchase warrant to purchase 1,000,000 shares of common stock at
$0.05 per share.
* All of the above offerings and sales were deemed to be exempt under rule
506 of Regulation D and Section 4(2) of the Securities Act of 1933, as amended.
No advertising or general solicitation was employed in offering the securities.
The offerings and sales were made to a limited number of persons, all of whom
were accredited investors, business associates of Bravo! Foods International
Corp. or executive officers of Bravo! Foods International Corp., and transfer
was restricted by Bravo! Foods International Corp. in accordance with the
requirements of the Securities Act of 1933. In addition to representations by
the above-referenced persons, we have made independent determinations that all
of the above-referenced persons were accredited or sophisticated investors, and
that they were capable of analyzing the merits and risks of their investment,
and that they understood the speculative nature of their investment.
Furthermore, all of the above-referenced persons were provided with access to
our Securities and Exchange Commission filings.
Except as expressly set forth above, the individuals and entities to whom
we issued securities as indicated in this section of the registration statement
are unaffiliated with the Company.
13
ITEM 27. EXHIBITS.
The following exhibits are included as part of this Form SB-2. References
to "the Company" in this Exhibit List mean Bravo! Foods International Corp., a
Delaware corporation.
Exhibit
No. Title of Document
--- -----------------
3.1 Articles of Incorporation (1)
3.2 Amended Articles (name change) (1)
3.3 Restated Bylaws China Peregrine Food Corporation (1)
4.1 Preferred, Series B Designation (1)
4.2 Preferred, Series F Designation (2)
4.3 Preferred, Series G Designation (3)
4.4 Preferred, Series H Designation (6)
4.5 Preferred, Series I Designation (7)
4.6 Preferred, Series J Designation (8)
4.7 Preferred, Series K Designation (10)
4.8 Subscription Agreement dated November 2003 entered with Gamma
Opportunity Capital Partners, LP (11)
4.9 Class A Common Stock Purchase Warrant issued to Gamma Opportunity
Capital Partners, LP (11)
4.10 Class B Common Stock Purchase Warrant issued to Gamma Opportunity
Capital Partners, LP (11)
4.11 Convertible Note issued to Gamma Opportunity Capital Partners, LP
dated November 2003 (11)
4.12 Class A Common Stock Purchase Warrant issued to Libra Finance, S.A.
(11)
4.13 Subscription Agreement dated November 2003 entered with MID-AM
CAPITAL, L.L.C. (11)
4.14 Class A Common Stock Purchase Warrant issued to MID-AM CAPITAL,
L.L.C. (11)
4.15 Class B Common Stock Purchase Warrant issued to MID-AM CAPITAL,
L.L.C. (11)
4.16 Convertible Note issued to MID-AM CAPITAL, L.L.C. dated November
2003 (11)
4.17 Subscription Agreement dated April 2, 2004 entered with Alpha
Capital Aktiengesellschaft and Longview Fund LP (11)
4.18 Convertible Note issued to Alpha Capital Aktiengesellschaft dated
April 2004 (11)
4.19 Convertible Note issued to Longview Fund LP dated April 2004 (11)
4.20 Common Stock Purchase Warrant issued to Alpha Capital
Aktiengesellschaft dated April 2004 (11)
14
4.21 Common Stock Purchase Warrant issued to Longview Fund LP dated April
2004 (11)
4.21 Subscription Agreement entered by and between the Company and Mid-AM
Capital LLC dated June 2004 (12)
4.22 Convertible Note issued to Mid-AM Capital LLC dated June 2004 (12)
4.23 Common Stock Purchase Warrant A issued to Mid-AM Capital LLC dated
June 2004 (12)
4.24 Common Stock Purchase Warrant B issued to Mid-AM Capital LLC dated
June 2004 (12)
4.25 Subscription Agreement entered by and between the Company and Alpha
Capital, Longview Fund LP, Stonestreet Limited Partnership,
Whalehaven Funds Limited and Gamma Opportunity Capital Partners LP
dated June 2004 (12)
4.26 Form of Common Stock Purchase A issued to Alpha Capital, Longview
Fund LP, Stonestreet Limited Partnership, Whalehaven Funds Limited
and Gamma Opportunity Capital Partners LP dated June 2004 (12)
4.27 Form of Common Stock Purchase B issued to Alpha Capital, Longview
Fund LP, Stonestreet Limited Partnership, Whalehaven Funds Limited
and Gamma Opportunity Capital Partners LP dated June 2004 (12)
4.28 Form of Convertible Note issued to Alpha Capital, Longview Fund LP,
Stonestreet Limited Partnership, Whalehaven Funds Limited and Gamma
Opportunity Capital Partners LP dated June 2004 (12)
4.29 Subscription Agreement entered by and between the Company and Alpha
Capital, Longview Fund LP, Stonestreet Limited Partnership and
Whalehaven Funds Limited dated October 2004 (12)
4.30 Form of Common Stock Purchase C issued to Alpha Capital, Longview
Fund LP, Stonestreet Limited Partnership and Whalehaven Funds
Limited dated October 2004 (12)
4.31 Form of Convertible Note issued to Alpha Capital, Longview Fund LP,
Stonestreet Limited Partnership, Whalehaven Funds Limited and Gamma
Opportunity Capital Partners LP dated October 2004 (12)
4.32 Subscription Agreement entered by and between the Company and Momona
Capital Corp. and Ellis International Ltd. dated December 2004 (12)
4.33 Form of Common Stock Purchase C issued to Momona Capital Corp. and
Ellis International Ltd. dated December 2004 (12)
4.34 Form of Convertible Note issued to Momona Capital Corp. and Ellis
International Ltd. dated December 2004 (12)
4.35 Subscription Agreement entered by and between the Company and
Longview Fund, LP, Longview Equity Fund, LP, Longview International
Equity Fund, LP, Alpha Capital Aktiengesellschaft and Whalehaven
Funds Limited dated January 2005 (13)
4.36 Form of Convertible Note issued in January 2005(13)
4.37 Form of Common Stock Purchase Warrant issued in January 2005 (13)
15
4.38 Modification Agreement entered by and between the Company and
Longview Fund, LP, Longview Equity Fund, LP, Longview International
Equity Fund, LP, Alpha Capital Aktiengesellschaft and Whalehaven
Funds Limited dated May 2005 (13)
4.39 Subscription Agreement entered by and between the Company and Alpha
Capital Aktiengesellschaft dated April 2005 (13)
4.40 Form of Convertible Note issued in April 2005(13)
5.1 Sichenzia Ross Friedman Ference LLP Opinion and Consent (13)
10.1 Warner Bros China License Agreement (5)
10.2 Warner Bros China License Agreement (modified) (5)
10.3 Warner Bros. U.S. License Agreement (5)
10.4 Warner Bros. Mexico License Agreement (6)
10.5 Warner Bros. Cananda License Agreement (6)
10.6 MoonPie License Agreement (10)
10.7 Marvel License Agreement (10)
10.8 SADAFCO Production Agreement (10)
10.9 Real Estate Lease Amendment Extending Term (10)
10.10 Coca-Cola Enterprises Master Distribution Agreement (14)
10.11 Oman National Dairy Products Co. Ltd. Production Agreement (14)
10.12 Marvel Enterprises License (Middle East) (14)
21.1 Subsidiaries (6)
21.2 Subsidiaries Articles of Association (6) China Premium Food
Corporation (Shanghai) Co., Inc.
23.1 Consent of Lazar Levine & Felix LLP (filed herewith).
23.2 Consent of legal counsel (see Exhibit 5.1).
--------------------------------------------------
(1) Filed with Form 10SB/A First Amendment
(2) Filed with Form 10QSB for 3-31-99
(3) Filed with Form 10QSB for 6-30-99
(4) Filed with Form 10K-SB for 12-31-99
(5) Filed with Form 10QSB for 6-30-00
(6) Filed with Form SB-2/A Second Amendment
(7) Filed with Form SB-2/A Third Amendment
(8) Filed with Form 10K-SB 2001
(9) Filed with Form 8K filed October 2, 2002
(10) Filed with Form 10-KSB for 12-31-03
(11) Filed with Form SB-2 filed June 4, 2004
(12) Filed with the Form SB-2 filed on January 19, 2005
(13) Filed with the Form SB-2 filed on June 10, 2005
(14) Filed with the Form 10-QSB for the quarter ended September 30, 2005
16
ITEM 28. UNDERTAKINGS.
The undersigned registrant hereby undertakes to:
(1) File, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the Securities Act of
1933, as amended (the "Securities Act");
(ii) Reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of the securities offered would
not exceed that which was registered) and any deviation from the low or high end
of the estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) under the
Securities Act if, in the aggregate, the changes in volume and price represent
no more than a 20% change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective registration
statement, and
(iii) Include any additional or changed material information on the plan of
distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
(4) For purposes of determining any liability under the Securities Act, treat
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act as part of this registration statement as of the time
it was declared effective.
(5) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration statement,
and that offering of the securities at that time as the initial bona fide
offering of those securities.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
17
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorizes this registration
statement to be signed on its behalf by the undersigned, in the City of North
Palm Beach, State of Florida, on December 20, 2005.
BRAVO! FOODS INTERNATIONAL CORP.
By: /s/ Roy G. Warren
----------------------------
Roy G. Warren, CEO and
Secretary
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated.
---------------------------------------- -------------------------------------- -------------------
Name Title Date
---------------------------------------- -------------------------------------- -------------------
/s/Stanley Hirschman Chairman and Director December 20, 2005
----------------------------
Stanley Hirschman
/s/Roy G. Warren Director, CEO and Secretary December 20, 2005
----------------------------
Roy G. Warren
/s/Arthur W. Blanding Director December 20, 2005
----------------------------
Arthur W. Blanding
/s/Robert Cummings Director December 20, 2005
----------------------------
Robert Cummings
/s/Phillip Pearce Director December 20, 2005
----------------------------
Phillip Pearce
/s/John McCormack Director December 20, 2005
----------------------------
John McCormack
/s/Tommy Kee Chief Accounting Officer December 20, 2005
----------------------------
Tommy Kee
/s/Roy D. Toulan Vice President, Corporate Secretary December 20, 2005
---------------------------- and General Counsel
Roy D. Toulan
/s/Jeffrey Kaplan Chief Financial Officer December 20, 2005
----------------------------
Jeffrey Kaplan
---------------------------------------- -------------------------------------- -------------------