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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY OR TRANSITIONAL REPORT
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2005
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
Commission File Number 000-25039
BRAVO! FOODS INTERNATIONAL CORP.
(Exact name of registrant as specified in its amended charter)
formerly
China Premium Food Corporation
Delaware 62-1681831
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11300 US Highway 1, North Palm Beach, Florida 33408 USA
(Address of principal executive offices)
(561) 625-1411
Registrant's telephone number
--------------------------------------------------------------
(Former name, former address and former fiscal year if changed
since last report)
The number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date is as follows:
Date Class Shares Outstanding
August 12, 2005 Common Stock 110,256,902
Transitional Small Business Disclosure Format (Check One) YES [ ] NO [ x ]
BRAVO! FOODS INTERNATIONAL CORP.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial statements
Consolidated balance sheets as of F-1
June 30, 2005 (unaudited) and December 31, 2004
Consolidated statements of operations F-3
(unaudited) for the three and six months ended
June 30, 2005 and 2004
Consolidated statements of cash flows F-4
(unaudited) for the six months ended
June 30, 2005 and 2004
Notes to consolidated financial statements (unaudited) F-5
Item 2. Management's Discussion and Analysis of Financial 15
Condition and Results of Operations
Item 3. Controls and Procedures 28
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 28
Item 6. Exhibits
SIGNATURES 31
EXHIBITS 31
BRAVO! FOODS INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
2005 2004
-------- ------------
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 377,705 $ 113,888
Accounts receivable 25,190 51,968
Inventories 66,637 11,656
Prepaid expenses 1,136,709 551,510
------------ ------------
Total current assets 1,606,241 729,022
Furniture and equipment, net 137,910 111,206
License rights, net of accumulated amortization 391,182 67,301
Trademarks, net 59,017 10,249
Deferred product development costs 269,515 162,169
Deposits 15,968 13,900
------------ ------------
Total assets $ 2,479,833 $ 1,093,847
============ ============
Liabilities and Capital Deficit
Current liabilities:
Note payable to International Paper $ 187,743 $ 187,743
Note payable to Alpha Capital 597,542 217,954
Note payable to Mid-Am Capital LLC 112,480 111,262
Note payable to Libra Finance 43,229 40,106
Note payable to Longview 87,103 54,086
Note payable to Stonestreet - 47,014
Note payable to Whalehaven 81,221 17,082
Note payable to Bi-Coastal 25,846 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 38,769 25,885
Accounts payable 2,440,968 1,763,339
Accrued liabilities 545,685 375,962
------------ ------------
Total current liabilities 4,307,701 3,094,991
Dividends payable 1,103,340 928,379
Other notes payable 2,578 100,171
------------ ------------
Total liabilities 5,413,619 4,123,541
------------ ------------
F-1
BRAVO! FOODS INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
2005 2004
-------- ------------
(unaudited)
Commitments and contingencies
Capital 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, 24,381 and 55,515
shares issued and outstanding 225,184 512,740
Series H convertible, 7% cumulative and redeemable
preferred stock, stated value $10.00 per share, 65,500
and 165,500 shares issued and outstanding 354,448 895,591
Series I convertible, 8% cumulative and redeemable
preferred stock, stated value $10.00 per share,
10,000 and 30,000 shares issued and outstanding 24,064 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, 95,784,469 and 57,793,501 shares
issued and outstanding 95,785 57,794
Additional paid-in capital 29,964,258 26,257,299
Accumulated deficit (36,491,265) (33,737,029)
Translation adjustment (17,979) -
------------ ------------
Total capital deficit (2,933,786) (3,029,694)
------------ ------------
Total liabilities and capital deficit $ 2,479,833 $ 1,093,847
============ ============
See accompanying notes.
F-2
BRAVO! FOODS INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended June 30, Six Months Ended June 30,
2005 2004 2005 2004
----------- ----------- ----------- -----------
(unaudited) (unaudited) (unaudited) (unaudited)
Revenue - unit sales $ 2,448,618 $ 1,121,727 $ 3,313,038 $ 1,489,185
Revenue - gross kit sales - 319,629 33,350 390,377
----------- ----------- ----------- -----------
Total revenue 2,448,618 1,441,356 3,346,388 1,879,562
Cost of sales (1,680,464) (934,966) (2,358,127) (1,265,087)
----------- ----------- ----------- -----------
Gross margin 768,154 506,390 988,261 614,475
Selling expenses 1,174,019 364,382 1,797,471 617,420
Product development 46,674 17,527 110,265 21,172
General and administrative expense 786,307 961,061 1,439,554 1,662,027
----------- ----------- ----------- -----------
Loss from operations (1,238,846) (836,580) (2,359,029) (1,686,144)
Other (income) expense
Interest expense 103,181 43,310 220,246 74,995
----------- ----------- ----------- -----------
Loss before income taxes (1,342,027) (879,890) (2,579,275) (1,761,139)
Provision for income taxes - - - -
----------- ----------- ----------- -----------
Net loss (1,342,027) (879,890) (2,579,275) (1,761,139)
Dividends accrued for Series B preferred stock (2,411) (2,411) (4,795) (4,822)
Dividends accrued for Series G preferred stock - (4,769) - (15,633)
Dividends accrued for Series H preferred stock (27,857) (28,883) (56,423) (57,766)
Dividends accrued for Series I preferred stock (5,019) (5,984) (10,937) (11,968)
Dividends accrued for Series J preferred stock (30,247) (39,890) (69,699) (79,780)
Dividends accrued for Series K preferred stock (14,367) (18,883) (33,107) (24,319)
----------- ----------- ----------- -----------
Net loss applicable to common shareholders $(1,421,928) $ (980,710) $(2,754,236) $(1,955,427)
=========== =========== =========== ===========
Weighted average number of common shares
outstanding 72,381,911 39,796,419 66,035,224 35,398,982
=========== =========== =========== ===========
Basic and diluted loss per share $ (0.02) $ (0.02) $ (0.04) $ (0.06)
=========== =========== =========== ===========
Comprehensive loss and its components
consist of the following:
Net loss $(1,342,027) $ (879,890) $(2,579,275) $(1,761,139)
Foreign currency translation adjustment (9,763) - (17,979) -
----------- ----------- ----------- -----------
Comprehensive loss $(1,351,790) $ (879,890) $(2,597,254) $(1,761,139)
=========== =========== =========== ===========
See accompanying notes.
F-3
BRAVO! FOODS INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30
2005 2004
----------- -----------
(unaudited) (unaudited)
Cash flows from operating activities:
Net loss $(2,579,275) $(1,761,139)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 261,864 148,618
Stock issuance for compensation, finders'
fee and due diligence fees 123,450 116,000
Increase (decrease) from changes in:
Accounts receivable 26,778 (577,246)
Inventories (54,981) (32,788)
Prepaid expenses (587,267) (436,409)
Accounts payable and accrued expenses 958,921 15,713
Deferred product development costs (724,595) (279,241)
----------- -----------
Net cash used in operating activities (2,575,105) (2,806,492)
----------- -----------
Cash flows from investing activities:
Purchase of equipment (43,969) (7,852)
----------- -----------
Net cash used in investing activities (43,969) (7,852)
----------- -----------
Cash flows from financing activities:
Proceeds of Series K preferred stock - 950,000
Proceeds from conversion of warrants 1,038,509 -
Convert account payable into note payable - 1,128,386
Convertible notes payable 1,950,000 2,640,000
Redeem Warrants (25,000) -
Payment of note payable, bank loan and license fee payable - (1,278,386)
Registration costs for financing (62,639) (1,783)
----------- -----------
Net cash provided by financing activities 2,900,870 3,438,217
----------- -----------
Effect of changes in exchange rates on cash (17,979) -
----------- -----------
Net increase in cash and cash equivalents 263,817 623,873
Cash and cash equivalents, beginning of period 113,888 58,859
----------- -----------
Cash and cash equivalents, end of period $ 377,705 $ 682,732
=========== ===========
See accompanying notes.
F-4
BRAVO! FOODS INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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, Mexico and various countries in the Middle East and is
establishing infrastructures to conduct business in Canada and the United
Kingdom.
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 June 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 $36,491,265, a
capital deficit of $2,933,786, negative working capital of $2,701,460 and
is delinquent on certain of its debts at June 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 is in the process of repositioning its products with the
continued launch of four product lines and the initiation of an additional
two new lines. 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 has
committed financing of $2,600,000, with 1,950,000 invested in the six
months ending June 30, 2005 and the balance in August 2005. 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,
F-5
BRAVO! FOODS INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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. This recognition is based upon the Company's 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.
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
F-6
BRAVO! FOODS INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 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.
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 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.
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).
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 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.
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 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 and credits the processor dairies. The
Company currently sells 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.
Note 4 - Subsequent Events
Potential Change of Control and Distribution Agreements
-------------------------------------------------------
On July 13, 2005, Coca-Cola Enterprises, Inc. 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
F-7
BRAVO! FOODS INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Company (the "Options"). The common stock and other securities underlying
the Options represent approximately 23% of the authorized shares of the
Company's common stock. The exercise of the Options by Coca-Cola
Enterprises is contingent on the completion of due diligence and the
execution of a mutually satisfactory definitive master distribution
agreement.
In addition, 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. With such a direct purchase of common stock,
together with the shares of common stock purchasable upon the exercise of
the Options, Coca-Cola Enterprises will hold slightly in excess of 50% of
the Company's equity on a fully diluted basis. The transaction is
contingent upon the execution of a distribution agreement, a stock purchase
agreement and receipt of an appropriate fairness opinion by the Company as
to the transaction.
On July 29, 2005, the Company and Coca-Cola Enterprises, Inc. ("CCE")
entered into a Letter of Intent memorializing and confirming their
intention, subject to due diligence, further negotiation and certain
conditions, to enter into a stock purchase agreement pursuant to which CCE
would purchase from the Company approximately 81,030,000 million shares of
the Company's common stock at a purchase price of $0.16245 per share. If
the purchase of shares under the stock purchase agreement closes, those
shares, together with the shares of the Company's common stock subject to
Options previously granted to CCE by certain unaffiliated stockholders of
the Company, would, if exercised, give CCE ownership of approximately
50.01% of the Company's issued and outstanding common stock, on a fully
diluted basis.
The closing under the stock purchase agreement will also be subject
to the Company and CCE entering into a master distribution agreement
pursuant to which CCE would distribute the Company's products throughout
the United States, its possessions, Canada and other countries in which CCE
is licensed to bottle products of The Coca-Cola Company. There can be no
certainty that the stock purchase agreement contemplated by the Letter of
Intent will be entered into, or if entered into, the transaction
contemplated by the stock purchase agreement will be consummated.
Equity Transactions
-------------------
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 at a fixed conversion price of
$0.10. 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
3, 2004.
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.
Warrant Exercise: January 2005 Warrant. We issued 2,400,000 shares of
common stock to Whalehaven Capital Fund Limited, pursuant to the exercise of
Warrants issued in connection with the January 2005 financing transaction,
and received $240,000 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.
Warrant Exercise: May 2005 Warrant. We issued 1,800,000 shares of
common stock to Osher Capital Inc. and Ellis International Ltd Inc., pursuant
to the exercise of Warrants issued in connection with the January 2005
financing transaction, and received $180,000 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.
Warrant Exercise: Series D Warrant. We issued 2,574,792 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 2,777,634 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 1,466,667 shares of
common stock to Libra Finance, SA., pursuant to the cashless exercise of
warrants for 1,600,000 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).
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).
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.
F-8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 2005
FORWARD-LOOKING STATEMENTS
Statements that are not historical facts, including statements about
the Company's prospects and strategies and the Company's expectations about
growth contained in this report are "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. These
forward-looking statements represent the present expectations or beliefs
concerning future events. The Company cautions that such forward-looking
statements involve known and unknown risks, uncertainties and other factors
which may cause the Company's actual results, performance or achievements
to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. Such
factors include, among other things, the uncertainty as to the Company's
future profitability; the uncertainty as to whether the Company's new
business model can be implemented successfully; the accuracy of the
Company's performance projections; and the Company's ability to obtain
financing on acceptable terms to finance the Company's operations until
profitability.
OVERVIEW
The Company's business model includes the development and marketing
of a 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. The
Company generates revenue in its 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, the Company generates revenue from the unit sales of
finished branded flavored milks to retail consumer outlets.
The Company's new product introduction and growth expansion continues
to be expensive, and the Company reported a net loss of $2,579,275 for the
six-month period ended June 30, 2005. As shown in the accompanying
financial statements, the Company has suffered operating losses and
negative cash flows from operations since inception and at June 30, 2005
has an accumulated deficit of $36,491,265, a capital deficit of $2,933,786,
negative working capital of $2,701,460. These conditions give rise to
substantial doubt about the Company's ability to continue as a going
concern. As discussed herein, the Company plans to work toward
profitability in the Company's U.S. and international business and obtain
additional financing. While there is no assurance that funding will be
available or that the Company will be able to improve the Company's
operating results, the Company is continuing to seek equity and/or debt
financing. No assurances can be given, however, that management will be
successful in carrying out the Company's plans.
9
CORPORATE GOVERNANCE
The Board of Directors
The Company's board has positions for seven directors that are
elected as Class A or Class B directors at alternate annual meetings of the
Company's shareholders. Six of the seven current directors of the Company's
board are independent. The Company's 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 the Company's 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 the Company's shareholders after
nomination by the board or are appointed by the board when a vacancy arises
prior to an election. The Company has 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.
Audit Committee
The Company's audit committee is composed of three independent
directors and functions to assist the board in overseeing the Company's
accounting and reporting practices. The Company's financial information is
booked in house by the Company's CFO's office, from which the Company
prepares financial reports. These financial reports are audited or reviewed
by Lazar Levine & Felix LLP, independent registered certified accountants
and auditors. The Company's chief financial officer reviews the preliminary
financial and non-financial information prepared in house with the
Company's securities counsel and the auditors. The committee reviews the
preparation of the Company's audited and unaudited periodic financial
reporting and internal control reports prepared by the Company's chief
financial officer. The committee reviews significant changes in accounting
policies and addresses issues and recommendations presented by the
Company's auditors. Currently, there is one vacancy on the audit committee.
Compensation Committee
The Company's 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 the Company's other members of
management and the recommendations of the chief executive officer with
respect to the compensation of those individuals. Given the size of the
Company, all such employment contracts are periodically reviewed by the
board. The board must approve all compensation packages that involve the
issuance of the Company's stock or stock options.
10
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 the Company's consolidated financial
condition and results of operations are based on the Company's 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 the Company 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, the Company
evaluates the Company's estimates, including those related to reserves for
bad debts and valuation allowance for deferred tax assets. The Company
bases its 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. The Company's use of estimates,
however, is quite limited as the Company has adequate time to process and
record actual results from operations.
Revenue recognition
United States
-------------
The Company recognizes revenue in the United States at the gross
amount of its invoices for the sale of finished product to wholesale buyers
("unit sales"). 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. The Company's gross margin is determined by the reported
wholesale price less the cost charged by Jasper Products, the Company's
third party processor, to produce the branded milk products.
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.
11
International Sales
-------------------
The Company generally recognizes revenue in its international
business at the gross amount of its invoices for the sale of kits ("kit
sales") at the time of shipment of flavor ingredients to processor dairies
with which the Company has production contracts for extended shelf life and
aseptic long life milk. A "kit" consists of flavor ingredients and the grant
of production rights for the Company's branded products. The Company bases
this recognition on its role as the principal in these transactions, its
discretion in establishing kit sale prices (including the price of flavor
ingredients and production right 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 consists of the cost of 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 the Company's 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 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.
In certain circumstances, such as in the United Kingdom and as
anticipated in Canada, the Company recognizes revenue under the unit sales
model.
RESULTS OF OPERATIONS
Financial Condition at June 30, 2005
------------------------------------
As of June 30, 2005, we had an accumulated deficit of $36,491,265,
cash on hand of $377,705 and reported total capital deficit of $2,933,786.
For this same period of time, we had revenue of $3,346,388 and
general and administrative expense of $1,439,554.
After interest expenses of $220,246, cost of goods sold of
$2,358,127, product development costs of $110,265 and selling expenses of
$1,797,471 incurred in the operations of the Company, we had a net loss of
$2,579,275.
Six Months Ended June 30, 2005 Compared to Six Months Ended June 30, 2004
-------------------------------------------------------------------------
Consolidated Revenue
12
We had revenues for the six months ended June 30, 2005 of $3,346,388,
with cost of sales of $2,358,127, resulting in a gross margin of $988,261.
This revenue and resultant gross margin is net of slotting fees,
promotional discounts and marketing allowances for this period in the
amount of $187,295. Of the reported $3,346,388, U.S. sales accounted for
$3,313,038 with 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 six months ended June 30, 2005 increased by
$1,466,826, a 78.04% increase compared to revenue of $1,879,562 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 30,000 grocery and
convenience stores for this line by June 30, 2005.
Consolidated Cost of Sales
We incurred cost of goods sold of $2,358,127 for the six months ended
June 30, 2005, $2,355,514 of which was incurred in our U.S. business, and
$2,613 in connection with our international sales in the Middle East. Cost
of goods sold in this period increased by $1,093,040, an 86.40% increase
compared to $1,265,087 for the same period in 2004. The increase in cost of
goods sold reflects an increase in sales and the concomitant increase in
reported cost of goods sold associated with that increase.
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 it by Jasper
Products, a third party processor under contract with the Company, for
producing 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, revenues for the period ended June
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.
13
Six Months Ended
June 30, 2005 United States Mexico Middle East Total Company
------------- ------- ----------- -------------
Revenue - unit sales $ 3,313,038 $ - $ - $ 3,313,038
Revenue - gross kit sales - - 33,350 33,350
----------- ------- -------- -----------
Total revenue 3,313,038 - 33,350 3,346,388
Cost of goods sold (2,355,514) - (2,613) (2,358,127)
----------- ------- -------- -----------
Gross margin $ 957,524 $ - $ 30,737 $ 988,261
=========== ======= ======== ===========
Six Months Ended
June 30, 2004 United States Mexico Middle East Total Company
------------- ------- ----------- -------------
Revenue - unit sales $ 1,489,185 $ - $ - $ 1,489,185
Revenue - gross kit sales 44,379 26,368 319,630 390,377
----------- ------- -------- -----------
Total revenue 1,533,564 26,368 319,630 1,879,562
Cost of goods sold (1,215,268) (7,778) (42,041) (1,265,087)
----------- ------- -------- -----------
Gross margin $ 318,296 $18,590 $277,589 $ 614,475
=========== ======= ======== ===========
United States
-------------
Revenues for the period ended June 30, 2005 from unit sales in the
United States increased from $1,489,185 for the same period in 2004 to
$3,313,038 in 2005, a 122.47% increase. The increase is the result of the
introduction of the Company's new product lines during this period.
In the period ended June 30, 2005, our gross margin for U.S. sales of
$957,524, increased by $639,228, or by 200.83%, from $318,296 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 June 30, 2005 from kit sales in foreign
countries decreased from $345,998 for the same period in 2004 to $33,350, a
90.36 % 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.
We recorded $2,613 in costs of kit sales in foreign countries for the
period ended June 30, 2005, a decrease of $47,206 or 94.76% from $49,819
for the same period in 2004. As a percentage of sales, the costs of goods
sold decreased to 7.84% for the period ended June 30, 2005, from 14.4% for
the same period in 2004.
14
For the period ended June 30, 2005, our gross profit of $30,737 for
kit sales in foreign countries decreased by $265,442, or 89.62%, from
$296,179 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 $1,797,471 for the period ended June
30, 2005, $1,625,913 of which was incurred in our United States operations.
Our selling expense for this period increased by $1,180,051, a 191.13%
increase compared to our selling expense of $617,420 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 and
Boston Marathon promotion, associated with increased sales and our
development of four new product lines, utilizing newly licensed and
directly owned branded trademarks.
We incurred general and administrative expenses for the period ended
June 30, 2005 of $1,439,554, most of which we incurred in our United States
business operations and a small portion for the enlargement of our
international business into the United Kingdom and Canada. Our general and
administrative expenses for this period decreased by $222,473, a 13.39%
decrease compared to $1,662,027 for the same period in 2004. The decrease
in general and administrative expenses for the current period is the result
of greater efficiencies in the running of our business activities.
As a percentage of total revenue, the Company's general and
administrative expenses decreased from 88.4% in the period ended June 30,
2004, to 43% 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.
Interest Expense
We incurred interest expense for the period ended June 30, 2005 of
$220,246. Our interest expense increased by $145,251, a 193.68% increase
compared to $74,995 for the same period in 2004. The increase was due to
using additional debt to finance the Company's operations during this
period's transition in licensors of intellectual property utilized by the
Company and the development and launch of new product lines.
Loss Per Share
We accrued dividends payable of $174,961 for various series of
preferred stock during the period ended June 30, 2005. The accrued
dividends decreased for this period by $19,327, or 9.95%, from $194,288 for
the same period in 2004. The net loss before accrued dividends for the
current period increased $818,136, from $1,761,139 for the period ended
June 30, 2004 to $2,579,275 for the current period. The increase in the net
loss was offset by the increase in the weighted average number of common
shares outstanding, resulting in a decrease in the Company's current period
loss per share from $0.06 for the same period in 2004, to a loss per share
of $0.04 for the current period.
15
Three Months Ended June 30, 2005 Compared to the Three Months Ended
-------------------------------------------------------------------
June 30, 2004
-------------
Revenue
The Company had revenues for the three months ended June 30, 2005 of
$2,448,618, with cost of sales of $1,680,464, resulting in a gross profit
of $768,154, or 31.4% of sales. All sales were generated by in the
Company's U.S. operation. The Company did not report any sales for Canada,
Mexico or the Middle East in the three months ended June 30, 2005. Our
revenue for the three months ended June 30, 2005 increased by $1,007,262, a
69.88% increase compared to revenue of $1,441,356 for the three months
ended June 30, 2004. The increase in revenue in the United States for the
three months ended June 30, 2005 is the result of the introduction of the
Company's new product lines during this period.
Cost of Goods Sold
The Company incurred cost of goods sold of $1,680,464 for the three
months ended June 30, 2005, all of which was incurred in our U.S.
operations in the second quarter. Our cost of goods sold for this period
increased by $745,498, a 79.74% increase compared to $934,966 for the three
months ended June 30, 2004. The increase in cost of goods sold in the
United States for the three months ended June 30, 2005 is the result of
increased sales and the corresponding increase in the costs of goods sold.
Operating Expense
The Company incurred selling expenses for the three months ended June
30, 2005 of $1,174,019 all of which was incurred in our U.S. operation.
Selling expenses increased for the three months ended June 30, 2005 by
$809,637, a 222.19% increase compared to the selling expense of $364,382
for the three months ended June 30, 2004. The increase in selling expenses
is the result of increased sales.
The Company incurred general and administrative expenses for the
three months ended June 30, 2005 of $786,307, virtually all of which was
incurred in the U.S. operations. General and administrative expenses for
the three months ended June 30, 2005 decreased by $174,754, an 18.18%
decrease compared to $961,061 for the same period in 2004. The decrease in
general and administrative expenses for the current period is the result of
greater efficiencies in the running of our business activities.
Interest Expense
The Company incurred net interest expense for the three months ended
June 30, 2005 of $103,181. Interest expense for the three months ended June
30, 2005 increased by $59,871, a 138.24% increase compared to $43,310, for
the same period in 2004. This increase was the result of additional loans
in this period and utilizing debt to finance the Company's operations
during this period and the development and launch of new product lines.
16
Net Loss
The Company had a net loss for the three months ended June 30, 2005
of $1,342,027 compared with a net loss of $879,890 for the same period
in 2004. The net loss increased by $462,137 or 52.52% compared to the same
period in 2004. The increase in net loss resulted from the costs associated
with the development and launch of new product lines and licensing costs.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2005, we reported that net cash used in operating
activities was $2,575,105, net cash provided by financing activities was
$2,900,870 and net cash used in investing activities was $43,969. We had a
negative working capital of $2,701,460 as of June 30, 2005.
Compared to $2,806,492 of net cash used in operating activities in
the period ended June 30, 2004, our current period net cash used in
operating activities decreased by $231,387 to $2,600,105. This decrease was
the result of changes in deferred product development costs, prepaid
expenses, accounts payable and accrued expenses. Included in the net loss
in this current period were depreciation and amortization and stock
compensation for a finder fee aggregating $385,314, compared to $264,618
for the same period in 2004.
Changes in accounts receivable in this current period in 2005
resulted in a cash increase of $26,778, compared to a cash decrease in
receivables of $577,246 for the same period in 2004, having a net result of
an increase of $604,024. The changes in accounts payable and accrued
liabilities in the period ended of June 30, 2004 contributed to a cash
increase of $15,713, whereas the changes in accounts payable and accrued
liabilities for the current period in 2005 amounted to an increase of
$958,921. We have adopted and will keep implementing cost-cutting measures
to lower our costs and expenses and to pay our accounts payable and accrued
liabilities by using cash and equity instruments. Cash flow generated
through our operating activities was inadequate to cover all of our cash
disbursement needs in the period ended June 30, 2005, and we had to rely on
equity and debt financing to cover expenses.
Cash used in the period ended June 30, 2005 in our investing
activities for equipment was $43,969 for software, computer equipment,
mobile communication devices and leasehold improvements in the U.S.,
compared to $7,852 for the same period in 2004.
Net cash provided by our financing activities for the period ended
June 30, 2005 was $2,900,870. Net cash provided by financing activities for
the same period in 2004 was $3,438,217, for a net decrease of $537,347. The
decrease was due to less need for financing to fund the Company's
operations during this period and the payment of approximately $62,000 in
registration costs for past financing.
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 from Masterfoods USA.
17
Going forward, our primary requirements for cash consist of the
following:
* the continued development of our business model in the United
States and on an international basis;
* general overhead expenses for personnel to support the new
business activities;
* development, launch and marketing costs for our line of new
branded flavored milk products, and
* the payment of guaranteed license royalties.
We estimate that our need for financing to meet cash needs 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 operation 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
$220,000. 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. 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.
We are continuing to explore new points of sale for our branded
flavored milk. Presently, we are aggressively pursuing the school and
vending market through trade/industry shows and individual direct contacts.
The implementation of such a school base program, if viable, could have an
impact on the level of our revenue during 2005. Similarly, we expect that
the greater control over sales resulting from our refined business model
and the anticipated expansion into bodega stores as well as national
chains, such as 7-Eleven, will have a positive impact on revenues.
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
18
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.
On July 29, 2005, the Company and Coca-Cola Enterprises, Inc. ("CCE")
entered into a Letter of Intent memorializing and confirming their
intention, subject to due diligence, further negotiation and certain
conditions, to enter into a stock purchase agreement pursuant to which CCE
would purchase from the Company approximately 81,030,000 million shares of
the Company's common stock for approximately $13 million dollars. If the
purchase of shares under the stock purchase agreement closes, those shares,
together with the shares of the Company's common stock subject to Options
previously granted to CCE by certain unaffiliated stockholders of the
Company, would, if exercised, give CCE ownership of approximately 50.01% of
the Company's issued and outstanding common stock, on a fully diluted
basis. The closing under the stock purchase agreement will also be subject
to the Company and CCE entering into a master distribution agreement
pursuant to which CCE would distribute the Company's products throughout
the United States, its possessions, Canada and other countries in which CCE
is licensed to bottle products of The Coca-Cola Company.
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.
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
----------------------
19
To obtain funding for our ongoing operations, we entered into the
following financing transactions in 2005.
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, 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 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
April 2005
----------
On April 21, 2005, the Company closed a funding transaction with one
institutional investor for the issuance and sale to the Subscriber of a
promissory note of the Company in the principal amount of $300,000. The
promissory note bears 10% interest and 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 and 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
20
repriced Class B Warrants issued on June 30, 2004 form $2.00 per share to
$0.125 per share, and shall issue 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.
May 2005
--------
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 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 is 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
21
amount of $650,000, remains outstanding and will be triggered by the
effectiveness of the pending SB-2 registration statement.
EFFECTS OF INFLATION
We believe that inflation has not had any material effect on our net
sales and results of operations.
ITEM 3. CONTROLS AND PROCEDURES
a) Evaluation of Disclosure Controls and Procedures. Our Chief Executive
Officer and our principal financial officer, after evaluating the
effectiveness of our disclosure controls and procedures (as defined in the
Securities Exchange Act of 1934 Rules 13a-14(c) and 15d-14(c) as of the
filing date of this report on Form 10QSB (the Evaluation Date), have
concluded that our disclosure controls and procedures were adequate and
effective to ensure that material information relating to the Company and
our consolidated subsidiary would be made known to them by others within
those entities, particularly during the period in which this report on Form
10QSB was being prepared.
b) Changes in Internal Controls. There were no changes in our internal
controls or in other factors that could significantly affect our disclosure
controls and procedures subsequent to the Evaluation Date, nor any
significant deficiencies or material weaknesses in such disclosure controls
and procedures requiring corrective actions. As a result, we took no
corrective actions.
PART II - OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
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 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: 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 $0.10 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.
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 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.
Subsequent Events
Warrant Exercise: Series D Warrant. We issued 2,574,792 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 2,777,634 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 1,466,667 shares of
common stock to Libra Finance, SA., pursuant to the cashless exercise of
warrants for 1,600,000 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).
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).
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.
Item 6. Exhibits
Exhibits - Required by Item 601 of Regulation S-B:
No. 31: Rule 13a-14(a) / 15d-14(a) Certifications
No. 32: Section 1350 Certifications
22
SIGNATURES
In accordance with the requirements of the Exchange Act of 1934, the
registrant caused this report to be signed on its behalf of the
undersigned, duly authorized.
BRAVO! FOODS INTERNATIONAL CORP.
(Registrant)
Date: August 15, 2005
/s/Roy G. Warren
Roy G. Warren, Chief Executive Officer
In accordance with the Securities Exchange Act of 1934, Bravo! Foods
International Corp. has caused this amended report to be signed on its
behalf by the undersigned in the capacities and on the dates stated.
Signature Title Date
--------- ----- ----
/S/ Roy G. Warren Chief Executive Officer August 15, 2005
and Director
/S/ Tommy E. Kee Chief Financial Officer August 15, 2005
23