Attached files
file | filename |
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EX-3.2 - AFH HOLDING II, INC. | v184030_ex3-2.htm |
EX-2.1 - AFH HOLDING II, INC. | v184030_ex2-1.htm |
EX-3.1 - AFH HOLDING II, INC. | v184030_ex3-1.htm |
EX-4.1 - AFH HOLDING II, INC. | v184030_ex4-1.htm |
EX-10.3 - AFH HOLDING II, INC. | v184030_ex10-3.htm |
EX-10.2 - AFH HOLDING II, INC. | v184030_ex10-2.htm |
EX-10.4 - AFH HOLDING II, INC. | v184030_ex10-4.htm |
EX-10.1 - AFH HOLDING II, INC. | v184030_ex10-1.htm |
EX-10.5 - AFH HOLDING II, INC. | v184030_ex10-5.htm |
EX-99.1 - AFH HOLDING II, INC. | v184030_ex99-1.htm |
EX-23.1 - AFH HOLDING II, INC. | v184030_ex23-1.htm |
EX-10.7 - AFH HOLDING II, INC. | v184030_ex10-7.htm |
EX-21.1 - AFH HOLDING II, INC. | v184030_ex21-1.htm |
EX-10.6 - AFH HOLDING II, INC. | v184030_ex10-6.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
DC 20549
FORM
8-K
CURRENT
REPORT
Pursuant
to Section 13 or 15(d) of the
Securities
Exchange Act of 1934
Date
of report (Date of earliest event reported):
|
May
12, 2010
|
AFH
Holding II, Inc.
(Exact
Name of Registrant as Specified in Charter)
Delaware
|
000-52682
|
26-1364883
|
||
(State
or Other Jurisdiction
of
Incorporation)
|
(Commission
File
Number)
|
(IRS
Employer
Identification
No.)
|
9595
Wilshire Blvd., Suite 900
Beverly
Hills, CA 90212
(Address
of Principal Executive Offices)
Registrant's
telephone number, including area code:
|
(310)
717-8942
|
9595
Wilshire Blvd, Suite 700
Beverly
Hills, CA 90212
(Former
Name or Former Address, if Changed Since Last Report)
Check the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions:
o Written
communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
o Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
o Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
o Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
CURRENT
REPORT ON FORM 8-K
TABLE
OF CONTENTS
Item 1.01.
|
Entry into Material Definitive
Agreement
|
1
|
|
Item 2.01.
|
Completion of Acquisition or Disposition of
Assets
|
2
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|
The Share Exchange
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2
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||
Description of the Company’s
Business
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4
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||
Business
|
4
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||
Management’s Discussion and Analysis or Plan of
Operations
|
10
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||
Risk Factors
|
15
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||
Security Ownership of Certain Beneficial Owners
and Management
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25
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||
Executive Officers and
Directors
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27
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||
Executive Compensation
|
30
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||
Certain Relationships and Related
Transactions
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32
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||
Indemnification of Directors and
Officers
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33
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||
Item 3.02.
|
Unregistered Sales of Equity
Securities
|
34
|
|
Item 5.01.
|
Changes in Control of
Registrant
|
35
|
|
Item 5.02.
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Departure of Directors or Certain Officers;
Election of Directors; Appointment of Certain Officers; Compensatory
Arrangements of Certain Officers
|
35
|
|
Item 5.03.
|
Amendments to Articles of Incorporation or Bylaws;
Change in Fiscal Year
|
35
|
|
Item 5.06.
|
Change in Shell Company
Status
|
36
|
|
Item 9.01.
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Financial Statements and
Exhibits
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36
|
Item
1.01. Entry into Material Definitive Agreement.
Share
Exchange Agreement
On May
12, 2010, AFH Holding II, Inc., “AFH” or the “Company”, and its sole shareholder
entered into a share exchange agreement with First Blush, Inc. (“First Blush”)
and its securityholders (the “Exchange Agreement”). Pursuant to the terms of the
Exchange Agreement, each outstanding share of common stock and Series A
Preferred Stock of First Blush was transferred to AFH in exchange for shares of
the common stock, $0.001 par value per share, of AFH. Upon consummation of the
Exchange Agreement (the “Exchange”), First Blush became a wholly owned
subsidiary of AFH, which will change its name to “First Blush Brands, Inc.”
following the applicable regulatory waiting period, and the securityholders of
First Blush became shareholders of the Company owning approximately 89.06% of
the Company’s outstanding common stock.
For a
description of the terms of the Exchange Agreement, see the descriptions thereof
in Item 2.01 below, which disclosure is incorporated herein by
reference.
Registration
Rights Agreement
In
connection with the Exchange, we entered into a Registration Rights Agreement
with the former holders of Series A Preferred Stock of First Blush (the
“Registration Rights Agreement”) in which we agreed to use our commercially
reasonable efforts to include such holders’ shares of our common stock, at our
expense, in any registration statement that we file until such shares may be
sold under certain exemptions under the Securities Act of 1933, as
amended.
The
foregoing description of the Registration Rights Agreement does not purport to
be complete and is qualified in its entirety by reference to the complete text
of the Registration Rights Agreement, the form of which is filed as Exhibit 4.1
hereto and incorporated herein by reference.
Item
2.01. Completion of Acquisition or Disposition of
Assets.
The
Share Exchange
On May
12, 2010 (the “Effective Date”), we and First Blush entered into the Exchange
Agreement among AFH, AFH Holding and Advisory, LLC, First Blush, Rose Hill
Gardens LLC, Sandra Missakian, William A. Gustafson and Prescott Interests
Ltd. Pursuant to the terms and conditions of the Exchange Agreement,
as of the effective date:
|
·
|
First
Blush became a wholly-owned subsidiary of
AFH;
|
|
·
|
The
stockholders of AFH approved an amendment and restatement of AFH’s
articles of incorporation, among other things, changing its name to “First
Blush Brands, Inc.”;
|
|
·
|
Each
share of First Blush’s capital stock issued and outstanding immediately
prior to the closing of the Exchange was converted into shares of our
common stock. An aggregate of 7,125,000 shares of our common
stock were issued to the holders of First Blush’s capital
stock;
|
|
·
|
Amir
F. Heshmatpour, as our sole director, increased the size of our board of
directors from one director to four directors, delivered his resignation
as a director, to be effective, and designated Anthony Roth, Sandra
Missakian and Victoria Briggs to fill the vacancies created by the
increase in the size of the board all to become effective following the
expiration of ten days following the filing of a Schedule 14F-1 with the
Securities Exchange Commission;
|
|
·
|
Mr.
Heshmatpour resigned as our sole officer and simultaneously therewith, new
officers were appointed, as
follows:
|
Name
|
Title
|
|
Anthony
Roth
|
President
and Chief Executive Officer
|
|
Barrett
Carrere
|
|
Chief
Financial Officer,
Secretary
|
|
·
|
The
Company entered into employment agreements with Mr. Roth and Mr.
Carrere;
|
|
·
|
The
Company agreed to pay a fee to AFH Holding and Advisory, LLC in the amount
of $250,000; $75,000 of which was previously paid and the balance of
$175,000 remains unpaid;
|
|
·
|
We
issued 75,000 shares of our common stock to Mr. Roth in satisfaction of
$75,000 of indebtedness owed by First Blush to Mr.
Roth;
|
|
·
|
We
granted AFH Holding and Advisory, LLC the right to designate one member of
our board of directors;
|
|
·
|
All
outstanding liabilities and obligations of AFH were satisfied or waived
and Mr. Heshmatpour and AFH Holding and Advisory, LLC agreed to indemnify
us for any liability or obligation of the Company relating to matters
prior to the effective time of the
Exchange;
|
|
·
|
Each
of AFH and First Blush provided customary representations and warranties,
and closing conditions in the Exchange
Agreement.
|
-2-
The
foregoing description of the Exchange Agreement does not purport to be complete
and is qualified in its entirety by reference to the complete text of the
Exchange Agreement, which is filed as Exhibit 2.1 hereto and incorporated herein
by reference.
Following
the consummation of the Exchange Agreement, there were 8,000,000 shares of the
Company’s Common Stock issued and outstanding. Approximately 89.06% of such
issued and outstanding shares were held by the former stockholders of First
Blush and approximately 10% were held by AFH Holding and Advisory,
LLC.
The
shares of our common stock issued to former holders of First Blush’s capital
stock and to Mr. Roth in connection with the Exchange, were not registered under
the Securities Act in reliance upon the exemption from registration provided by
Section 4(2) of the Securities Act and Regulation D promulgated under that
section, which exempt transactions by an issuer not involving any public
offering. These securities may not be offered or sold in the United States
absent registration or an applicable exemption from the registration
requirements. Certificates representing these shares contain a legend stating
the same or, if such shares are uncertificated, an appropriate notation to such
effect has been made in our stock record.
The
Exchange and its related transactions were approved by the holders of the
requisite number of shares of First Blush’s common stock by written consent
dated May 12, 2010.
The
Company will continue to be a “small business issuer,” as defined under the
Securities Exchange Act of 1934, as amended (the “Exchange Act”), following the
Exchange.
We intend
to carry on First Blush’s business as our sole line of business. Therefore, we
have adopted Amended and Restated Articles of Incorporation, among other things,
changing our name to “First Blush Brands, Inc.” (the “Name Change”) which we
will file with the Secretary of State of the State of Delaware after the
applicable waiting period under Rule 14c of the Exchange Act, which we
anticipate will be on or about June 4.
A copy of
the Amended and Restated Articles of Incorporation is annexed hereto as Exhibit
3.1 and incorporated herein by reference.
The
Company has changed the address of its principal offices to the corporate
offices of First Blush at 9595 Wilshire Boulevard, Suite 900 Beverly Hills CA
90212, telephone number (310) 717-8942.
-3-
Description
of the Company’s Business
As
used in this Current Report on Form 8-K, all references to the “Company,” “we,”
“our” and “us,” except as otherwise noted, refer to AFH Holding II, Inc. and its
subsidiaries after the Exchange.
Business
General
We are a
Delaware corporation based in Beverly Hills, California. Currently,
we produce and market two beverage product lines:
|
1.
|
An
all natural, premium grape juice crafted from 100% pure, fine wine grapes.
We currently offer four juices: Cabernet, Merlot, Syrah and Chardonnay
juice under the brand name “First
Blush.”
|
|
2.
|
An
all natural ready-to-drink tea crafted from 50% First Blush juice and 50%
brewed organic white tea. We currently offer two teas: Cabernet White Tea
and Chardonnay White Tea, also under the brand name “First
Blush.”
|
First
Blush juices and teas are all natural and contain high levels of naturally
occurring polyphenol antioxidants. We do not add sugar, high fructose corn
syrup, preservatives, artificial colors, artificial flavors, gluten or additives
of any kind to our beverages. We intend to capitalize on the
continued growth and consumer acceptance of health and wellness beverages and
ready-to-drink teas. We also intend to leverage off of the well
established grape juice beverage category through the innovative use of fine
wine grapes to craft our products.
First
Blush is a
registered trademark of First Blush, Inc.
History
In
January 2007, our business operations were commenced by Rose Hill Gardens LLC
d/b/a First Blush. On August 1, 2008 First Blush, Inc. was
formed. On December 31, 2008 the assets related to our business were
transferred from Rose Hill Gardens LLC to First Blush, Inc.
In
February 2007, we presented a line of all natural varietal grape juices to Whole
Foods Market and entered into an exclusive distribution agreement with Whole
Foods through December 31, 2007. In May 2007, we began delivering
First Blush juices to the Southern California region of Whole Foods
(approximately 25 stores). By July, we expanded distribution to three
additional Whole Foods regions: Northern California, Pacific Northwest and
Midwest, totaling approximately 75 additional stores. At that time we
chose to limit the Whole Foods roll out to approximately 100 stores to ensure
consumer acceptance as well as to monitor and acquire valuable consumer
feedback.
Upon
expiration of our exclusive distribution agreement with Whole Foods, we made a
strategic decision to expand our distribution to the larger mass grocery channel
to increase the number of locations selling our products. In March
2008, we entered into an agreement with Safeway to roll out all First Blush
products to 1,200 U.S. Safeway stores. Safeway operates approximately
1,500 stores in the U.S. and 250 stores in Canada under numerous retail banners
including Safeway, Vons, Dominick’s, Genuardi’s, Randalls, Tom Thumb, Pavillions
and Carrs. In September 2008, we began delivering to Safeway
stores. For the year ended December 31, 2009, sales to Safeway
accounted for 68% of our revenues.
-4-
As part
of our expansion strategy we added additional smaller accounts to our
distribution network throughout 2008 and 2009. As of April 30, 2010,
we have distribution in approximately 1,500 locations, including a limited
number of Whole Foods locations and approximately 10 retail outlets in Hong Kong
and China.
In April
2008, we entered into an agreement with Acosta Sales and Marketing, one of the
largest food and beverage sales support and merchandising services company (i.e.
broker) in the United States, to represent us exclusively at
Safeway. Acosta handles certain distribution, merchandising and
administration services for our products in all Safeway owned stores. The Acosta
representation may expand beyond our Safeway agreement based on our mutual
agreement. This agreement may be terminated by either party upon 30 days’
notice.
Business
Strategy
We
compete in the rapidly growing health and wellness juice markets and
ready-to-drink tea markets. Market leaders in these segments include such brands
as Nantucket Nectars, Snapple, SoBe, POM Wonderful, Sambazon, and
Glaceau/Vitamin Water.
We intend
to capitalize consumer’s increased demand for health conscious all natural
beverages. We plan to expand our beverage company around our First Blush brand
of juices and ready-to-drink teas, as well as other new functional beverages and
possible acquisitions. We plan to obtain additional financing to
expand our business. Financings may include the sale of our
securities or instruments convertible into our securities. With additional
financings, our strategy is to increase production of our products to enable us
to increase sales to existing customers and make inroads into larger mainstream
grocery outlets, convenience drug stores, club stores, and other large
accounts. We are working with The Kroger Co. to launch our
products in certain Kroger locations. Kroger is one of the largest
grocery retailers in the United States with more than 2,500 retail outlets
including Kroger, Ralphs, King Soopers, City Market, Dillons, Smiths, Fry’s,
QFC, Baker’s, Owens, Jay C, Hilander, Gerbes, Pay Less and Scott’s.
Marketing and
Branding
We
identified our target market as health conscious individuals skewed towards the
adult female consumer. We believe that our target market’s primary
repeat purchase decision is centered around taste, healthfulness and value for
themselves and their families.
We have
created a marketing strategy based on our target market as follows:
|
·
|
Product
|
We
believe that our products satisfy our target market’s desires for healthy and
sophisticated choices. We sell our products in a proprietary 11.5 oz
recyclable PET plastic (Polyethylene terephthalate) bottle that was designed
specifically for our brand. In response to consumer and retailer
feedback, in early 2009, we re-branded and re-packaged our products from glass
bottles into the PET bottle. In addition, we use labels with vibrant
colors and the First Blush logo, which we believe appeals to and is recognizable
by consumers. We are considering introducing other packaging configurations as
consumer feedback is gathered and demand warrants.
-5-
|
·
|
Pricing
|
We
believe that we have created perceived value for our product based on our
pricing, which we believe is competitive in the premium juice market
place.
|
·
|
Place
|
We
merchandise our product in the produce section of grocery stores aligning our
product with fresh fruit and vegetables. We maintain proprietary
stand-alone beverage racks to merchandise our product in an appealing manner. As
we build brand awareness we intend to expand into larger mainstream grocery
outlets, convenience drug stores, club stores, and other large
accounts.
|
·
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Promotion
|
We
promote our product through the following:
|
o
|
Corporate
branding
|
We
emphasize wellness and innovation while being dedicated to social and global
responsibility. We believe our brand represents a dedication to
quality, health consciousness and sophistication.
|
o
|
Advertising
and marketing
|
To date,
our advertising and marketing strategy has been based on word-of-mouth
advertising, spot unpaid magazine placements and consumer marketing support
through in-store sampling programs. We believe that there is benefit
to our business from the powerful branding of the wine grape names: Cabernet,
Merlot, Syrah and Chardonnay. We believe our labeling, marketing and
promotional materials are important elements to creating and increasing
distributor, retailer and consumer awareness of our brands and products. We
intend to implement more aggressive marketing programs in connection with
expanding our distribution channels if we are able to obtain additional
financing.
|
o
|
Internet
|
We
maintain a website at www.firstblush.com, however, the information appearing on
this site should not be deemed to be incorporated into this
document.
Manufacturing and Quality
Control
We have
partnered with several third party co-packers to produce all of our
products. We perform a due diligence process on all co-packers to
ensure quality and safety measures. All of our co-packers maintain
on-site laboratories. They test our products during and subsequent to
production. First Blush products are flash pasteurized for safety and
have a 24-month shelf life.
First Blush
Distribution
We
distribute our products to retail locations using two methods of
distribution:
|
1.
|
Key
Account Distribution - Direct to Retailer/produce
department
|
|
2.
|
Direct
to Store Delivery Distribution – Independent Beverage
Distributors
|
-6-
|
1.
|
Key
Account Distribution
|
Key
Accounts are dedicated business opportunities with specific retail partners that
require direct distribution to the retailers own warehouses. Our
successful relationship with Safeway is an example of a Key Account and
demonstrates the potential of Key Account distribution. We believe
that these distribution channels allow us to launch and maintain targeted
marketing initiatives that are created with and tailored to each retail chain
(e.g. specialized in-store sampling programs, or custom signage or displays).
These Key Account distribution arrangements allow us to roll out large scale
retail chains quickly, efficiently and at higher margins. We anticipate we will
utilize our relationship with Acosta to execute specialized merchandising plans
and insure proper and dedicated coverage to all Key Account
retailers.
We began
delivering product to Safeway stores throughout the U.S. (approximately 1,200
stores) in September 2008. In close partnership with Safeway, we
designed custom product racks, point of purchase displays and special promotions
to promote consumer trial. We intend to implement similar strategies
for all Key Accounts, including Safeway Canada and Kroger.
We intend
to pursue opportunities, strategically, with other large national grocers and
beverage retailers. We have been contacted by several other large national
grocers and beverage retailers including Costco, Target, Royal Ahold and
others. We intend to pursue these opportunities, strategically,
following the Kroger launch.
|
2.
|
Direct
to Store Delivery Distribution
|
We
believe that Direct-To-Store Distribution can be a very effective way to gain
access to non Key Account retailers in certain geographical
areas. Direct-To-Store distributors are regional wholesalers that
deliver products “up and down the street” and are actively selling and
merchandising the product at retail. This distribution channel
supplies the majority of consumer beverages to retail stores as most beverage
companies cannot utilize the Key Account distribution method. We
believe that the Direct-to-Store Delivery distribution network should be used
where needed to expand our product into non Key Account retailers.
Suppliers
We
purchase grape juice concentrate from several suppliers using one of the
largest concentrate brokers in the United States. If we were no
longer able to purchase concentrate from our suppliers or broker, there are
other sources from whom we could purchase concentrate, but, we cannot be certain
that we would receive as favorable of terms. All of our grapes used in producing
the concentrate that we purchase are grown in California.
Research
and Development
We have
an on-going research and development program to create new products, brand
extensions and innovative packaging. In the year ended December 31,
2008, our research and development expenses were $6,974 and in the year ended
December 31, 2009, our research and development expenses were
$58,703.
Competition
We have
significant competition in the health and wellness juice and ready-to-drink tea
markets as well as competition in the traditional grape juice
business. But, we have limited competition in these markets from
other products made from fine wine grapes. We believe that the
antioxidant promoted “purple drinks” such as POM Wonderful, and others may be
competitive depending on merchandising strategies implemented at the retail
level.
-7-
Intellectual
Property Rights
In
November 2007, we received trademark protection for the mark “First Blush” in
various trademark classes in which we operate.
In
addition, we consider our finished products and formulas, which are not the
subject to any patents or trademarks to be trade secrets. We consider
our trademarks and trade secrets to be of substantial value and importance to
our business.
Government
Regulation
In the
United States, the production, distribution and sale in the United States of
many of our products is subject to:
|
·
|
The
Federal Food, Drug and Cosmetic
Act,
|
|
·
|
The
Dietary Supplement Health and Education Act of
1994,
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|
·
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The
Occupational Safety and Health Act,
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|
·
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The
environmental statues and various other federal, state and local statutes
and regulations applicable to the production, transportation, sale,
safety, advertising, labeling and ingredients of such
products,
|
|
·
|
Per
bottle redemption charges
|
The
facilities in the United States where our products are produced are subject to
federal, state and local environmental laws and regulations. It is the
responsibility of the third-party producer to comply with these requirements.
Compliance with these provisions has not had, and we do not expect such
compliance to have any material adverse effect upon our capital expenditures,
net income or competitive position. We are not aware of any incidence
or circumstances where we are out of compliance with any governmental
regulations.
Employees
As of May
12, 2010, we have two full-time employees, neither of which is represented by a
collective bargaining agreement.
Properties
We
outsource all production and warehousing of our product and maintain office
space at 9595 Wilshire Boulevard Suite 900, Beverly Hills, California
90212. We believe that our current arrangements and facilities are
adequate for our immediate and near-term needs. Additional space may be required
as we expand our activities. We do not currently foresee any significant
difficulties in obtaining any required additional facilities. In the opinion of
the management, each of our properties is adequately covered by
insurance.
Legal
Proceedings
We are
not presently subject to any material litigation, and, to management’s
knowledge, there is not any material litigation presently threatened against the
Company.
-8-
On or
about August 14, 2009 Aris Janigian commenced an action in the Superior Court of
Los Angeles against Victoria Briggs, among others, claiming that he is entitled
to remuneration for bringing the idea of a varietal grape juice to them as well
as for his work and consultation with them and Rose Hill Gardens LLC in
developing First Blush. Continued attempts to negotiate a reasonable
settlement to address Mr. Janigian’s contributions have reached no resolution
RHG has agreed to indemnify First Blush for any costs and expenses associated
with such claims including but not limited to any settlement costs and legal
expenses associated therewith provided such legal expenses do not exceed
$100,000.
Forward-Looking
Statements
This
Current Report on Form 8-K contains forward-looking statements. To the extent
that any statements made in this Report contain information that is not
historical, these statements are essentially forward-looking. Forward-looking
statements can be identified by the use of words such as “expects,” “plans,”
“will,” “may,” “anticipates,” “believes,” “should,” “intends,” “estimates,” and
other words of similar meaning. These statements are subject to risks and
uncertainties that cannot be predicted or quantified and, consequently, actual
results may differ materially from those expressed or implied by such
forward-looking statements. Such risks and uncertainties are outlined in “Risk
Factors.”
Information
regarding market and industry statistics contained in this Current Report on
Form 8-K is included based on information available to the Company that it
believes is accurate. It is generally based on industry and other publications
that are not produced for purposes of securities offerings or economic analysis.
The Company has not reviewed or included data from all sources, and cannot
assure investors of the accuracy or completeness of the data included in this
Form 8-K. Forecasts and other forward-looking information obtained from these
sources are subject to the same qualifications and the additional uncertainties
accompanying any estimates of future market size, revenue and market acceptance
of products and services. The Company does not undertake any obligation to
publicly update any forward-looking statements. As a result, investors should
not place undue reliance on these forward-looking
statements.
-9-
Management’s
Discussion and Analysis or Plan of Operations
This
discussion should be read in conjunction with the other sections of this Current
Report on Form 8-K, including “Risk Factors,” “Description of the Company’s
Business” and the Financial Statements attached hereto as Item 9.01 and the
related exhibits. The various sections of this discussion contain a number of
forward-looking statements, all of which are based on the Company’s current
expectations and could be affected by the uncertainties and risk factors
described throughout this Form 8-K. See “Forward-Looking Statements.” The
Company’s actual results may differ materially.
Overview
and Recent Developments
AFH was
organized pursuant to the laws of the State of Delaware on April 16,
2007. Since inception, AFH’s primary business operations have
involved seeking the acquisition of assets, property, or businesses that may be
beneficial to the Company and its shareholders.
On May
12, 2010, First Blush became a wholly-owned subsidiary of AFH, upon consummation
of the Exchange. In the Exchange, each share of First Blush’s capital
stock issued and outstanding immediately prior to the closing of the Exchange
was converted into the right to receive shares of AFH’s Common
Stock. As a result, AFH issued an aggregate of 7,125,000 shares of
common stock to the holders of First Blush’s capital stock.
Immediately
following the Exchange, AFH succeeded to the business of First Blush as its sole
line of business, and will change its name to First Blush Brands,
Inc. First Blush Brands operates in the fruit juice industry in the
United States. Its products are First Blush® Juices
(Cabernet, Merlot, Syrah, and Chardonnay) and First Blush® White
Teas (Cabernet and Chardonnay).
Following
the Exchange, the Company had 8,000,000 shares of Common Stock issued and
outstanding.
The
following discussion highlights the principal factors that have affected First
Blush’s financial condition and results of operations as well as our liquidity
and capital resources for the periods described. This discussion
contains forward-looking statements, as discussed above. Please see
the section entitled “Forward-Looking Statements for a discussion of the
assumptions associated with these forward-looking statements.
The
following discussion and analysis of First Blush’s financial condition and
results of operations are based on the audited financial statements as of
December 31, 2009 and 2008, all of which were prepared in accordance with U.S.
generally accepted accounting principles (“GAAP”). You should read
the discussion and analysis together with such financial statements and the
related notes thereto.
Critical
Accounting Policies
We
believe that the application of the following accounting policies, which are
important to our financial position and results of operations, require us to
make significant judgments and estimates. For a summary of all our accounting
policies, including the accounting policies discussed below, see Note 3,
Summary of Significant
Accounting Policies and Note 10, Income Taxes, in our
financial statements included this filing.
|
·
|
Promotional
allowance
|
Many of
our promotional programs are based on discounts given to the ultimate consumer
at the point of purchase. For most of these programs we reduce our
cost to the retailer for all product sold under promotion so there is limited
impact on the retailer’s gross profit. Because we do not know the
ultimate amount of product that will be sold under promotional programs and
because retailers pay us 100% of the purchase price upon purchase of our
product, we accrue an estimated liability for the amount we expect we will have
to refund to the retailers due to these programs. As a result we have
an accrual for promotional programs of $27,194 and $15,000 at December 31, 2009
and 2008, respectively.
-10-
We treat
promotional allowance as contra revenue and recorded promotional allowance of
$150,205 and $53,007 for the years ended December 31, 2009 and 2008,
respectively.
·
|
Income
Taxes
|
We
account for income taxes under the Financial Accounting Standards Board’s, FASB,
accounting guidance for income taxes. In accordance with FASB’s accounting
guidance, we recorded a deferred tax asset for the net operating loss, NOL,
carry forward resulting from losses in our year ended December 31,
2009. The asset is a result of our ability to utilize the NOL in
future periods to offset future taxable income and therefore reduce our taxes
payable in the future. At December 31, 2009 we had an asset for the
NOL of $390,687, however, given our current going concern issues we determined
that this asset may not be realized as it is dependent on us generating
sufficient future operating income and accordingly we created a valuation
allowance of $371,153 based on our judgment and estimates. In the
future, we may determine that we will be able to realize all or most of this
asset and we will adjust our valuation allowance accordingly, which will result
in a reduction in income tax expense we report in our financial statements in
the period of change.
Results
of Operations - Year ended December 31, 2009 compared to year ended December 31,
2008
The
following table sets forth our statement of results of operation data
as a percentage of net sales from continuing operations for the years
indicated:
For the year ended December 31,
|
||||||||||||||||||||
2009
|
2008
|
|||||||||||||||||||
% of Gross
|
% Change
|
% of Gross
|
||||||||||||||||||
$
|
Revenue
|
from 2008
|
$
|
Revenue
|
||||||||||||||||
Revenue:
|
||||||||||||||||||||
Gross
revenue
|
$ | 638,130 | -13.3 | % | $ | 735,625 | ||||||||||||||
Promotion
allowance
|
(150,205 | ) | -23.5 | % | 183.4 | % | (53,007 | ) | -7.2 | % | ||||||||||
Net
revenue
|
$ | 487,925 | $ | 682,618 |
For the year ended December 31,
|
||||||||||||||||||||
2009
|
2008
|
|||||||||||||||||||
% of
|
% Change
|
% of
|
||||||||||||||||||
$
|
Net Revenue
|
from 2008
|
$
|
Net Revenue
|
||||||||||||||||
Gross
Profit:
|
||||||||||||||||||||
Net
revenue
|
$ | 487,925 | -28.5 | % | $ | 682,618 | ||||||||||||||
Cost
of goods sold
|
285,889 | 58.6 | % | -7.1 | % | 307,619 | 45.1 | % | ||||||||||||
Gross
profit
|
$ | 202,036 | 41.4 | % | $ | 374,999 | 54.9 | % |
-11-
We
believe that the decrease in gross revenue for 2009 relative to 2008 was due to
a decline in sales resulting from the economic crisis. To counter act
this contraction, we increased promotional allowances in 2009.
Cost of
goods sold as a percentage of net revenue increased in 2009 relative to 2008
because of the decrease in gross revenue and increase in promotional allowance
in 2009 resulting from the economic crisis. As a percentage of gross
revenue cost of goods sold was 44.8% in 2009 and 41.8% in 2008 a 300 basis point
increase resulting from the initial cost of our switch to PET
bottles.
The
decrease in gross revenue and the increase in promotional allowance in 2009
relative to 2008 also caused gross profit as a percentage of net revenue
decreased in 2009 relative to 2008. If promotional expense had been
normalized in 2009 as compared to 2008, we estimate that gross profit as a
percentage of net revenue would have been 1030 basis points higher than actual
results.
For the year ended December 31,
|
||||||||||||||||||||
2009
|
2008
|
|||||||||||||||||||
% of
|
% Change
|
% of
|
||||||||||||||||||
$
|
Net Revenue
|
from 2008
|
$
|
Net Revenue
|
||||||||||||||||
Gross
profit
|
$ | 202,036 | $ | 374,999 | ||||||||||||||||
Selling,
general and administrative expense
|
770,361 | 157.9 | % | 1.2 | % | 761,395 | 111.5 | % | ||||||||||||
Write-off
of deposits on future purchases
|
72,620 | - | ||||||||||||||||||
Write-off
of inventory
|
131,213 | - | ||||||||||||||||||
Abnormal
producition losses
|
28,415 | - | ||||||||||||||||||
Operating
(loss)
|
$ | (800,573 | ) | -164 | % | 107.2 | % | $ | (386,396 | ) | -57 | % |
Our
operating loss increased in 2009 relative to 2008 both in terms of amount and as
a percentage of net revenue due to the decrease in gross revenue and increase in
promotional allowance in 2009 resulting from the economic crisis. In
addition there were certain other operating costs in 2009 that were not in 2008
as follows:
|
·
|
In
2009 as part of a strategic marketing decision we switched from using
glass bottles to PET (Polyethylene terephthalate) bottles. As a
result of this decision, we wrote off $131,213 of inventory related to our
glass bottle finished goods.
|
|
·
|
In
2009, we had abnormal production losses in excess of the 5% industry norm
equating to $28,415 due to issues with one of our
bottlers.
|
|
·
|
In
September of 2008 we entered into two one-year purchase commitment
contracts to purchase a set number of gallons of concentrate at an
aggregate price of approximately $363,000. The terms of each
contract required that we pay a deposit equal to 20% of the total amount
to be purchased amounting in the aggregate to $72,844, as reflected in
deposits on our balance sheet dated December 31,
2008. The terms also required that we take delivery of
all concentrate within one year. Due to the impact of the
economic crisis, we did not purchase the full amount of concentrate per
these contracts and as a result expensed the unapplied deposit in 2009, as
reflected in our statement of profit and
loss.
|
-12-
Liquidity
and Capital Resources
Our cash
flow used by operating activities is as follows:
For
the Years Ending
|
||||||||
December
31,
|
||||||||
2009
|
2008
|
|||||||
Cash
collected from customers
|
$ | 458,379 | $ | 680,306 | ||||
Cash
paid to suppliers
|
(152,484 | ) | (581,150 | ) | ||||
Cash
paid for management services
|
(434,257 | ) | (209,840 | ) | ||||
Cash
paid for other selling, general & administrative costs
|
(345,992 | ) | (462,709 | ) | ||||
Net
cash used by operting activities
|
(474,354 | ) | (573,393 | ) |
Activity
for the year ended December 31, 2009 relative to the year ended December 31,
2008 is as follows:
|
·
|
Cash
collected from customers - We collected less from our customers in 2009
because of the economic crisis, which caused a decrease in our sales and
increase in our use of promotional
allowances.
|
|
·
|
Cash
paid to suppliers - We paid less to our suppliers in 2009 because we had
built inventories of product in 2008 that were utilized in
2009.
|
|
·
|
Cash
paid for management services - We used additional management services in
2009 as part of planned company
expansion.
|
|
·
|
Cash
paid for other selling, general & administrative costs – In 2008 we
paid additional costs related to the formation of First Blush,
Inc. and costs associated with our attempts to raise
capital.
|
As of
December 31, 2009, we had $330,200 in current assets of
which 100% was receivables and inventory. We had no cash on hand but we had
access to our debt facility which we used for operating needs. On average,
our receivables are collected in approximately 30 days. Total
current liabilities at December 31, 2009 totaled $1,559,910, of
which $372,162, or 23.9%, represented trade and operating
payables. At December 31, 2009, we had a net working capital
deficiency of $1,229,710. Our need for cash during the year
ended December 31, 2009 was primarily funded through the use
of our senior debt facilities totaling approximately $1,027,191. However, we do
not have any other available credit, bank financing or other external sources of
liquidity and will need to obtain substantial additional capital in order to
further develop our business operations and become profitable. There can be
no assurance that we will be successful in obtaining such additional
funding.
We have
funded working capital needs through product sales, management of
working capital components of our business, and by
cash received from private offerings of
preferred stock and our senior current debt facilities which is
almost fully drawn. We expect significant capital expenditures during
the next 12-24 months. We anticipate that we will need
$3,000,000-$6,000,000 for operations over the next 12-24 months for
manufacturing, research and development, marketing, sales channel development,
general and administrative expenses, debt repayments and interest expense. We
can offer no assurance that we will be able to generate cash or obtain financing
sufficient to meet these needs.
-13-
Balance
Sheet Restructuring in 2009
On
December 31, 2008, all First Blush assets held by Rose Hill Gardens LLC were
transferred to First Blush, Inc.
Financings
in 2008 and 2009
We
received initial financing from Rose Hill Gardens LLC on an as needed
basis. Ms. Briggs, who will become member of our Board of
Directors, is the managing member and owns 100% of Rose Hill Gardens LLC. Rose
Hill Gardens LLC is the largest shareholder of First Blush. On
December 31, 2008, we entered into a $1,000,000 Senior Credit Facility with
annual interest of 12% with Rose Hill Gardens LLC. The Senior Credit Facility is
due on the earlier of demand with 30 days prior notice or December 31, 2010.
On December 31, 2008, we drew $828,000 on the Rose Hill Gardens LLC
Senior Credit Facility and an additional $99,000 in 2009.
In October,
2008, we commenced a private placement of Preferred Stock. We
raised approximately $275,000 by the sale of Preferred Stock. In addition, In
November, 2008, we issued seven year warrants to a third party investor to
purchase 1,000,000 common shares for services rendered. Such warrants have been
terminated.
In June
26, 2009, we entered into a $100,000 Senior Secured Promissory Note from Michael
D. Bagdasarian, with annual interest of 12%. This note is a demand note, due
with 30 days prior notice.
All
outstanding senior credit facilities are secured by the assets of First
Blush.
Going
Concern
As
reflected in the financial statements included in this
filing, we had a working capital deficiency of $1,229,710 at December 31,
2009. We have had material operating losses and have not yet
created positive cash flows. These factors raise substantial doubt
about our ability to continue as a going concern. We cannot provide any
assurance that profits from operations will generate sufficient cash flow
to meet our working capital needs and service our existing
debt.
Off
– Balance Sheet Arrangements
As of
December 31, 2009, we have no off-balance sheet arrangements that have or are
reasonably likely to have a current or future material effect on our
financial condition, changes in financial condition, revenues or expenses,
results of operations, liquidity, capital expenditures or capital
resources.
-14-
Risk
Factors
There
are numerous and varied risks, known and unknown, that may prevent the Company
from achieving its goals. The risks described below are not the only ones the
Company will face. If any of these risks actually occurs, the Company’s
business, financial condition or results of operation may be materially
adversely affected. In such case, the trading price of the Company’s Common
Stock could decline and investors in the Company’s Common Stock could lose all
or part of their investment.
Risks
Related to Our Company
We
have no adequate source of financing to continue our operations. If additional
financing is not obtained, investors may lose their entire
investment.
We have
no cash and we have limited availability under our debt facility. Cash generated
from our operations is insufficient to meet our operating needs. Our debt
facility is secured by substantially all of our assets. If we do not obtain
additional financing shortly through the sale of our securities or through
additional borrowings, we may need to reduce or cease operations, in which event
our investors would lose their entire investment.
Our
independent auditors have expressed doubt about our ability to continue as an
ongoing concern and, if the Company does not continue as a going concern,
investors may lose their entire investment.
In their
report dated May 11, 2010, our independent registered public accounting firm,
EFP Rotenberg, LLP, stated that our financial statements for the year ending
December 31, 2009 were prepared assuming that we would continue as a going
concern. Our ability to continue as a going concern is an issue
raised as a result of a loss of $910,674 for the year ending December 31, 2009
and a loss of $386,396 for the year ending December 31, 2008. We
expect to continue to experience net operating losses. Our ability to continue
as a going concern is subject to or ability to generate a profit and operating
cash flows and our ability to obtain additional financing to fund our
losses. Our ability to generate profits depends on the success of our
brands, of which there can be no assurance. We believe that the going concern
qualification in the Independent Auditors’ report is designed to emphasize the
uncertainty related to our business as well as the level of risk associated with
an investment in our common stock.
We have had a history of losses and
if we cannot consistently general positive cash flows or raise sufficient
capital then we will not realize our growth potential and the business could
suffer financially.
Our net
loss in 2009 was $910,674 and in 2008 was $386,396. We are attempting
to grow our brands while maintaining costs. However, we expect to require
increasing cash flows to finance our needs for inventory to successfully build
the distribution of our products into the marketplace. To finance growth, we
will need to raise capital to fund inventory needs, expand our product offerings
and implement more aggressive sales, marketing and advertising
programs. However, if we are not successful in raising additional
capital, we may not meet our projections for growth and sales could be adversely
affected due to delays in shipments and loss of customers.
-15-
We
need additional capital and if we do not generate sufficient
cash flow and we cannot raise additional capital, we will not be able
to fulfill our business plan.
We
need to obtain additional funding in the future to finance our
business strategy, operations and growth. We may not be able
to obtain additional financing in sufficient amounts or
on acceptable terms when needed. If we fail to arrange for sufficient
capital on a timely basis, we may be required to curtail our business
activities until we can obtain adequate financing. Debt financing must
be repaid regardless of whether or not we generate profits or
cash flows from our business activities. Equity financing may result
in dilution to existing stockholders and may involve securities
that have rights, preferences, or privileges that are senior to our
common stock or other securities. If we cannot raise sufficient
capital when necessary, we will likely have to curtail operations
and our investors may lose part or all of their
investment.
We
have a material amount of outstanding debt that may hinder our ability
to sustain or grow our business.
As of May
12, 2010, we have approximately $1,027,000 in outstanding
debt. This debt could have important consequences to us and our
investors, including:
|
o
|
making
it more difficult to satisfy debt service and other
obligations;
|
|
o
|
increasing
our vulnerability to general adverse economic and industry
conditions;
|
|
o
|
requiring
a substantial portion of our cash flow from operations to make interest
payments on this debt, if it remains
outstanding;
|
|
o
|
reducing the
cash flow available to fund capital expenditures and other
corporate purposes and to grow our
business;
|
|
o
|
limiting
our flexibility in planning for, or reacting to, changes in our
business and the industry;
|
|
o
|
placing
us at a competitive disadvantage to our competitors that may not be as
highly leveraged with debt as we are;
and
|
|
o
|
limiting
our ability to borrow additional funds as needed or take advantage of
business opportunities as they arise, pay cash dividends or
repurchase common stock.
|
To the
extent we become more leveraged, the risks described above
would increase. In addition, our actual cash requirements
in the future may be greater than expected. Our cash flow from
operations may not be sufficient to repay at maturity all of the outstanding
debt as it becomes due, and we may not be able to borrow money, sell
assets or otherwise raise funds on acceptable terms, or at all,
to refinance our debt.
Current
and future economic conditions could have a material adverse effect on our
business.
Our
current and future business plans are dependent, in large part, on the overall
state of the economy. Any adverse changes in economic conditions may
adversely affect our plan of operation. Our operations and
performance also depends to some degree on economic conditions and their impact
on levels of consumer spending, which have recently deteriorated significantly
in many countries and regions, including the regions in which we operate, and
may remain depressed for the foreseeable future. For example,
some of the factors that could influence the levels of consumer spending
include continuing volatility in fuel and other energy costs,
conditions in the residential real estate and mortgage markets, labor
and healthcare costs, access to credit, consumer confidence and other
macroeconomic factors affecting consumer spending behavior for discretionary
consumer goods such as ours. These and other economic factors
could have a material adverse effect on demand for our products
and on our financial condition and operating
results.
Our
success depends, in large part, on our ability to protect current
and future brands and products and to defend our
intellectual property rights.
Although
we may pursue various types of intellectual property protection for our
technology, products, and marketing strategies relating to products brought to
market, no assurance can be given that we will be granted the protection we
desire, will be able to protect or defend such rights if granted, or will be
able to protect our trade secrets, trademarks or know-how. We
depend upon our trademarks and proprietary rights, and any
failure to protect our intellectual property rights or any claims that we
are infringing upon the rights of others may adversely affect our
competitive position.
-16-
We cannot
be sure that trademarks will be issued with respect to any future
trademark applications or that our competitors will not challenge, invalidate or
circumvent any existing or future trademarks issued to, or
licensed by, us. Litigation related to the
protection of intellectual property rights could disrupt our business,
divert management attention and cost a substantial amount to protect
our rights or defend against claims. We believe our competitors, many of
whom are more established, and have greater financial and personnel
resources than we do, may be able to replicate our processes, brands,
flavors, or unique market segment products in a manner that
could circumvent our protective safeguards. Therefore, we cannot
give any assurances that our confidential business information will
remain proprietary.
We
depend on third party suppliers and manufacturers. Any
disruption or extended delay in product supply from any of our
third party
suppliers could have a significant adverse impact on our
operations.
There are
numerous companies that produce or supply the types of products similar to the
products that we distribute. We do not manufacture any of our products
and depend entirely on third party manufacturers
and suppliers. Typically, we do not have supply agreements, but submit
purchase orders for our products. We use third parties to
manufacture and package our beverages according to the formulae
and packaging guidelines dictated by us. A
disruption could occur at our suppliers for many reasons, including
fire, natural disasters, weather, manufacturing problems,
transportation interruption or government regulation. Although we
believe that a number of alternative manufacturers available and that could
replace the main suppliers with alternative sources at comparable
prices and terms, any disruption or extended delay in product
supply from third party suppliers could have a significant adverse impact
on operations. In addition, the time needed to replace our
main suppliers could adversely affect operations by delaying shipments
and potentially losing customers to the competition.
Our
business is sensitive to public perception. If any of our products prove
to be harmful to consumers or if scientific studies provide
unfavorable findings regarding its safety or effectiveness, then our brands
and image in the marketplace would be negatively
impacted.
Our
business could be adversely affected if any of our products or similar
products distributed by other companies prove to be harmful
to consumers or if scientific studies provide unfavorable findings
regarding the safety or effectiveness of our products or any similar products.
The juices and teas may contain certain nutritional ingredients
such as vitamins, herbs and other ingredients that we regard as safe
when taken as directed by and that various scientific
studies and literature have suggested may offer health benefits.
While we do conduct quality control testing on the ingredients in its
products, it is dependent on consumers' perception of the overall
integrity of the tea and beverage business. The safety and quality of
products made by competitors in our industry may not adhere to the same
quality standards that we implement, and may result in a negative consumer
perception of the entire industry. If our products suffer from this
negative consumer perception, it is likely sales will slow and we will have
difficulty generating revenues.
Our
products may not meet health and safety standards or could become
contaminated, causing product recalls that may adversely affect
brand image.
We have
adopted various quality, environmental, health and safety standards.
However, products may still not meet these standards or could otherwise
become contaminated. A failure to meet these standards or
contamination could occur as a result of operations or those of the
bottlers, distributors or suppliers. This could result in expensive
production interruptions, recalls and liability claims. Moreover,
negative publicity could be generated from false, unfounded or
nominal liability claims or limited recalls. Any of these failures or
occurrences could negatively affect our business and financial
performance.
-17-
We
are at risk for product liability claims and if we do not
maintain adequate insurance to protect us against such claims,
a material lawsuit could cause our business to fail.
We are
constantly at risk that consumers and users of our products will bring
lawsuits alleging product liability. We are not aware of any claims pending
against us or our products that we believe would adversely affect our
business. While we will continue to attempt to take what we consider to be
appropriate precautions, these precautions may not protect us from significant
product liability exposure in the future. We maintain product
liability insurance for our products through third party
providers. We believe our insurance coverage is adequate; however, we may not be
able to retain our existing coverage or this coverage may not be cost
justified or sufficient to satisfy any future claims. If we are unable to
secure the necessary insurance coverage at affordable costs, then our
exposure to liability will greatly increase and it will be difficult to
market and sell our products since customers rely on this insurance to
distribute our products. In addition to carrying our
own coverage, we also require our manufacturers to carry product liability
insurance. If we are sued, we may not have sufficient resources to
defend against the suit or to pay damages. A material lawsuit
could negatively impact our business by increasing our expenses
and negatively impacting our available capital which, in turn,
could cause our business to fail.
If
we cannot maintain adequate inventory, revenues will likely decrease and
operating results will be adversely affected.
From time
to time, we have experienced difficulty maintaining sufficient inventory to
meet customer demand. This failure results from insufficient capital necessary
to build and manage inventory. We rely
on financing to build inventories and in the future may not
be able to obtain such financing on acceptable terms, if at all.
If we do not have sufficient inventory to meet demand, revenues will likely
decrease. Additionally, if we cannot fill customers' orders, consumers may
turn to other suppliers and, therefore, the relationship could be lost
entirely. If we cannot build sufficient inventories, our
business may be curtailed or could fail entirely
and you could lose all or part of your investment.
We
are dependant on significant forces beyond our control, including but not
limited to, third party packers to maintain production capacity; if we are
unable to maintain production capacity, our results may be adversely
affected.
We are
following a business plan that requires a significant amount of time to reach
critical mass and to achieve significant profit margins to sustain internal
growth. We are dependant on significant forces beyond our control, including but
not limited to, third party packers, to maintain production capacity and
distribution; cost-effective supply of raw materials to reach projected profit
margins; and adding additional retail and distribution partners in addition to
those we are working with to achieve projected financial
milestones. No assurances can be given that we will succeed in
managing these market forces to successfully achieve our business
goals.
If
we do not develop and introduce new products that appeal
to consumers, our revenues may not be sufficient to cover our expenses
and our business could fail.
We face
challenges in developing new products, primarily with funding
development costs and diversion of management time. On a regular
basis, we evaluate opportunities to develop new products through product
line extensions and product modifications. We may not successfully develop
product line extensions or integrate newly developed products into our
business. In addition, newly developed products may not contribute
favorably to our operations and financial condition. Our failure to develop
and introduce new products on a timely basis would adversely
affect our future operating results.
-18-
We
may face significant competition for our ready-to-drink
beverage products that could adversely affect our revenues,
results of operations and financial condition.
We compete in the premium
juice markets, the rapidly growing health and wellness juice markets as well as
the ready-to-drink tea markets. The market segments are highly
competitive. Each of these markets has multiple products competing
for limited retail shelf space. Our products will compete
with well known products
such as Welch’s Grape Juice, Arizona, Snapple, Lipton Brisk, Sobe,
Vitamin Water, Fuze, Nestea, Tazo, Honest Tea and Sweet Leaf Tea,
among other, some of which are produced and/or owned by major
international beverage companies such as Coca-Cola, Pepsi, Cadbury Schwepps,
and Dr. Pepper/Snapple Group. These companies are substantially larger
and more experienced than we are. In addition, they have
longer operating histories and have materially greater financial
and other resources than we do. Our ability to gain or
maintain share of sales or gross margins in the global market or
in various local markets may be limited as a result of actions by our
competitors. If we cannot compete in the marketplace, we may have
difficulty selling our products and generating revenues. Additionally,
competition may drive down the prices of our products,
which could adversely affect our revenues and our profitability,
if any. Consumer
acceptance on a competitive level requires significant consumer awareness and
retail support across the nation. There are no guarantees that we can
secure significant capital resources, either through additional financing or
sales, to compete on a national level with other more established brands
currently in the marketplace.
If
we are unable to manage our projected growth, we may not be able
to implement our business plan and we may not achieve
profitability in the future.
We are
following a business plan intended to launch lines of premium all natural grape
juice and organic white teas, as well as potentially other lines of beverages,
in a worldwide competitive beverage market. In an effort to create
and win market share within this highly competitive segment, capital financing
is needed for the implementation of a broad range of employee recruitment and
training, product development, mass market distribution, marketing and
promotion, and intellectual property protection. No assurance can be
given that we will be commercially viable, that it will be successful in further
developing its product lines, or that its marketing and promotion activities
will have the intended effect of developing increased sales and
earnings.
We
believe we must expand our business to achieve profitability.
Any further expansion of our business may strain our current
managerial, financial, operational, and other resources. We will
need to continually improve our operations and our financial,
accounting and other internal control systems in order to manage our
growth effectively. Success in managing this
expansion and growth will depend, in part, upon the
ability of our senior management to manage our growth effectively. Any
failure to do so may lead to inefficiencies and redundancies,
and result in reduced growth prospects. As a result, our
profitability, if any, may be curtailed or eliminated.
Our
revenues and operating results may fluctuate unexpectedly from quarter
to quarter, which may cause our common stock to decline
in value.
Our
revenues and operating results may fluctuate significantly in the
future due to various factors including, but not limited to, changes
in sales, inventory expenses, operating expenses, market acceptance of our
products, or regulatory changes that may affect the marketability of our
products and buying cycles of our customers. As a result of these
and other factors, we believe that period to period comparisons of our
operating results may not be meaningful in the short term
and that our performance in a particular period may not be
indicative of our performance in any future period.
-19-
Price
fluctuations in, and unavailability of, raw materials that we use
could adversely affect our business operations.
We
do not enter into hedging arrangements for raw materials. Prices of
certain raw materials have fluctuated in recent years
which have affected our cost of goods. To mitigate the impact of these
price fluctuations on our cost of goods, we actively source the
production of raw materials and finished goods
through different suppliers to stabilize our costs. If these suppliers are
unable or unwilling to meet our requirements, we could suffer
shortages or substantial cost increases. Changing suppliers can require
long lead times. The failure of our suppliers to meet our needs
could occur for many reasons, including fires, natural disasters, weather,
manufacturing problems, disease, strikes, transportation interruption,
government regulation, political instability and terrorism.
In addition, we pass some of these costs onto our customers
through intermittent price increases. If we are not able to continue to
effectively negotiate competitive costs with various suppliers or pass
along certain price increases to our customers, our margins
and operations will be adversely affected.
Our
business is subject to many regulations and noncompliance could be
costly.
The
production, marketing and sale of our beverages, including contents,
labels, caps and containers, are subject to the rules and regulations
of various federal, provincial, state and local health agencies. If a
regulatory authority finds that a current or future product or
production run is not in compliance with any of these
regulations, we may be fined, or production may be stopped, thus adversely
affecting our financial condition and results of operations.
Similarly, any adverse publicity associated with any noncompliance may
damage our reputation and our ability to successfully market our
products. Furthermore, the rules and regulations are subject to change from
time to time and while we closely monitor developments in this area,
we have no way of anticipating whether changes in these rules
and regulations will impact our business adversely. Additional or
revised regulatory requirements, whether labeling, environmental,
tax or otherwise, could have a material adverse effect on our
financial condition and results of operations.
In
order to achieve our anticipated results, we will have to manage growth
effectively; if we do not, our results may be adversely affected.
Our
ability to manage anticipated growth will require the Company to administer and
manage the integration of new employees, technology and facilities located
around the country into viable operations and to develop operational, financial
and management information systems, as to which no assurance can be
given. We are relying on a lean senior management team. If our
management is unable to manage its anticipated growth effectively, the quality
of our products, ability to attract and retain key personnel and results of
operations will be materially and adversely affected and materially affect our
ability to compete in the marketplace.
Rapid
growth may place strain on our resources.
We may
experience rapid growth that could place a significant strain on our managerial,
financial and operational resources. There can be no assurance that
we will not experience delays, difficulties or unplanned expenses as it attempts
to scale its production and distribution infrastructure. Our systems,
procedures or controls may not be adequate to support our operations and our
management may not be able to manage any growth effectively. As a
result, for us to fully implement our business plan, we may need to obtain
financing in excess of its current capitalization, and no assurance can be given
that we will be able to obtain such funds upon favorable terms and conditions,
if at all. Failure to do so could have a material adverse effect on
our business.
-20-
We
are dependent upon the performance of our employees.
Our
performance depends substantially on the performance of our executive
officers and other key personnel. The success of our business in the
future will depend on our ability to attract, train,
retain and motivate high quality personnel, especially highly
qualified managerial personnel. The loss of services of any executive
officers or key personnel could have a material adverse effect on our
business, revenues, and results of operations or financial condition.
Competition for talented personnel is intense, and we may not be able
to continue to attract, train, retain or motivate other highly
qualified technical and managerial personnel in the future.
In addition, market conditions may require us to pay higher
compensation to qualified management and technical personnel
than we currently anticipate. Any inability to attract
and retain qualified management and technical personnel
in the future could have a material adverse effect on our
business, prospects, financial condition, and/or results of
operations.
Risks Related to Our
Stock
Our
shares of common stock are not listed for trading on a national securities
exchange.
Our
common stock is not listed for trading on any national securities exchange. We
intend to apply for quotation of our common stock on the
over-the-counter bulletin board (OTCBB), however there is no assurance that our
common stock will be approved for quotation. Investments in securities trading
on the OTCBB are generally less liquid than investments in securities trading on
a national securities exchange. The failure of our shares to be approved for
trading on a national securities exchange may have the effect of limiting the
trading activity of our common stock and reducing the liquidity of an investment
in our common stock.
Shares
of our common stock and other securities are considered “penny
stocks.”
If the
market price per share of our common stock is less than $5.00,
the shares may be “penny stocks” as defined in the Securities Exchange
Act of 1934, as amended, referred to as the Exchange Act. As a result,
an investor may find it more difficult to dispose of or
obtain accurate quotations as to the price of these securities.
In addition, “penny stock” rules adopted by the SEC under the Exchange
Act subject the sale of these securities to regulations which impose sales
practice requirements on broker-dealers. For example, broker-dealers selling
penny stocks must, prior to effecting the transaction, provide their
customers with a document that discloses the risks of investing
in penny stocks.
Furthermore,
if the person purchasing the securities is someone other than an accredited
investor or an established customer of the broker-dealer, the
broker-dealer must also approve the potential customer’s account by obtaining
information concerning the customer’s financial situation, investment experience
and investment objectives. The broker-dealer must also
make a determination whether the customer has sufficient knowledge and
experience in financial matters to be reasonably expected to be capable of
evaluating the risk of transactions in penny stocks. Accordingly, the SEC’s
rules may limit the number of potential purchasers of shares of our common
stock. Moreover, various state securities laws impose restrictions on
transferring “penny stocks,” and, as a result, investors in our securities may
have their ability to sell their securities impaired.
-21-
Fluctuations
in stock markets may have an adverse effect on the price of our common
stock.
Domestic
and international stock markets often experience significant
price and volume fluctuations that are unrelated to the operating
performance of companies with securities trading in those markets. These
fluctuations, as well as political events, terrorist attacks, threatened or
actual war and general economic conditions unrelated to our
performance, may adversely affect the price of our common stock.
In the past, securities holders of other companies often have
initiated securities class action litigation against those
companies following periods of volatility in the market price of those
companies' securities. If the market price of our stock fluctuates
and our stockholders initiate this type of litigation, we could incur
substantial costs and experience a diversion of our management's
attention and resources, regardless of the outcome. This
could materially and adversely affect our business, prospects,
financial condition and/or results of operations. In addition, the
exposure of our common stock to the general investing community is
limited and thereby inhibits our ability to obtain new investors
to help finance our business.
Additional
offerings of our securities may have a dilutive effect on current
shareholders
We may find the need to raise
additional capital through additional sales of securities. Such sales
may be in the form of additional preferred stock, common stock, stock options,
or other securities that may include voting rights (including the right to vote
as a series on particular matters), preferences as to dividends and liquidation,
and conversion and redemption rights, subject to applicable law. Such
issuances and the exercise of any convertible securities (including stock
options) will dilute the percentage ownership of the Company’s stockholders, and
may affect the value of the Company’s capital stock and could adversely affect
the rights of the holders of such stock, thereby reducing the value of such
stock. Moreover, any exercise of convertible securities may adversely
affect the terms upon which we will be able to obtain additional equity capital,
since the holders of such convertible securities can be expected to exercise
them at a time when we would, in all likelihood, be able to obtain any needed
capital on terms more favorable to it than those provided in such convertible
securities.
Our
current management may control the right to vote our common stock
and they may be able to control our company indefinitely.
As of May
12, 2010, members of our Board of Directors and our management team
beneficially own approximately 96.55% of our common stock (including shares
beneficially owned by Amir F. Heshmatpour who has resigned from our board of
directors effective upon the expiration of the applicable regulatory waiting
periods). As a result, our Board and management collectively
and effectively control our management and affairs and all
matters requiring stockholder approval, including the election of
directors and approval of significant corporate transactions, for
an indefinite period of time. Without a disparate stockholder base or
a fluid aggregation of stockholders, it will be more difficult for a
third party to acquire our Company without the consent of the
insiders. This concentration of ownership might adversely affect the market
value of our common stock in the future and the voting
and other rights of our other stockholders.
Future
classes of preferred stock may be issued with greater rights
than our common stock.
As of May
12, 2010, we had no preferred stock outstanding. Our Board is authorized to
issue classes or series of shares of our preferred stock without any action on
the part of our stockholders, subject to the limitations of the preferred stock
already outstanding. Our Board also has the power, without stockholder approval,
to set the terms of any such classes or series of shares of our preferred stock
that may be issued, including voting rights, dividend rights, conversion
features and preferences over shares of our common stock with respect to
dividends or if we liquidate, dissolve or wind up our business and other terms.
If we issue shares of our preferred stock in the future that have preference
over shares of our common stock with respect to the payment of dividends or upon
our liquidation, dissolution or winding up, or if we issue shares of our
preferred stock with voting rights that dilute the voting power of shares of our
common stock, the rights of our stockholders or the market price of shares of
our common stock, and as a result our preferred stock and warrants, could be
adversely affected.
-22-
In the
event of bankruptcy, all creditors’ claims will have priority over the rights of
holders of shares.
In the
event of bankruptcy, liquidation or winding up, our assets will be
available to pay obligations on our
preferred stock and common stock only after all of our
liabilities has been paid. In addition, our preferred shares will
effectively rank junior to all existing and future liabilities of our
subsidiaries and any capital stock of our subsidiaries held by
third parties. The rights of holders of our preferred shares to
participate in the assets of our subsidiaries upon any
liquidation or reorganization of any subsidiary will
rank junior to the prior claims of that subsidiary's creditors
and equity holders. In the event of bankruptcy, liquidation or
winding up, there may not be sufficient assets remaining, after paying our
and our subsidiaries' liabilities, to pay amounts due on any or
all of our preferred stock then outstanding, and holders of
our common stock will not have the right to receive any amount of our
assets unless and until all amounts due on all our
preferred stock have been paid in full.
Future
sales of common stock by our existing stockholders could adversely
affect the stock price of our securities.
The
market price of our common stock could decline as a result of
sales of a large number of shares of our common stock in the
market, or the perception that these sales could occur. These sales
also might make it more difficult for us to sell equity securities in the
future at a time and at a price that we deem appropriate. We can make
no prediction as to the effect, if any, that future sales of shares of
common stock or equity-related securities, or the availability of
shares of common stock for future sale, will have on the trading
price of our common stock.
We
do not expect to pay cash dividends on our common stock
in the foreseeable future. We intend to retain future earnings,
if any, to finance the expansion and growth of its business. Payment
of future dividends, if any, will be at the discretion of the Board of Directors
after taking into account various factors, including its financial condition,
operating results, current and anticipated cash needs and plans for expansion.
As a result, investors may have to sell their shares of our
common stock to realize their investment.
Securities
analysts may not cover our common stock and this may have a negative impact on
any market for our Common Stock
There is
no guarantee that securities analysts will cover our common stock. If securities
analysts do not cover our common stock, the lack of research coverage would be
likely to significantly reduce the trading volume and investor interest in our
common stock, and would be likely to adversely affect our common stock’s market
price, if any trading market exists. If we are covered by securities analysts
and our stock is downgraded, our stock price would likely decline.
Fulfilling
our obligations incident to being a public company will be expensive and time
consuming.
As a
public company, the Sarbanes-Oxley Act of 2002 and the related rules and
regulations of the SEC require us to implement additional corporate governance
practices and adhere to a variety of reporting requirements and complex
accounting rules. Compliance with these public company obligations increases our
legal and financial compliance costs and place significant additional demands on
our finance and accounting staff and on our financial, accounting and
information systems.
-23-
Our
investors may lose their entire investment in our securities
An
investment in our securities is highly speculative and may result in the loss of
the entire investment. Only potential investors who are highly experienced
investors and who can afford to lose their entire investment should consider an
investment in our securities.
We
became a publicly traded company through the acquisition of a public shell
company, and we could be liable for unanticipated claims or liabilities as a
result thereof.
We face
substantial risks associated with being a former public shell company, including
absence of accurate or adequate public information concerning the public shell
company; undisclosed liabilities; improper accounting; claims or litigation from
former officers, directors, employees or stockholders; contractual obligations;
and regulatory requirements. Although management performed due diligence on us,
there can be no assurance that such risks do not occur. The occurrence of any
such risk could materially adversely affect our financial
condition.
-24-
Security
Ownership of Certain Beneficial Owners and Management
The
following table lists, as of May 12, 2010, the number of shares of common stock
of our Company that are beneficially owned by (i) each person or entity known to
our Company to be the beneficial owner of more than five percent (5%) of the
outstanding common stock; (ii) each officer and director of our Company; and
(iii) all officers and directors as a group. Information relating to beneficial
ownership of common stock by our principal shareholders and management is based
upon information furnished by each person using “beneficial ownership” concepts
under the rules of the SEC. Under these rules, a person is deemed to be a
beneficial owner of a security if that person has or shares voting power, which
includes the power to vote or direct the voting of the security, or investment
power, which includes the power to vote or direct the voting of the
security. The person is also deemed to be a beneficial owner of any
security of which that person has a right to acquire beneficial ownership within
sixty (60) days. Under the SEC rules, more than one person may be deemed to be a
beneficial owner of the same securities, and a person may be deemed to be a
beneficial owner of securities as to which he or she may not have any pecuniary
beneficial interest. Except as noted below, each person has sole voting and
investment power.
The
percentages below are calculated based on 8,000,000 shares of our common stock
issued and outstanding as of May 12, 2010.
Unless
otherwise stated, the address of each beneficial owner is 9595 Wilshire Blvd.,
Suite 900, Beverly Hills, CA 90212.
Name
of Beneficial Owner
|
Number
of Shares
of
Common Stock
Beneficially
Owned
|
Percent
of
Common
Stock
Beneficially
Owned
|
|||||
Rose
Hill Gardens LLC
|
6,677,251
|
(2) |
83.45
|
% | |||
PO
Box 5490
Santa
Barbara CA 93150
|
|||||||
Victoria
Briggs (1)
|
6,677,211
|
(2) |
83.45
|
% | |||
AFH
Holding and Advisory, LLC
|
800,000
|
(3) |
10.00
|
% | |||
9595
Wilshire Blvd, Suite 700
Beverly
Hills, CA 90212
|
|||||||
Amir
F. Heshmatpour
9595
Wilshire Blvd, Suite 700
Beverly
Hills, CA 90212
|
800,000
|
(3) |
10.00
|
% | |||
Sandra
L Missakian (1)
|
171,876
|
2.15
|
% | ||||
Anthony
Roth (1)
|
75,000
|
.94
|
% | ||||
Barrett
Carrere
|
0
|
—
|
|||||
All
directors and executive officers
as
a group (5 persons)
|
7,724,127
|
96.55
|
% |
-25-
(1)
Victoria Briggs, Sandra Missakian and Anthony Roth will become members of our
board of directors following the expiration of ten days following our filing of
Schedule 14F-1 with the SEC.
(2) Victoria
Briggs, is the sole managing member, and owns and controls 100% of Rose Hill
Gardens LLC. Christopher K. Bagdasarian is the spouse of Victoria
Briggs. Mr. Bagdasarian has no ownership or control over Rose Hill
Gardens, LLC. Mr. Bagdasarian disclaims any beneficial interest in the
shares.
(3) Amir
F. Heshmatpour is the Managing Member of AFH Holding and Advisory, LLC, has
investment control over the shares owned by AFH Holding and Advisory, LLC and
may be deemed the beneficial owner of these shares of our common stock. Mr.
Heshmatpour will resign from our board of directors upon the expiration of ten
days following our filing of Schedule 14F-1 with the SEC.
-26-
Executive
Officers and Directors
Prior to
the Exchange, our sole officer and director was:
Name
|
Age
|
Positions
and Offices Held
|
||
Amir
F. Heshmatpour
|
43
|
President,
Secretary and Director
|
Amir
F. Heshmatpour-Director
Mr.
Heshmatpour is the Founder and Managing Director of AFH Holding & Advisory
LLC, an integrated advisory and consulting firm serving U.S. and international
clients who seek strategic counsel and sophisticated access to global capital
markets. Prior to founding AFH, Mr. Heshmatpour was the Chairman and Chief
Executive Officer of Metrophone Telecommunications, Inc., a company he began in
1994. Amir Heshmatpour received a Bachelor of Arts from Pennsylvania State
University in 1988. Mr. Heshmatpour will resign from our board of directors upon
the expiration of ten days following our filing of Schedule 14F-1 with the
SEC.
The
following persons became the Company’s executive officers and directors upon
effectiveness of the Exchange and hold the positions set forth opposite their
respective names.
Name
|
Age
|
Positions
and Offices Held
|
||
Anthony
Roth
|
45
|
President,
Chief Executive Officer and Director
|
||
Barrett
Carrere
|
40
|
Chief
Financial Officer, Secretary
|
||
Sandra
L. Missakian
|
40
|
Director
|
||
Victoria
Briggs
|
62
|
Director
|
Anthony
Roth – President
Mr. Roth
is our President and Chief Executive Officer; he will become a Director and
Chairman of the Board upon the expiration of ten days following our filing of
Schedule 14F-1 with the SEC. A serial entrepreneur with over 14 years of
experience, Mr. Roth has a reputation for starting successful technology
companies and managing the turnaround of various businesses in
transition. Mr. Roth was former President and CEO of Celect.org™, a
company of Optimum Interactive (USA) LTD., the leading provider of web-based
network services for membership organizations. Prior to co-founding Celect.org™,
Mr. Roth was brought in as a turnaround CEO for Commerce Planet, Inc., an online
marketing & e-commerce company. During his tenure at Commerce Planet, Mr.
Roth was responsible for resolving a range of legal, compliance, financial and
other business-critical issues, eventually leading to a successful sale of the
assets of the company. In 2001, Mr. Roth founded Utix Group, Inc., a corporate
premium gift, incentive and consumer reward company that significantly changed
the way prepaid gift cards are issued and processed to this day. During his time
as President & CEO of Utix Group from 2001-2007, Mr. Roth authored,
commercialized and defended a series of patents for prepaid technology
system and marketing applications on the DISCOVER Network. He also formed
strategic alliances with several co-branding partners including the PGA, Nike,
Red Door Spa, FOX, Disney, Warner Brothers, Carlson Marketing, Quantum
Loyalty - Hollywood Movie Money, and the U.S. Ski Team. The Utix technology
applications have become standardized prepaid card features
for several Fortune 500 brands issuing gift cards or prepaid products
worldwide. Having authored and defended several patents in the pre-paid
technologies arena, Mr. Roth is an expert in the industry and has served as a
featured speaker at multiple events for organizations such as the Electronic
Funds Transfer Association and the American Management Association. Earlier in
his profession, Mr. Roth served as a turn-around executive and often CEO for
both public and private business concerns. He first began his professional
training and experience in the business financial services and retail brokerage
arena where after eight years he reached the position of Vice President at
Merrill Lynch. Mr. Roth received an undergraduate degree in 1986 from The
University of Illinois and holds a masters degree in finance from The New York
Institute of Finance.
-27-
Barrett
Carrere - Chief Financial Officer
Mr.
Carrere graduated from University of Southern California, B.S. in Accounting,
May 1993, cum laude. He worked with Arthur Andersen in Los Angeles
from 1993 to July 1997 in the assurance division as a staff and senior
auditor. He specialized in the energy practice with clients such as
Occidental Petroleum Corporation, Southern California Edison and Texaco Inc.
Cogeneration Partnerships. From July
1997 through March 2010, Mr. Carrere held various positions at VCA Antech Inc.
(NASDAQ: WOOF, "VCA"). VCA is a leading high-growth international
animal healthcare services company with a compounded annual revenue growth rate
of over 15% and approximately $1.3 billion in annual revenue for the year ended
December 31, 2009. Mr. Carrere started at VCA as a senior accountant
and was promoted to Accounting Manager, Director of Financial Reporting and
finally V.P. Assistant Corporate Controller where he was responsible for
approximately 50 individuals in the following departments: SEC Compliance and
Reporting, Technical Accounting and Research, Corporate Accounting, Corporate
Budgeting and Forecasting, and accounts payable. While at VCA
Mr. Carrere was involved with over $2.3 billion of capital transactions
including an LBO, an IPO and secondary offering, debt financings and refinancing
as well as integration and due diligence for over $1.0 billion of M&A
transactions. In addition to his responsibilities at VCA, from April 2008
through June 2009 Mr. Carrere was also lecturer of accounting in the school of
economics at the University of California, Santa Barbara. Mr. Carrere is an
active certified public accountant licensed in the state of California, license
#77167, and is a member of the American Institute of Certified Public
Accountants.
Sandra
L Missakian – Director
Ms.
Missakian brings over 13 years of law, finance, business development and start
up experience primarily in the entertainment industry. For the past 4
years, Ms. Missakian provided management consulting and legal services to
various companies in the entertainment industry (ranging from serving in senior
level in-house executive roles to negotiating and establishing multi-million
dollar private placement and acquisition deals), and managed Golden Child
Ventures (and its subsidiaries Golden Child Pictures and Fortress DVD), an
entertainment company that has produced 10 titles since 2002 and has structured
independent off balance sheet slate financing for up to five features films to
be produced over the next 12 months. Ms. Missakian spent 4 years as
Managing Director and General Counsel for Marblehead Capital Group, Inc., a
Massachusetts based boutique venture capital firm focused on providing early
stage capital and consulting services to companies in entertainment, media and
technology industries. Ms. Missakian’s role at the firm was to
negotiate and structure private financings, portfolio acquisitions, co-manage a
dedicated investment fund, and provide strategic consulting services to
portfolio companies. During this period, Ms. Missakian had management oversight
of one of the firm’s portfolio companies, FansRule, Inc. Over three
and a half years with FansRule, Ms. Missakian held various senior management
positions, including President, General Counsel, and Head of Business
Development. In her day to day activities for FansRule, she signed
clients and served as point person for all client relations, created strategic
business alliances with third party corporate partners, and managed the teams
that executed innovative marketing initiatives for all the company’s high
profile clients which included Aerosmith, Christina Aguilera, Justin Timberlake,
Destiny’s Child, and Anastacia, among others. Prior to joining
Marblehead Capital, Ms. Missakian served as the Director of Acquisitions for the
Los Angeles based film company Behaviour Worldwide, Inc. (now MDP), where she
was involved in development, acquisition and financing of its feature film
slate. Ms. Missakian began her career as an entertainment lawyer and literary
agent at the Boston law firm of Palmer & Dodge. Ms.
Missakian received a B.A. from Dartmouth College in 1991 and a J.D. from Boston
College Law School in 1994.
-28-
Victoria
Briggs – Director
Ms.
Briggs was instrumental in building Curtis School, a premier private school in
Los Angeles, as Director of Schools and as a member of the Board of Directors.
Ms. Briggs founded Rose Hill Gardens LLC which she grew to become the largest
outdoor rose grower in the United States. Rose Hill Gardens LLC provided the
initial funding for First Blush and is First Blush’s largest shareholder. Ms.
Briggs received an undergraduate degree in 1969 from The University of
Denver.
There are
no familial relationships among any of our directors or
officers. None of our directors or officers is a director in any
other U.S. reporting company. None of our directors or officers has
been affiliated with any company that has filed for bankruptcy within the last
five years. The Company is not aware of any proceedings to which any
of the Company’s officers or directors, or any associate of any such officer or
director, is a party adverse to the Company or any of the Company’s subsidiaries
or has a material interest adverse to it or any of its
subsidiaries.
Each
director of the Company serves for a term of one year or until the successor is
elected at the Company’s annual shareholders’ meeting and is qualified, subject
to removal by the Company’s shareholders. Each officer serves, at the pleasure
of the board of directors, for a term of one year and until the successor is
elected at the annual meeting of the board of directors and is
qualified.
We have
granted our former sole shareholder, AFH Holding and Advisory, LLC, the right to
designate one member of the Board. As of the date hereof, this right has not
been exercised.
Significant
Employees
The
Company has no employees who are not executive officers, but who are expected to
make a significant contribution to the Company’s business.
Involvement
in Certain Legal Proceedings
FansRule,
Inc., in which Ms. Missakian held various senior management positions, including
President, General Counsel, and Head of Business Development, filed a petition
for bankruptcy in November, 2003. Ms. Missakian’s resigned from
FansRule in May, 2003.
Other
than as set forth above, during the past ten years, none of the Company’s
directors, persons nominated to become directors, executive officers, promoters
or control persons:
|
·
|
was
a general partner or executive officer of any business against which any
bankruptcy petition was filed, either at the time of the
bankruptcy or two years prior to that
time;
|
|
·
|
was
convicted in a criminal proceeding or named subject to a pending
criminal proceeding (excluding traffic violations and other
minor offenses);
|
|
·
|
was
subject to any order, judgment or decree, not subsequently reversed,
suspended or vacated, of any court of competent jurisdiction, permanently
or temporarily enjoining, barring, suspending or otherwise limiting his
involvement in any type of business, securities or banking activities;
or
|
-29-
|
·
|
was
found by a court of competent jurisdiction (in a civil action), the
Securities and Exchange Commission or the Commodity Futures Trading
Commission to have violated a federal or state securities or commodities
law, and the judgment has not been reversed, suspended or
vacated.
|
Compliance
with Section 16(a) of the Exchange Act
To the
Company’s knowledge, based solely on a review of such materials as are required
by the Securities and Exchange Commission, none of the Company’s officers,
directors or beneficial holders of more than 10% of the Company’s issued and
outstanding shares of Common Stock failed to timely file with the Securities and
Exchange Commission any form or report required to be so filed pursuant to
Section 16(a) of the Securities Exchange Act of 1934, during the fiscal year
ended December 31, 2008.
Code
of Ethics
As of the
date hereof, the Company has not adopted a written code of ethics that applies
to the Company’s principal executive officer, principal financial officer or
controller, or persons performing similar functions. The Company intends to
adopt a written code of ethics in the near future.
Board
Committees
The
Company intends to appoint such persons to the Board of Directors and committees
of the Board of Directors as are expected to be required to meet the corporate
governance requirements imposed by a national securities exchange, although the
Company is not required to comply with such requirements until it elects to seek
listing on a securities exchange. The Company intends to include as promptly as
possible, at least one independent director who will qualify as an “audit
committee financial expert,” within the meaning of Item 407(d)(5) of Regulation
S-B, as promulgated by the SEC. Additionally, the Board of Directors is expected
to appoint an audit committee, nominating committee and compensation committee,
and to adopt charters relative to each such committee, in the near future. The
Company does not currently have an “audit committee financial expert” since it
currently does not have an audit committee in place.
Executive
Compensation
Summary
Compensation Table
The table
below sets forth, for the last two fiscal years, the compensation earned by
the principal executive officer of each of AFH and First Blush as of
December 31, 2009 (the “Named Executive Officer”). Except as provided below,
none of the Company’s executive officers received annual compensation in excess
of $100,000 during the last two fiscal years.
Name
and Principal
Position
|
Year
|
Salary
($)
|
Bonus
($)
|
Stock
Awards
($)
|
Option
Awards
($)
|
Non-Equity
Incentive
Plan
Compensation
($)
|
Nonqualified
Deferred
Compensation
Earnings
($)
|
All
Other
Compensation
($)(1)
|
Total($)
|
|||||||||||||||||||||||||
Victoria
Briggs, acting
|
2009
|
$ | 0.00 | $ | 0.00 | $ | 0.00 | $ | 0.00 | $ | 0.00 | $ | 0.00 | $ | 102,000 | $ | 0.00 | |||||||||||||||||
chief
executive officer of
|
2008
|
$ | 0.00 | $ | 0.00 | $ | 0.00 | $ | 0.00 | $ | 0.00 | $ | 0.00 | $ | 20,833 | $ | 0.00 | |||||||||||||||||
First
Blush, Inc.
|
||||||||||||||||||||||||||||||||||
Amir
F. Heshmatpour,
|
2009
|
$ | 0.00 | $ | 0.00 | $ | 0.00 | $ | 0.00 | $ | 0.00 | $ | 0.00 | $ | 0.00 | $ | 0.00 | |||||||||||||||||
President
of AFH
|
2008
|
$ | 0.00 | $ | 0.00 | $ | 0.00 | $ | 0.00 | $ | 0.00 | $ | 0.00 | $ | 0.00 | $ | 0.00 |
-30-
(1) In
2009 we paid RHG a consulting fee of $8,500 per month for office rent and
related expenses as well as operating and management services including, but not
limited to, sales and marketing, fulfillment, production, customer service and
accounting. Rose Hill Gardens LLC is wholly-owned by Ms.
Briggs. Since First Blush’s incorporation on August 1, 2008 through
December 31, 2008, Ms. Briggs, a director, received $20,833 in
consideration for her services rendered in her capacity as director and in her
operational capacity. No compensation has been paid subsequent to December 31,
2008.
Outstanding
Equity Awards at Fiscal Year-End
The
Company has no outstanding equity awards as of the fiscal year ended December
31, 2009.
Compensation
of Directors
Since
First Blush’s incorporation on August 1, 2008 through December 31, 2008,
Victoria Briggs, a director, received $20,833 in consideration for her services
rendered in her capacity as director and in her operational capacity. No
compensation has been paid subsequent to December 31, 2008.
Employment
Contracts and Termination of Employment and Change-in-Control
Arrangements
We have
entered into an employment agreement, dated May 12, 2010 with Anthony Roth, our
Chief Executive Officer, for a term ending December 31, 2011 at a base salary of
$345,000 per year plus an annual bonus based on his achievement of individual
objectives and achievement of company objectives at the full discretion of the
Board. We may terminate the agreement on 60 days notice and Mr. Roth may
terminate the agreement upon 90 days prior notice to us. For all the terms
of the Employment Contract with Mr. Roth, reference is hereby made to such
agreement annexed hereto as Exhibit 10.2. All statements made herein
concerning such agreement are qualified by reference to said
exhibit.
We have
entered into an employment agreement, dated May 12, 2010 with Barrett Carrere,
our Chief Financial Officer, on an “at will” basis with First Blush at a base
salary of $150,000 per year, with an increase in base salary to $180,000 on
January 1, 2011 at the discretion of the Board, plus an annual bonus based on
his achievement of individual objectives and achievement of company objectives
at the full discretion of the Board. We may terminate this agreement
without notice and Mr. Carrere may terminate the agreement with 30 days prior
notice to us. For all the terms of the Employment Contract with Mr.
Carrere, reference is hereby made to such agreement annexed hereto as Exhibit
10.3. All statements made herein concerning such agreement are
qualified by reference to said exhibit.
We are
not a party to any other employment agreements.
Stock
Incentive Plans
We had no
stock or stock options issued incentive plans at December 31,
2009.
-31-
Certain
Relationships and Related Transactions
We pay
Rose Hill Gardens LLC a consulting fee of $8,500 per month for office rent and
related expenses as well as operating and management services including, but not
limited to, sales and marketing, fulfillment, production, customer service and
accounting. Rose Hill Gardens LLC is owned by Ms. Briggs, who will become a
member of our board of directors upon the expiration of ten days following our
filing of Schedule 14F-1 with the SEC.
On
December 31, 2008, we entered into a $1,000,000 Senior Credit Facility with
annual interest of 12% with Rose Hill Gardens LLC. The Senior Credit Facility is
due on the earlier of demand with 30 days prior notice or December 31, 2010.
On December 31, 2008, we drew $828,000 on the Rose Hill Gardens LLC
Senior Credit Facility and an additional $99,000 in 2009.
In June
26, 2009, we entered into a $100,000 Senior Secured Promissory Note from Michael
D. Bagdasarian,, with annual interest of 12%. This note is a demand note, due
with 30 days prior notice.
All
outstanding senior credit facilities are secured by the assets of First
Blush.
See Employment Agreements, above
for a discussion of the Employment Contract between each of Anthony Roth and
Barrett Carrere and us.
From
April, 2010 until May 12, 2010, Mr. Roth and Mr. Carrere served as Vice
Presidents of Operations and Finance, respectively of First Blush, Inc. They
were not paid any compensation in connection with these positions.
Jeffrey
Rinde, a partner of Blank Rome LLP, First Blush’s legal advisor in connection
with the Exchange, also holds the position of Principal of AFH Holding and
Advisory, LLC (“AFH Holding”) and has an ownership interest in AFH
Holding. AFH Holding was our sole shareholder prior to the
Exchange, and as such will realize an economic benefit as a result of fees
received in the Exchange and of AFH Holding’s continued ownership of
our shares. See “Security
Ownership of Certain Beneficial Owners and Management.” In connection
with Blank Rome’s representation of First Blush, Blank Rome disclosed Jeffrey
Rinde’s relationship with AFH Holding, and received a conflicts waiver from
First Blush relating to Blank Rome’s representation of First Blush.
Director
Independence
We are
not subject to listing requirements of any national securities exchange or
national securities association and, as a result, are not at this time required
to have our board comprised of a majority of “independent directors.” However,
we do believe that our Board of Directors currently meets the definition of
“independent” as promulgated by the rules and regulations of the American Stock
Exchange.
Review,
Approval and Ratification of Related Party Transactions
Given our
small size and limited financial resources, we had not adopted prior to the
Exchange formal policies and procedures for the review, approval or ratification
of transactions, such as those described above, with our executive officers,
directors and significant shareholders. However, we intend that such
transactions will, on a going-forward basis, be subject to the review, approval
or ratification of our board of directors, or an appropriate committee
thereof.
-32-
As of the
date hereof, we have not adopted a written conflict of interest policy that
applies to our executive officers and directors. We intend to adopt a written
conflict of interest policy in the future.
Indemnification
of Directors and Officers
Section 145 of the
Delaware General Corporation Law provides that a corporation may indemnify
directors and officers as well as other employees and individuals against
expenses including attorneys' fees, judgments, fines and amounts paid in
settlement in connection with various actions, suits or proceedings, whether
civil, criminal, administrative or investigative other than an action by or in
the right of the corporation, a derivative action, if they acted in good faith
and in a manner they reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, if they had no reasonable cause to believe their conduct was
unlawful. A similar standard is applicable in the case of derivative
actions, except that indemnification only extends to expenses including
attorneys' fees incurred in connection with the defense or settlement of such
actions, and the statute requires court approval before there can be any
indemnification where the person seeking indemnification has been found liable
to the corporation. The statute provides that it is not exclusive of
other indemnification that may be granted by a corporation's certificate of
incorporation, bylaws, agreement, a vote of stockholders or disinterested
directors or otherwise.
Our
Certificate of Incorporation provides that it will indemnify and hold harmless,
to the fullest extent permitted by Section 145 of the Delaware General
Corporation Law, as amended from time to time, each person that such section
grants us the power to indemnify.
The
Delaware General Corporation Law permits a corporation to provide in its
certificate of incorporation that a director of the corporation shall not be
personally liable to the corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability
for:
|
•
|
any
breach of the director's duty of loyalty to the corporation or its
stockholders;
|
|
•
|
acts
or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law;
|
|
•
|
payments
of unlawful dividends or unlawful stock repurchases or redemptions;
or
|
|
•
|
any
transaction from which the director derived an improper personal
benefit.
|
Our
Certificate of Incorporation provides that, to the fullest extent permitted by
applicable law, none of our directors will be personally liable to us or our
stockholders for monetary damages for breach of fiduciary duty as a
director. Any repeal or modification of this provision will be
prospective only and will not adversely affect any limitation, right or
protection of a director of our company existing at the time of such repeal or
modification.
Expenses
incurred by an officer or director in connection with an indemnified claim are
required to be paid by the us in advance of the final disposition of
the proceeding. If Delaware General Corporation Law, as amended,
requires, such expenses will only be advanced upon delivery to us of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that he or she is not entitled to be
indemnified. Such advances will be made on such terms and conditions
as the Board of Directors deems appropriate.
-33-
Item
3.02. Unregistered Sales of Equity Securities.
The
Exchange
On May
12, 2010, AFH and First Blush entered into the Share Exchange Agreement,
pursuant to which, as of such date, each share of First Blush was exchanged for
shares of AFH and First Blush became a wholly-owned subsidiary of
AFH. As a result of the Exchange, AFH issued an aggregate of
7,125,000 shares of Common Stock to the holders of First Blush’s capital
stock.
In
connection with the Exchange, we entered into a Registration Rights Agreement
with the former holders of Series A Preferred Stock of First Blush (the
“Registration Rights Agreements”) in which we agreed to use our commercially
reasonable efforts to include such holders’ shares of our common stock, at our
expense, in any registration statement that we file until such shares may be
sold under certain exemptions under the Securities Act of 1933, as
amended.
The
Company believes that this transaction is exempt from registration under the
Securities Act of 1933, as amended, pursuant to Section 4(2), or Regulation D
promulgated thereunder, as transactions by an issuer not involving a public
offering.
Description
of Capital Stock
Common
Stock
We are
authorized to issue 100,000,000 shares of common stock with par value of $0.001,
of which 8,000,000 shares are issued and outstanding as of May 12, 2010 after
giving effect to the Exchange. Each holder of shares of our common stock is
entitled to one vote per share on all matters to be voted upon by the
stockholders, including the election of directors. The holders of shares of our
common stock have no preemptive, conversion, subscription or cumulative voting
rights. There is no provision in our Certificate of Incorporation or By-laws
that would delay, defer or prevent a change in control of our
Company.
Preferred
Stock
We are
authorized to issue 20,000,000 shares of preferred stock, with par value of
$0.001, none of which is issued and outstanding. Our board of directors has the
right, without shareholder approval, to issue preferred shares with rights
superior to the rights of the holders of shares of common stock. As a result,
preferred shares could be issued quickly and easily, negatively affecting the
rights of holders of common shares and could be issued with terms calculated to
delay or prevent a change in control or make removal of management more
difficult.
Warrants
and Options
We do not
have any outstanding options, warrants or other securities exercisable for or
convertible into shares of our common stock.
Promissory
Notes
On
December 31, 2008, we entered into a $1,000,000 Senior Credit Facility with
annual interest of 12% with Rose Hill Gardens LLC. The Senior Credit Facility is
due on the earlier of demand with 30 days prior notice or December 31, 2010. On
December 31, 2008, we drew $828,000 on the Rose Hill Gardens LLC Senior Credit
Facility and an additional $99,000 in 2009.
-34-
In June
26, 2009, we entered into a $100,000 Senior Secured Promissory Note from Michael
D. Bagdasarian, with annual interest of 12%. This note is a demand note, due
with 30 days prior notice.
All
outstanding senior credit facilities are secured by the assets of First
Blush.
For all
the terms of the notes, reference is hereby made to such documents annexed as
Exhibits 101.4, 10.5 and 10.6 to this Current Report on Form 8-K.
Reference
is hereby made to the Bylaws or our Certificate of Incorporation and the
applicable statutes of the State of Delaware for a more complete description of
the rights and liabilities of holders of our securities.
Item
5.01. Changes in Control of Registrant.
Reference
is made to the disclosure set forth under Item 2.01 of this Current Report on
Form 8-K, which disclosure is incorporated herein by reference.
Item
5.02.
|
Departure
of Directors or Certain Officers; Election of Directors; Appointment of
Certain Officers; Compensatory Arrangements of Certain
Officers.
|
AFH’s
officer and director resigned as of May 12, 2010, effective upon the expiration
of any applicable regulatory waiting period. Pursuant to the terms of the
Exchange Agreement, the Company’s new directors and officers are as set forth
therein. Reference is made to the disclosure set forth under Item 2.01 of this
Current Report on Form 8-K, which disclosure is incorporated herein by
reference.
Item
5.03. Amendments to Articles of Incorporation or Bylaws;
Change in Fiscal Year.
On May
12, 2010, our Board of Directors and sole shareholder approved the amendment and
restatement of our Articles of Incorporation. We will file the
Amended and Restated Articles of Incorporatoin with the Secretary of State of
the State of Delaware after the applicable waiting period under Rule 14c of the
Exchange Act, which we anticipate will be on or about June 4. The
following is a summary of certain material changes that were
made:
|
·
|
the
name of the Company was changed from AFH Holding II, Inc. to First Blush
Brands, Inc.;
|
|
·
|
the
number of directors was changed to be not less than one and not more than
15;
|
|
·
|
procedures
were added for the election and removal of directors;
and
|
|
·
|
the
Company elected to be governed by Section 203 of the Delaware General
Corporation Law.
|
The
foregoing summary of the Amended and Restated Certificate of Incorporation is
qualified in its entirety by reference to the complete text of the Amended and
Restated Certificate of Incorporation, which is annexed hereto as Exhibit 3.1
and incorporated herein by reference.
On May
12, 2010, our Board of Directors approved the amendment and restatement of our
Bylaws. The following is a summary of certain material
changes that were made:
-35-
|
·
|
provisions
were added establishing proper procedures for nominations of persons for
election to the Board of Directors, stockholder proposals and other
business to be considered at stockholders’
meetings;
|
|
·
|
provisions
were added establishing proper conduct of stockholders’
meetings;
|
|
·
|
the
provision relating to stockholder action without a meeting was changed to
no longer allow stockholder action by written
consent;
|
|
·
|
the
provision permitting a Board of Advisors to be appointed by the Board of
Directors was deleted;
|
|
·
|
provisions
were added authorizing the Board of Directors to appoint a Executive
Committee and other committees and establishing the parameters and
authority that such committees may
have;
|
|
·
|
provisions
were added specifying the powers and duties of officers unless otherwise
determined by the Board of Directors;
and
|
|
·
|
a
provision was added providing for a special quorum in the event of any
emergency, disaster of catastrophe as referred to in Section 110 of the
General Corporation Law.
|
The
foregoing summary of the Amended and Restated Bylaws is qualified in its
entirety by reference to the complete text of the Amended and Restated Bylaws,
which are annexed hereto as Exhibit 3.2 and incorporated herein by
reference.
Item
5.06 Change in Shell Company Status.
As a
result of the consummation of the transactions described in Items 1.01 and 2.01
of this Current Report on Form 8-K, the Company believes that it is no longer a
shell corporation as that term is defined in Rule 405 of the Securities Act and
Rule 12b-2 of the Exchange Act.
Item
9.01. Financial Statements and Exhibits
(a) Financial
Statements of Businesses Acquired.
In
accordance with Item 9.01(a), First Blush’s audited financial statements for the
fiscal years ended December 31, 2009 and 2008 are filed in this Current Report
on Form 8-K as Exhibit 99.1. Unaudited financial statements for the three month
period ended March 30, 2010 will be filed by amendment to this Current Report on
Form 8-K no later than 71 calendar days from the date hereof.
(d) Exhibits.
The
exhibits listed in the following Exhibit Index are filed as part of this Current
Report on Form 8-K.
Exhibit
No.
|
Description
|
|
2.1
|
Share
Exchange Agreement, dated May 12, 2010, by and among AFH Holding
II, Inc. and its sole shareholder and First Blush, Inc. and its
security holders.
|
-36-
Exhibit
No.
|
Description
|
|
3.1
|
Amended
and Restated Articles of Incorporation of First Blush Brands,
Inc.
|
|
3.2
|
Amended
and Restated Bylaws of First Blush Brands, Inc. dated May 12,
2010
|
|
4.1
|
Form
of Registration Rights Agreement
|
|
10.1
|
Broker
Client Contract, dated May 1, 2008, by and between RHG LLC d/b/a First
Blush and Acosta, Inc. d/b/a Acosta Sales & Marketing
Company
|
|
10.2
|
Executive
Agreement, dated May 12, 2010, between Anthony G. Roth and AFH Holding II,
Inc.
|
|
10.3
|
Letter
Agreement, dated May 12, 2010, between AFH Holding II, Inc. and Barrett
Carrere
|
|
10.4
|
Loan
Agreement, dated November 18, 2008, by and among First Blush, Inc. and
Rose Hill Gardens LLC
|
|
10.5
|
Senior
Secured Promissory Note, dated December 31, 2008, by First Blush,
Inc.
|
|
10.6
|
Senior
Secured Promissory Note, dated June 26, 2009, by First Blush,
Inc.
|
|
10.7
|
Indemnification
Agreement, dated November 18, 2008, between First Blush, Inc. and Rose
Hill Gardens LLC
|
|
21.1
|
List
of Subsidiaries
|
|
23.1 |
Consent
of EFP Rotenberg, LLP
|
|
99.1
|
Financial
Statements for the fiscal years ended December 31, 2009 and
2008
|
-37-
SIGNATURE
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned hereunto
duly authorized.
AFH
Holding II, Inc.
|
||||
(Registrant)
|
||||
Date:
|
May
13, 2010
|
By:
|
/s/
Anthony G. Roth
|
|
Anthony
G. Roth
|
||||
President
and Chief Executive
Officer
|
-38-