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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY OR TRANSITIONAL REPORT
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2003
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
Commission File Number 0-20549
BRAVO! FOODS INTERNATIONAL CORP.
(Exact name of registrant as specified in its amended charter)
formerly
China Premium Food Corporation
Delaware 62-1681831
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11300 US Highway 1, North Palm Beach, Florida 33408 USA
(Address of principal executive offices)
(561) 625-1411
Registrant's telephone number
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(Former name, former address and former fiscal year if
changed since last report)
The number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date is as follows:
Date Class Shares Outstanding
May 12, 2003 Common Stock 25,962,854
Transitional Small Business Disclosure Format (Check One)
YES [ ] NO [X]
BRAVO! FOODS INTERNATIONAL CORP.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial statements
Consolidated balance sheets as of F-1
March 31, 2003 (unaudited) and December 31, 2002
Consolidated statements of operations F-3
(unaudited) for the three months ended
March 31, 2003 and 2002
Consolidated statements of cash flows F-4
(unaudited) for the three months ended
March 31, 2003 and 2002
Notes to consolidated financial statements (unaudited) F-5
Item 2. Management's Discussion and Analysis of Financial 10
Condition and Results of Operations
PART II - OTHER INFORMATION
Item 2. Changes In Securities and Use of Proceeds 22
Item 6. Exhibits and reports on Form 8-K 23
SIGNATURES 23
BRAVO! FOODS INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, March 31,
2002 2003
------------ ---------
Assets
Current assets:
Cash and cash equivalents $ 224,579 $ 73,546
Accounts receivable 236,149 170,962
Other receivable 14,662 31,759
Advance to vendor 8,719 8,708
Inventories 55,062 54,992
Prepaid expenses 7,605 15,754
----------- -----------
Total current assets 546,776 355,721
Furniture and equipment, net 89,602 68,703
License rights, net of accumulated amortization 88,104 72,095
Deposits 15,000 15,000
----------- -----------
Total assets $ 739,482 $ 511,519
=========== ===========
Liabilities and Shareholders' Deficit
Current liabilities:
Note payable to International Paper $ 187,743 $ 187,743
Notes payable to individual lenders 100,000 100,000
License fee payable to Warner Brothers 270,053 171,718
Accounts payables 1,039,313 1,153,736
Accrued liabilities 409,615 453,531
----------- -----------
Total current liabilities 2,006,724 2,066,728
Dividends payable 266,666 342,229
----------- -----------
Total liabilities 2,273,390 2,408,957
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F-1
BRAVO! FOODS INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, March 31,
2002 2003
------------ ---------
Commitments and contingencies
Shareholders' Deficit (Note 2):
Series B convertible, 9% cumulative, and redeemable preferred stock,
stated value $1.00 per share, 1,260,000 shares authorized, 107,440
shares issued and outstanding, redeemable at $107,440 107,440 107,440
Series F convertible and redeemable preferred stock, stated value $10.00
per share, 130,515 shares issued and outstanding 1,205,444 1,205,444
Series G convertible, 8% cumulative and redeemable preferred stock,
stated value $10.00 per share, 70,208 and 69,786 shares issued and
outstanding 624,115 620,364
Series H convertible, 7% cumulative and redeemable preferred stock,
stated value $10.00 per share, 175,500 shares issued and outstanding 939,686 939,686
Series I convertible, 8% cumulative and redeemable preferred stock,
stated value $10.00 per share, 30,000 shares issued and outstanding 72,192 72,192
Series J convertible, 8% cumulative and redeemable preferred stock,
stated value $10.00 per share, 100,000 and 150,000 shares issued and
outstanding 854,279 1,354,279
Common stock, par value $0.001 per share, 50,000,000 shares authorized,
25,732,854 and 25,862,854 shares issued and outstanding 25,730 25,860
Additional paid-in capital 20,266,463 20,573,635
Accumulated deficit (25,629,016) (26,799,144)
Translation adjustment (241) 2,806
----------- -----------
Total shareholders' deficit (1,533,908) (1,897,438)
----------- -----------
Total liabilities and shareholders' deficit $ 739,482 $ 511,519
=========== ===========
See accompanying notes to consolidated financial statements.
F-2
BRAVO! FOODS INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended March 31,
----------------------------
2002 2003
---- ----
(Unaudited) (Unaudited)
Revenue - unit sales $ - $ 92,918
Revenue - net kit sales 221,845 2,737
Revenue - gross kit sales 26,376 301,775
----------- -----------
Total revenue 248,221 397,430
Cost of sales (4,483) (80,362)
----------- -----------
Gross margin 243,738 317,068
Selling expenses 10,286 361,075
Product development - 494
General and administrative expense 707,567 772,470
----------- -----------
Loss from operations (474,115) (816,971)
Other income (expense)
Interest expense, net (9,737) (2,044)
Other expenses (1,368) -
----------- -----------
Loss before income taxes (485,220) (819,015)
Income tax provision - -
----------- -----------
Net loss (485,220) (819,015)
Dividends accrued for Series B preferred stock (2,417) (2,384)
Dividends accrued for Series D preferred stock (10,202) -
Dividends accrued for Series G preferred stock (16,321) (13,799)
Dividends accrued for Series H preferred stock (247,371) (30,292)
Dividends accrued for Series I preferred stock - (5,918)
Dividends accrued for Series J preferred stock - (298,720)
----------- -----------
Net loss applicable to common shareholders $ (761,531) $(1,170,128)
=========== ===========
Weighted average number of common shares outstanding 15,570,010 25,843,743
=========== ===========
Basic and diluted loss per share $ (0.05) $ (0.05)
=========== ===========
Comprehensive loss and its components
consist of the following:
Net loss $ (485,220) $ (819,015)
Foreign currency translation adjustment 472 3,047
----------- -----------
Comprehensive loss $ (484,748) $ (815,968)
=========== ===========
See accompanying notes to consolidated financial statements.
F-3
BRAVO! FOODS INTERNATIONAL, CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31,
----------------------------
2002 2003
---- ----
(Unaudited) (Unaudited)
Cash flows from operating activities:
Net loss $(485,220) $(819,015)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 92,148 26,202
Stock issuance for compensation - 28,000
Options issued for compensation 4,051 -
Amortization of deferred interest 521 -
Loss on disposal of fixed assets - 15,135
Increase (decrease) from changes in:
Accounts Receivable (39,891) 65,187
Other receivable 544 (17,097)
Advance to vendors - 11
Inventories 604 70
Prepaid expenses (7,197) (8,149)
Accounts payable and accrued expenses (68,267) 158,340
--------- ---------
Net cash used in operating activities (502,707) (551,316)
--------- ---------
Cash flows from investing activities:
Purchase of equipment - (4,429)
--------- ---------
Net cash used in investing activities - (4,429)
--------- ---------
Cash flows from financing activities:
Proceeds of Series H preferred stock 700,000 -
Proceeds of Series J preferred stock - 500,000
Payment of note payable, bank loan and license fee payable (407,897) (98,335)
--------- ---------
Net cash provided by financing activities 292,103 401,665
--------- ---------
Effect of changes in exchange rates on cash 472 3,047
--------- ---------
Net decrease in cash and cash equivalents (210,132) (151,033)
Cash and cash equivalents, beginning of period 232,040 224,579
--------- ---------
Cash and cash equivalents, end of period $ 21,908 $ 73,546
--------- ---------
Cash paid during the period:
Interest $ 0 $ 0
--------- ---------
Supplemental cash flow information
Non cash items of disclosure
Issuance of common stock for compensation $ - $ 28,000
Accrual of preferred dividends: 39,547 76,393
Accrued dividends converted to common stock 49,710 830
Conversion of Series D preferred stock to common stock 279,109 -
Conversion of Series G preferred stock to common stock 28,978 3,751
Issuance of Warrants with Series H preferred stock issuance 225,514 -
Deemed dividends on Series H preferred stock 236,764 -
Issuance of Warrants with Series J preferred stock issuance - 181,538
Deemed dividends on Series J preferred stock - 93,183
See accompanying notes to consolidated financial statements.
F-4
BRAVO! FOODS INTERNATIONAL, CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1 - Interim Periods
The accompanying unaudited consolidated financial statements include the
accounts of Bravo! Foods International, Corp. and its wholly-owned
subsidiary Bravo! Foods, Inc. (the "Company"). The Company is engaged in
the co-production, marketing and distribution of branded dairy and snack
food products in the People's Republic of China and the sale of flavored
milk products and flavor ingredients in the United States, Canada and
Mexico.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10QSB and
Article 10 of Regulation S-X. All significant inter-company accounts and
transactions have been eliminated in consolidation. The consolidated
financial statements are presented in U.S. dollars. Accordingly, the
accompanying financial statements do not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring adjustments) considered necessary for fair
presentation have been included. Operating results for the three-month
period ended March 31, 2003 are not necessarily indicative of the results
that may be expected for the year ending December 31, 2003. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Company's annual report for the year ended December
31, 2002.
As shown in the accompanying consolidated financial statements, the Company
has suffered operating losses and negative cash flow from operations since
inception and has an accumulated deficit of $26,799,144, negative equity of
$1,897,438, negative working capital of $1,711,007 and is delinquent on
certain of its debts at March 31, 2003. These conditions raise substantial
doubt about the Company's ability to continue as a going concern.
Management plans to improve gross profit margins in its U.S. and China
operations and obtain additional financing. While there is no assurance
that funding will be available or that the Company will be able to improve
its profit margins, the Company is continuing to actively seek equity
and/or debt financing. No assurances can be given that the Company will be
successful in carrying out its plans. The consolidated financial
statements do not include any adjustments that might result from the
outcome of this uncertainty.
Revenue Recognition
The Company sells flavor ingredients and production rights (collectively
referred to as "kits") to processor dairies in the U.S., China, Canada and
Mexico and also sells flavored milk products in the U.S.. Revenue is
recognized when the goods are shipped, and title and the risk and reward of
ownership have been passed to the customer and possible return of goods can
be reasonably estimated. The criteria to meet this guideline are: 1)
persuasive evidence of an arrangement exists, 2) delivery has occurred or
services have been rendered, 3) the price to the buyer is fixed or
determinable and 4) collectibility is reasonably assured.
The Company follows the final consensus reached by the Emerging Issues Task
Force (EITF) 99-19, "Reporting Revenue Gross as a Principal versus Net as
an Agent". Pursuant to EITF 99-19, sales of kits made directly to
customers by the Company are reflected in the statement of operations on a
gross basis, whereby the total amount billed to the customer is recognized
as revenue. Sales of kits made through intermediaries, in which the
Company's role is similar to that of an agent, are reflected on a net
basis, which represents the amount earned by the Company in the
transaction.
F-5
BRAVO! FOODS INTERNATIONAL, CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
In September 2002, the Company entered into a program with two processor
dairies pursuant to which the Company sells flavored milk products to
retail stores (referred to as "unit sales"). The Company benefits from the
difference between the prices charged by processor dairies to produce the
product for the Company and the price paid by retail stores to purchase the
product. The Company bears the responsibility for paying food brokers fees,
transportation and delivery expenses. The Company recognizes revenue on the
net basis and recognizes the aforementioned expenses as selling expenses.
Expenses for samples, slotting fees and certain promotions are treated as a
reduction of reported revenue.
Stock-based Compensation
The Company has adopted the intrinsic value method of accounting for
employee stock options as permitted by Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-based Compensation" (SFAS No. 123)
and discloses the pro forma effect on net loss and loss per share as if the
fair value based method had been applied. For equity instruments,
including stock options, issued to non-employees, the fair value of the
equity instruments or the fair value of the consideration received,
whichever is more readily determinable, is used to determine the value of
services or goods received and the corresponding charge to operations.
The following table illustrates the effect on net loss and loss per share
as if the Company had applied the fair value recognition provision of SFAS
No. 123 to stock-based employee compensation.
Three Months
Ended March 31,
----------------------------
2002 2003
--------- ------------
Net loss: as reported $(761,531) $(1,170,128)
Add: total stock based employee compensation
expense determined under fair value method for
all awards - (4,500)
--------- -----------
Pro forma net loss $(761,531) $(1,174,628)
========= ===========
Loss per share:
As reported $ (0.05) $ (0.05)
Pro forma $ (0.05) $ (0.05)
Note 2 - Transactions in Shareholders' Equity
On January 2, 2003, the Company issued 100,000 shares of common stock to an
employee. This common stock will be issued under a Form S-8 registration
statement to be filed in the second quarter of 2003. The Company recorded
$28,000 of compensation expense in January 2003 for this grant.
F-6
BRAVO! FOODS INTERNATIONAL, CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
On January 2, 2003 the Company granted options for 100,000 shares of
common stock to Mr. Toulan pursuant to an employment contract. These
options vested immediately, expire on December 30, 2007 and have an
exercise price of $0.40 per share.
On January 2, 2003 the Company granted options for 100,000 shares of
common stock to Mr. Toulan pursuant to an employment contract. These
options vest on December 31, 2003, expire on December 30, 2008 and have an
exercise price of $0.40 per share.
On January 2, 2003 the Company granted options for 100,000 shares of
common stock to Mr. Toulan pursuant to an employment contract. These
options vest on December 31, 2004, expire on December 30, 2009 and have an
exercise price of $0.40 per share.
On February 21, 2002, the Company issued 50,000 shares of non-voting
Series J 8% Convertible Preferred stock, having a stated value of $10.00
per Preferred J share, and common stock warrants to Mid-Am Capital, L.L.C.
("Mid-AM") for the aggregate purchase price of $500,000. Each preferred
share is convertible to 40 shares of the Company's common stock of at a per
common share conversion price of $0.25, representing 2,000,000 shares of
common stock underlying the preferred. The issued warrants entitle the
holder to purchase 33.33 shares of common stock for each share of Series J
Convertible Preferred stock issued at an exercise price of $0.30 per common
stock share, representing1,666,667 shares of common stock underlying the
warrants. The warrants are exercisable for a five-year period. The February
21, 2003 closing market trading price was $0.23 per share. This private
offering was made to Mid-Am, an accredited investor, pursuant to Rule 506
of Regulation D and Section 4(2) of the Securities Act of 1933. In
accordance with EITF 00-27, the Company recorded a deemed dividend of
$274,721 related to a beneficial conversion feature.
On February 24, 2003, the Company issued 30,000 shares of common
stock to Keshet, LP, upon the conversion of 422 shares of Series G
Convertible Preferred stock.
Note 3 - Adoption of New Accounting Standards
In November 2002, the FASB issued Interpretation No. 45 ("FIN No. 45"),
"Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others." FIN No. 45
expands on the accounting guidance of Statements No. 5, 57, and 107 and
incorporates without change the provisions of FASB Interpretation No. 34,
which is being superseded. FIN No. 45 will affect leasing transactions
involving residual guarantees, vendor and manufacturer guarantees, and tax
and environmental indemnities. All such guarantees will need to be
disclosed in the notes to the financial statements starting with the period
ending after December 15, 2002. For guarantees issued after December 31,
2002, the fair value of the obligation must be reported on the balance
sheet. Existing guarantees will be grandfathered and will not be recognized
on the balance sheet. There was no impact on our financial position and
results of operations due to the application of FIN No. 45.
In January 2003, FASB issued FASB Interpretation No. 46 (FIN No. 46),
"Consolidation of Variable Interest Entities," an interpretation of
Accounting Research Bulletin No. 51, "Consolidated Financial Statements."
FIN No. 46 explains how to identify variable interest entities and how an
enterprise assesses its interest in a variable entity to decide whether to
consolidate that entity. FIN No. 46 requires existing unconsolidated
variable interest entities to be consolidated by their primary
beneficiaries if the entities do not effectively disperse risks among
parties involved. FIN No. 46 is effective immediately for variable
F-7
BRAVO! FOODS INTERNATIONAL, CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
interest entities after January 31, 2003, and to variable interest entities
in which an enterprise obtained an interest after that date. FIN No. 46
applies in the first fiscal year or interim period beginning after June 15,
2003, to variable interest entities in which an enterprise holds a variable
interest that it acquired before February 1, 2003. The adoption of FIN No.
46 did not have a material effect on the Company's financial position and
results of operations.
Note 4 - Business Segment and Geographic Information
The Company operates principally in one industry segment. The following sales
information was based on customer location rather than subsidiary location.
The allocation of the cost of equipment, the current year investment in new
equipment and depreciation expense have been made on the basis of the primary
purpose for which the equipment was acquired. The following furniture and
equipment information was based on where the furniture and equipment was
used.
Geographic Area Information:
3 Months ended United Total
March 31, 2003 States Canada Mexico China Company
------ ------ ------ ----- -------
Revenue - unit sales $ 92,918 $ - $ - $ - $ 92,918
Revenue - net kit sales 2,737 - - - 2,737
Revenue - gross kit sales 205,945 35,966 59,864 - 301,775
-------- -------- -------- ------- --------
Total revenue 301,600 35,966 59,864 - 397,430
Cost of goods sold (51,989) (10,403) (17,970) - (80,362)
-------- -------- -------- ------- --------
Gross margin $249,611 $ 25,563 $ 41,894 $ - $317,068
======== ======== ======== ======= ========
Furniture and equipment, net $ 60,410 $ - $ - $ 8,293 $ 68,703
======== ======== ======== ======= ========
3 Months ended United Total
March 31, 2002 States Canada Mexico China Company
------ ------ ------ ----- -------
Revenue - net kit sales $210,753 $ - $ - $ - $210,753
Revenue - gross kit sales 11,092 - 20,125 6,251 37,468
-------- -------- -------- ------- --------
Total revenue 221,845 - 20,125 - 248,221
Cost of goods sold - - - (4,483) (4,483)
-------- -------- -------- ------- --------
Gross margin $221,845 $ - $ 20,125 $ 1,768 $243,738
======== ======== ======== ======= ========
Furniture and equipment, net $ 80,215 $ - $ - $ 9,387 $ 89,602
======== ======== ======== ======= ========
F-8
BRAVO! FOODS INTERNATIONAL, CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 5 - Subsequent Events
On April 17, 2003, the Company issued 50,000 shares of common stock to
Keshet, LP, upon the conversion of 520 shares of Series G Convertible
Preferred stock.
On April 22, 2003, the Company issued 50,000 shares of common stock to The
Keshet Fund, LP, upon the conversion of 519 shares of Series G Convertible
Preferred stock.
F-9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 2003
FORWARD-LOOKING STATEMENTS
Statements that are not historical facts, including statements about the
Company's prospects and strategies and the Company's expectations about
growth contained in this report are "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. These
forward-looking statements represent the present expectations or beliefs
concerning future events. The Company cautions that such forward-looking
statements involve known and unknown risks, uncertainties and other factors
which may cause the Company's actual results, performance or achievements
to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. Such
factors include, among other things, the uncertainty as to the Company's
future profitability; the uncertainty as to whether the Company's new
business model can be implemented successfully; the accuracy of the
Company's performance projections; and the Company's ability to obtain
financing on acceptable terms to finance the Company's operations until
profitability.
OVERVIEW
The Company's business model includes obtaining license rights from Warner
Brothers, Inc., granting production and marketing rights to regional dairies
to produce Looney Tunes(TM) flavored milk and generating revenue primarily
through the sale of "kits" to these dairies. The price of the "kits"
consists of an invoiced price for a fixed amount of flavor ingredients per
kit used to produce the flavored milk and a fee charged to the diaries for
the production, promotion and sales rights for the branded flavored milk.
In the United States, the Company also generates revenue from the unit
sales of finished Looney Tunes(TM) flavored milks to retail consumer outlets.
The Company's new product introduction and growth expansion continues to be
expensive and the Company reported a net loss of $819,015 for the period
ended March 31, 2003. As shown in the accompanying financial statements,
the Company has suffered operating losses and negative cash flows from
operations since inception and at March 31, 2003 has an accumulated deficit,
negative equity, is delinquent on certain debts and negative working capital.
These conditions give rise to substantial doubt about the Company's ability
to continue as a going concern. As discussed herein, the Company plans to
work toward profitability in the Company's U.S. and China operations in 2003
and obtain additional financing. While there is no assurance that funding
will be available or that the Company will be able to improve the Company's
operating results, the Company is continuing to seek equity and/or debt
financing. No assurances can be given, however, that the Company will be
successful in carrying out the Company's plans.
10
CRITICAL ACCOUNTING POLICIES
Estimates
This discussion and analysis of the Company's consolidated financial condition
and results of operations are based on the Company's consolidated financial
statements, which have been prepared in accordance with accounting principles
generally accepted in the United States of America. The preparation of these
financial statements requires the Company to make estimates and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
On an on-going basis, the Company evaluates the Company's estimates, including
those related to reserves for bad debts and valuation allowance for deferred
tax assets. The Company bases its estimates on historical experience and on
various other assumptions that are believed to be reasonable under the
circumstances, the result of which forms the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent
from other sources. Actual results may differ materially from these estimates
under different assumptions or conditions. The Company's use of estimates,
however, is quite limited as the Company has adequate time to process and
record actual results from operations.
Revenue recognition
Pre 2002
--------
Prior to 2002, the Company recognized revenue on a net basis, when it
received net kit revenues from Quality Chek'd. The Company did not record
cost of sales under this model because it benefited only by the net amount
received, and the Company did not have the discretion unilaterally to
determine the price of kits sold. This model has been in existence from
the third quarter of 2000 up to 2002 and was phased out during the third
quarter of 2002. As of the fourth quarter of 2002, this business model no
longer exists.
United States - Production Agreements with Jasper Products and Shamrock Farms
-----------------------------------------------------------------------------
In the fourth quarter of 2001, the Company recognized revenue on a gross basis
for the kits sold in Mexico because the Company purchased the inventory for
the customer. This was the only instance in which the Company reported the
revenue at gross in 2001. The Company, however, has always reported revenue
generated in China at gross as it has ownership of inventory.
Commencing in the first quarter 2002, the Company recognized revenue in the
United States at the gross amount of its invoices for the sale of kits at
the shipment of flavor ingredients to processor dairies with whom the Company
has production contacts for extended shelf life and aseptic long life milk.
This recognition is based upon the Company's role as the principal in these
transactions, its discretion in establishing kit prices (including the price
of flavor ingredients and production right fees), its development and
refinement of flavors and flavor modifications, its discretion in supplier
selection and its credit risk to pay for ingredients if processors do not pay
ingredient suppliers. The revenue generated by the production contracts under
this model is allocated as follows: 95% of the revenue is for the processors'
purchase of
11
flavor ingredients; the balance of 5% represents fees charged by the
Company to the processors for production rights. The price of production
rights is formulated to cover the Company's cost of the Warner Bros. Looney
Tunes(TM) intellectual property licenses, which in the U.S. is 5% of the
total cost of a kit sold to the processor dairy under the production
agreement. The Company recognizes revenue on the gross amount of "kit"
invoices to the dairy processors and simultaneously records as cost of good
sold the cost of flavor ingredients paid by the processor dairies to the
ingredients supplier. The recognition of revenue generated from the sale
of production rights associated with the flavor ingredients is complete
upon shipment of the ingredients to the processor, given the short
utilization cycle of the ingredients shipped.
Jasper Products and Shamrock Farms, the processor dairies, charge the
Company with the cost of producing Looney Tunes(TM) flavored milk. The
Company is responsible for freight charges from processor dairies to retail
destinations, promotion costs and product returns of product owing to
defects and out of date products. In addition, the Company pays the fee
charged by food brokers retained by the Company to generate sales of the
Looney Tunes(TM) flavored milk products to retail outlets. In return, the
Company is entitled to keep the difference between the cost charged by
processor dairies and the wholesale price determined by the Company and
charged to retail outlets. The Company treats this second earning event as
"product sales revenue" when the revenue is realized or realizable and
accrue any estimated expenses which are related to the Company's revenue at
the end of each reporting period. Because the Company benefits only from
the price difference and does not own the inventory, it recognizes the
revenue generated through this model at net.
International Sales and U.S. Sales to Parmalat
----------------------------------------------
The Company sells "kits" to processors in Mexico, Canada, China and
to Parmalat in the United States, which kits include the cost of flavor
ingredients and rights to produce, market, distribute and sell the Looney
Tunes(TM) flavored milk to retail outlets. As a matter of convenience,
processors purchase the flavor ingredients for the kits directly from a
designated ingredients supplier and are invoiced by the Company for the
full price of the "kits" with a credit for the cost of flavor ingredients
purchased by the processors. The Company is directly responsible for the
administration of this model, including the collection of kit receivables.
Under this model, dairy processors are responsible for production,
marketing, distribution and sales of the Looney Tunes(TM) flavored milk to
retail outlets. The normal production cycle for processors' utilization of
purchased flavor ingredients has ranged from 6 weeks in Mexico, 4 weeks for
Parmalat (U.S.) and 3 weeks for Canada. This model was initiated at the
end of 2001 with Mexico; Parmalat and Canada were added in the third
quarter of 2002.
The Company recognizes revenue at the gross amount of kit invoices
after shipment of flavor ingredients based upon the Company's role as the
principal in these transactions, its discretion in establishing kit prices
(including the price of flavor ingredients and production right fees), its
development and refinement of flavors and flavor modifications, its
discretion in supplier selection and the Company's credit risk to pay for
ingredients if processors do not pay ingredient suppliers. The Company
attributes the majority of the kit price to the sale of flavor ingredients
(95% in the U.S., for example) and the balance (5% in the U.S.) to the
Company's grant of production rights to processor dairies. In this regard,
the price of production rights is formulated to cover the Company's costs
of the Warner Bros. Looney Tunes(TM) intellectual
12
property licenses, which currently amount to 5% of the total cost of kits
sold to the processor dairies under the production agreements for the U.S.,
7% for Mexico, 5% for Canada and 3% for China. The Company's recognition
of revenue generated from the sale of production rights associated with the
flavor ingredients is upon shipment of the ingredients to the processor,
given the short utilization cycle of the ingredients shipped.
RESULTS OF OPERATIONS
Financial Condition at March 31, 2003
-------------------------------------
As of March 31, 2003, we had an accumulated deficit of $26,779,144
and cash on hand of $73,546 and reported total shareholders' deficit of
$1,897,438.
For this same period of time, we had revenue of $397,430 and general
and administrative expenses of $772,470.
After net interest expenses of $2,044, cost of goods sold of $80,362,
product development of $494 and selling expenses of $361,075 incurred in
the operations of the Company and its Chinese subsidiary, we had a net loss
of $819,015.
Three Months Ended March 31, 2003 Compared to Three Months Ended March 31, 2002
-------------------------------------------------------------------------------
Consolidated Revenue
We had revenues for the three months ended March 31, 2003 of
$397,430, with cost of sales of $80,362, resulting in a gross margin of
$317,068. Of the $397,430, $298,863 was from sales in the U.S. operation,
$59,864 from sales in Mexico and $35,966 from sales in Canada. We did not
have revenue for this period in China. Our revenue for the three months
ended March 31, 2003 increased by $149,209 a 60% increase compared to
revenue of $248,221 for the same period in 2002. This increase is the
result of greater market penetration and distribution of Looney Tunes(TM)
flavored milk products, as well as the introduction of new branded products
in the United States and Mexico during 2002. In addition, the Company
expanded its sales territories to include Canada, which accounted for
approximately 9% of sales for the three months ended March 31, 2003.
Consolidated Cost of Sales
We incurred cost of goods sold of $80,362 for the three months ended
March 31, 2003, $51,989 of which was incurred in our U.S. operation,
$17,970 in Mexico and $10,403 in Canada. Our cost of goods sold in 2003
increased by $75,879, a 1,693% increase compared to $4,483 for the same
period in 2002. The increase in cost of goods sold reflects the full
implementation of the "kit" sales model in 2002 and the concomitant
increase in kit sales.
In Mexico, Canada, China and the United States, the Company's revenue
is generated in part by the sale of kits to dairy processors. Each kit
consists of flavor ingredients for the Company's Slammers Looney Tunes(TM)
flavored milks and production rights to manufacture and sell the milks. In
line with the Company's revenue recognition policies, the Company
recognizes
13
the full invoiced kit price as revenue and credits the processor dairies
with the cost of the raw flavor ingredients, which the Company records as
cost of goods sold. In addition to kit sales revenue, in the United States
the Company is responsible for the sale of finished Slammers and Slim
Slammers Looney Tunes(TM) flavored milk (referred to as "units sales") to
retail outlets. For these unit sales, the Company also recognizes as
revenue the difference between the prices charged by the processor dairies
to produce the milks and the price that the Company charges to the retail
outlets that purchase the milks directly from the processor dairies. Since
the Company benefits from only the difference between two prices, it does
not record any costs of goods sold against this revenue event.
Segmented revenues and costs of sales
The following table presents revenue by source and type against costs
of goods sold, as well as combined gross revenues and gross margins.
Revenues from Canada are generated by kit sales to Farmers Dairy, a Halifax
dairy processor. Revenues from Mexico are generated from kit sales to
Neolac, a dairy processor in central Mexico. In the United States,
revenues are generated by kit sales to Parmalat, which is responsible for
marketing and sales, and kit sales to two dairy processors that produce
extended shelf life and aseptic long life Slammers Looney Tunes(TM)
product. Revenues from these sales are recorded under "US Kit Sales" on
the accompanying table.
Kit sales revenues have two components: flavored ingredients and
production rights. The Company reports and presents these components
separately for revenue recognition purposes as "Kit Sales Revenue
(Ingredients)" and "Kit Sales Revenue (Production Rights)" in the table.
The Company's sale of ESL and aseptic product generates revenue
recorded as "US Unit Sales" on the following table. Finally, the table
designation "US QC Sales" represents net revenues that the Company
recognizes from the Company's association with Quality Chek'd, a national
dairy cooperative that administered the initial Looney Tunes(TM) flavored
milk program for the Company.
China
March 31, 2003 Bravo! Foods International Premium
US Kit US Unit Total Bravo! Total Combined
Canada Mexico Sales Sales US QC Sales Sales China Sales Revenue
---------------------------------------------------------------------------------------------------
Kit Sales Revenue
(Ingredients) $34,168 $55,674 $195,648 - 2,600 $288,090 - $285,490
Kit Sales Revenue
(Production rights) 1,798 4,190 10,297 - 137 16,422 - 16,422
Unit sales & QC
Revenue (net sales) - - - 92,918 - 92,918 - 92,918
---------------------------------------------------------------------------------------------------
Gross sales
revenue (total) 35,966 59,864 205,945 92,918 2,737 397,430 - 397,430
Cost of sales 10,403 17,970 51,989 - - 80,362 - 80,362
---------------------------------------------------------------------------------------------------
Gross margin $25,563 $41,894 $153,956 $92,918 $2,737 $317,068 - $317,068
14
China
March 31, 2002 Bravo! Foods International Corp Premium
US Kit US Unit Total Bravo! Total Combined
Canada Mexico Sales Sales US QC Sales Sales China Sales Revenue
---------------------------------------------------------------------------------------------------
Kit Sales Revenue
(Ingredients) - $19,119 - - $ $ 19,119 $6,063 $ 25,182
Kit Sales Revenue
(Production rights) - 1,006 - - 11,092 12,098 188 12,286
Unit sales & QC
Revenue (net sales) - - - - 210,753 210,753 - 210,753
---------------------------------------------------------------------------------------------------
Gross sales
revenue (total) - 20,125 - - 221,845 241,970 6,251 248,221
Cost of sales - - - - - - 4,483 4,483
---------------------------------------------------------------------------------------------------
Gross margin - $20,125 - - $221,845 $241,970 $1,768 $243,738
United States (Jasper, Shamrock and Parmalat Sales)
---------------------------------------------------
Revenues for the period ended March 31, 2003 from kit sales in the
United States in which the Company was directly involved increased from $0
for the same period in 2002 to approximately $205,945. Prior to
the second quarter of 2002, the Company sold kits primarily through Quality
Chek'd Diaries and did not recognize gross revenues from kit sales. In the
period ended March 31, 2002, the Company recognized $221,845 from net sales
through Quality Chek'd. In the same period in 2003, the Company
recognized revenue of approximately $2,737 from sales through Quality
Chek'd, a 98.7% decrease from revenue of $221,845 generated in 2002.
In addition to kit sales, in the period ended March 31, 2003, the
Company had revenues of approximately $92,918 from selling finished product
unit sales to retail outlets. There were no comparable unit sales for the
same period in 2002.
Revenues from direct kit sales and unit sales since March 31,2002
were the result of the implementation of a refined business plan under
which the Company took control of all sales on a kit level and, in the
United States, on a unit sales level. The decrease in revenues from kit
sales through Quality Chek'd was the result of the phasing out of the
Company's relationship with Quality Chek'd and the implementation of a
refined business plan.
The Company incurred cost of sales of approximately $80,362,
attributable to kit sales in the period ended March 31, 2003. The Company
did not have costs of sales for direct kit sales in the period ended March
31, 2002. While the Company did have revenue from kit sales through
Quality Chek'd, there are no costs of sales associated with that net
revenue. Similarly, revenues
15
from unit sales to retail outlets are on a net basis and do not have an
associated cost sales expenses.
In the period ended March 31, 2003, the Company's gross margin for
U.S. sales of approximately $248,611, increased by $27,766, or by 12.5%, from
$221,845 for the same period in 2002. The increase in gross margin was the
result of the increase in the Company's kit sale revenue and the increase
of unit sales revenue. Ultimately the increase in gross margin is due to
the Company's implementation of a new business plan that gave the Company
greater control over the sales, marketing and promotion of the flavored
milks.
Mexico and Canada
-----------------
Revenues for the period ended March 31, 2003 from kit sales in Mexico
increased 197% from approximately $20,125 for the same period in 2002 to
approximately $59,864 in 2003. The increase was the result of greater
market penetration and brand awareness in Mexico. Canada sales commenced
subsequent to the period ended March 31, 2002 and generated revenue of
approximately $35,966 for the period ended March 31, 2003.
The Company did not record cost of sales for the period ended March
31, 2002 in connection with its Mexico sales. The Company recorded costs
of sales of $10,403 for Mexico and $17,970 for Canada for the period ended
March 31, 2003.
For the period ended March 31, 2003, the Company's gross profit of
approximately $41,894 for sales in Mexico increased by $21,769, or 108%,
from approximately $20,125 for the same period in 2002. The increase in
gross profit was consistent with the increase in sales volume.
China
-----
The Company did not have sales in its China operation for the period
ended March 31, 2003. The lack of sales was the result of the set up of a
new processing plant by our third party dairy processor in Beijing. The
advent of SARS in Beijing has contributed to the delayed commencement of
production at this new processing facility.
Consolidated Operating Expenses
The Company incurred selling expenses of $361,075 for the period ended
March 31, 2003, all of which was incurred in the Company's North America
Bravo! operations. The Company's selling expense for this period increased
by approximately $350,789, a 3410% increase compared to selling expense of
approximately $10,286 for the same period in 2002, of which approximately
$3,000 was incurred in the Company's North America Bravo! operations and
approximately $7,286 was incurred in China. The increase in selling
expenses in the current period was due mainly to the fact that the Company
adopted the refined business plan in the U.S. for the Company's North
America Bravo! operations.
Of the increase of $350,789, approximately $119,417 was incurred for
freight and delivery expense, approximately $29,412 was related to food
brokerage fees, approximately
16
$37,393 was related to marketing, approximately $46,867 for sample
expenses, $112,765 for reclamation of product approaching sell by dates and
$10,563 for advertising expense due to the ramp-up of the national United
States sales program. As a percentage of total revenue, the Company's
selling expense increased from approximately 4.1% of total revenue for the
period ended March 31, 2002, to approximately 90.9% of total revenue for
the current period in 2003. The high reclamation costs have resulted from
the rapid expansion of sales and distribution into new markets for the
Company's Slammers milk products. In those markets where sales have not
met initial expectations, the Company reclaims product for disposition as
the product approaches "sell by" dates. As markets mature, the Company
believes that reclamation costs will significantly decrease.
The Company incurred general and administrative expenses for the
period ended March 31, 2003 of approximately $772,470, consisting of
$709,535 in its North America Bravo! operations and $62,935 in its China
operations. The Company's general and administrative expenses for this
period increased by approximately $64,903, a 9.2% increase compared to
approximately $707,567 for the same period in 2002, of which $690,585 was
incurred in the Company's North America Bravo! operations and approximately
$16,982 was incurred in China. The increase of approximately $18,950 in
general and administrative expenses in the Company's North America Bravo!
operations for the current period in 2003 is the result mainly of
additional expenses incurred in the administration of marketing, sales and
distribution issues appurtenant to an expanding market base. In the
Company's China operation, the total general and administrative expenses
increased by approximately $45,953, due mainly to additional travel,
telephone, postage and other office supplies associated with the attempts
to launch a school based sales program with a third party processor located
in Beijing.
As a percentage of total revenue, the Company's general and
administrative expenses decreased from 285% in the period ended March 31,
2002, to 194.5% for the current period in 2003, due to the fact that
revenue increased by 60% for the current period in 2003 from the period
ended March 31, 2002. The Company anticipates a reduction of these
expenses through cost cutting efforts and the refinement of business
operations.
Interest Expense
The Company incurred net interest expense for the period ended March
31, 2003 of approximately $2,044, consisting of approximately $2,000 in its
U.S. operations and $44 in its China operations. The Company's interest
expense decreased by approximately $7,693, a 79% decrease, compared to
approximately $9,737 for the same period in 2002, almost all of which was
incurred in the U.S. The decrease was due to the fact that the Company
paid a loan of $250,000 in the US in 2002.
Loss Per Share
The Company accrued dividends payable of approximately $351,113,
including deemed dividends, to various series of preferred stock during the
period ended March 31, 2003. The Company's accrued dividends increased for
this period by approximately $74,802 due to deemed dividends of
approximately $298,720 that are related to the issuance of Series J
preferred stock in 2003. With the increase in net loss before accrued
dividends of approximately $351,113, the
17
Company's current period loss per share was $0.05, compared to loss per
share of $0.05 for the same period in 2002
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2003, the Company reported that net cash used in
operating activities was approximately $551,316, net cash provided by
financing activities was approximately $401,665 and net cash used in
investing activities was $4,429. The Company had a negative working
capital of approximately $ 1,711,007 as of March 31, 2003.
Compared to approximately $502,707 of net cash used in operating
activities in the period ended March 31, 2002, the Company's current year
net cash used in operating activities increased by approximately $48,609 to
$551,316 due mainly to the fact that the Company did not use its equity to
pay service providers in lieu of cash payments in this current period.
Included in the net loss in this current period were depreciation and
amortization and stock compensation of approximately $54,202, compared to
approximately $96,199 for the same period in 2002. This decrease was due
to the decrease in the Warner Bros. license rights amortization.
Changes in accounts receivable in this current period in 2003
resulted in a cash increase of approximately $65,187, compared to a cash
decrease in receivables of approximately $39,891 for the same period in
2002, having a net result of an increase of approximately $105,078. The
changes in accounts payable and accrued liabilities in the period ended
March 31, 2002 contributed to a cash decrease of approximately $68,267,
whereas the changes in accounts payable and accrued liabilities for the
current period in 2003 amounted to an increase of approximately $158,340.
The Company has adopted and will keep implementing cost cutting measures to
lower the Company's cost and expense and to pay the Company's accounts
payable and accrued liabilities by using cash and equity instruments. The
Company's cash flow generated through operating activities was inadequate
to cover all of the Company's cash disbursement needs in the period ended
March 31, 2003, and the Company had to rely on equity financing to cover
expenses.
The Company's cash used in investing activities for furniture and
equipment was approximately $4,429 for computer equipment in the U.S.
Compared to disbursements in the same period in 2002, the $4,429
expenditure was insignificant.
The Company's net cash provided by financing activities for the
period ended March 31, 2003 was approximately $401,665. New cash provided
by financing activities for the same period in 2002 was approximately
$292,103 for a net increase of approximately $109,562. The increase was
due to issuing Series J preferred stock with total proceeds of
approximately $500,000 in this current period. The Company paid
approximately $98,335 for Warner Bros.' guaranteed royalty payments during
this current period in 2003.
The remaining proceeds were used for working capital purposes.
Notwithstanding total cash proceeds of approximately $500,000, the Company
owed approximately $171,718 as of March 31, 2003 for Warner Bros. license
guaranteed royalty payments. The Company has proposed a concession on the
remaining $147,115 guaranteed royalty payments to Warner Bros. for the
Company's China license owing, in part, to the lack of success in
introducing Looney
18
Tunes(TM) characters through cartoons and movies to consumers in mainland
China. In addition, the Company has arranged for the payment of the
outstanding balance due on the Mexico license. From December 31, 2002
through March 31, 2003, the Company reduced its indebtedness to Warner
Bros. by approximately $98,335.
Going forward, the Company's primary requirements for cash consist of
(1) the continued development of the Company's business model in the United
States and on an international basis; (2) general overhead expenses for
personnel to support the new business activities; and (3) payments of
guaranteed royalty payments to Warner Bros. under existing licensing
agreements. The Company estimates that the Company's need for financing to
meet the Company's cash needs for operations will continue to the fourth
quarter of 2003, when cash supplied by operating activities will enable us
to meet the anticipated cash requirements for operation expenses. The
Company anticipates the need for additional financing in 2003 to reduce the
Company's liabilities and to improve shareholders' equity status. No
assurances can be given that the Company will be able to obtain additional
financing or that operating cash flows will be sufficient to fund the
Company's operations.
The Company currently has monthly working capital needs of
approximately $240,000. In the third quarter 2002, the Company anticipated
that the Company's total revenues would reach $1,750,000 through the year
ended December 31, 2002. While the Company realized that goal, it incurred
and continues to incur significant selling and other expenses in order to
derive more revenue in retail markets. Certain of these expenses, such as
slotting fees and freight charges, will be reduced as a function of unit
sales costs as the Company expands its sales markets and increases its
sales within established markets. Freight charges will be reduced as the
Company is able to ship more full truck-loads of product given the reduced
per unit cost associated with full truck loads versus less than full truck
loads. Similarly, slotting fees, which are paid to warehouses or chain
stores as initial set up or shelf space fees, are essentially one-time
charges per new customer. Slotting fees and promotional discounts reduced
the Company's unit sales revenue for the period ended March 31, 2003 by
$23,719 and the Company's kit sales revenue from Parmalat by approximately
$25,296. A continued increase in sales to existing customers increases the
Company's gross margins on those sales. The Company believes that along
with the increase in the Company's unit sales volume, the average unit
selling expense and associated costs will decrease, resulting in gross
margins sufficient to mitigate the Company's cash needs. In addition, the
Company is actively seeking additional financing to support its operational
needs and to develop an expanded promotional program for the Company's
products.
The Company is continuing to explore new points of sale for Looney
Tunes(TM) flavored milk. Presently, the Company is aggressively pursuing
this market through trade/industry shows and individual direct contacts.
The implementation of such a school base program, if viable, could have an
impact on the level of the Company's revenue during 2003. Similarly, the
Company expects that the greater control over sales resulting from its
refined business model and the cost-wholesale price differential source of
revenue will continue to have a positive impact on revenues.
In June 2000, the Company executed an exclusive aseptic tetra-brik
production agreement with a division of Parmalat USA Corp. for Looney
Tunes(TM) flavored milk, as well as the Company's new Slammers Fortified
Reduced Fat Milk(TM). The Company launched this new aseptic tetra-brik
product in September 2002 and launched Slim Slammers, a low fat, no sugar
19
added version of this product in November 2002. The Company expects this
product to have a continued positive impact upon the Company's revenues in
2003.
DEBT STRUCTURE
The Company holds five licenses for Looney Tunes(TM) characters and
names from Warner Bros. Each license is structured to provide for the
payment of guaranteed royalty payments to Warner Bros. The Company
accounts for these guaranteed payments as debt and licensing rights as
assets. The following is a summary of guaranteed royalty payments due to
Warner Bros. as of March 31, 2003.
Amount Expiration
License Guaranty Balance Due Past Due Date
------- -------- ----------- -------- ----------
U.S. License $500,000 $ - $ - 12/31/03
U.S. TAZ $250,000 $ - $ - N/A
China $400,000 $147,115 $147,115 06/30/03
Mexico $145,000 $ 21,250 $ 21,250* 05/31/04
Canada $ 32,720 $ - $ - 03/31/04
* $6,250 remains past due as of May 12, 2003.
International Paper
-------------------
During the process of acquiring from American Flavors China, Inc. the
52% of equity interest in Hangzhou Meilijian, the Company issued an
unsecured promissory note to assume the American Flavors' debt owed to a
supplier, International Paper. The face value of that note was $282,637 at
an interest rate of 10.5% per annum, without collateral. The note has 23
monthly installment payments of $7,250 with a balloon payment of $159,862
at the maturity date of July 15, 2000. On July 6, 2000, International
Paper agreed to extend the note to July 1, 2001, and the principal amount
was adjusted due to different interest calculation. International Paper
imposed a charge of $57,000 to renegotiate the note owing the failure of
Hangzhou Meilijian to pay for certain packing material, worth more than
$57,000 made to order in 1999. The current outstanding balance on this
note is $187,743. The Company is delinquent in its payments under this
note.
Individual Loans
----------------
On November 6 and 7, 2001, respectively, the Company received the
proceeds of two loans aggregating $100,000 from two offshore lenders. The
two promissory notes, one for $34,000 and the other for $66,000, were
payable February 1, 2002 and bear interest at the annual rate of 8%. These
loans are secured by a general security interest in all the Company's
assets. On February 1, 2000, the parties agreed to extend the maturity
dates until the completion of the anticipated Series H financing. On June
18, 2002, the respective promissory note maturity dates were extended by
agreement of the parties to December 31, 2002. On June 18, 2002, the
Company agreed to extend the expiration dates of warrants issued in
connection with the Company's Series D and F preferred until June 17, 2005
and to reduce the exercise price of
20
certain of those warrants to $1.00, in partial consideration for the
maturity date extension. The holders of these notes have agreed to extend
the maturity dates to July 1, 2003.
EFFECTS OF INFLATION
The Company believes that inflation has not had any material effect
on its net sales and results of operations.
EFFECT OF FLUCTUATION IN FOREIGN EXCHANGE RATES
The Company's Shanghai subsidiary is located in China. It buys and
sells products in China using Chinese renminbi as the functional currency.
Based on Chinese government regulation, all foreign currencies under the
category of current account are allowed to freely exchange with hard
currencies. During the past two years of operation, there were no
significant changes in exchange rates. However, there is no assurance that
there will be no significant change in exchange rates in the near future.
NEW ACCOUNTING ANNOUNCEMENTS NOT ADOPTED YET
In November 2002, the FASB issued Interpretation No. 45 ("FIN No.
45"), "Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others." FIN No. 45
expands on the accounting guidance of Statements No. 5, 57, and 107 and
incorporates without change the provisions of FASB Interpretation No. 34,
which is being superseded. FIN No. 45 will affect leasing transactions
involving residual guarantees, vendor and manufacturer guarantees, and tax
and environmental indemnities. All such guarantees will need to be
disclosed in the notes to the financial statements starting with the period
ending after December 15, 2002. For guarantees issued after December 31,
2002, the fair value of the obligation must be reported on the balance
sheet. Existing guarantees will be grandfathered and will not be recognized
on the balance sheet. The Company's Certificate of Incorporation provides
that the Company "shall be empowered to indemnity" to the full extent of its
power to do so, all directors and officers, pursuant to the applicable
provisions of the Delaware General Corporation Law. The Company will
indemnify its officers and directors to the full extent permitted under
Section 145 of the Delaware General Corporation Law. The Company has
determined that there has been no impact due to the application
of FIN No. 45 on our financial position and results of operations.
In January 2003, FASB issued FASB Interpretation No. 46 (FIN No. 46),
"Consolidation of Variable Interest Entities," an interpretation of
Accounting Research Bulletin No. 51, "Consolidated Financial Statements."
FIN No. 46 explains how to identify variable interest entities and how an
enterprise assesses its interest in a variable entity to decide whether to
consolidate that entity. FIN No. 46 requires existing unconsolidated
variable interest entities to be consolidated by their primary
beneficiaries if the entities do not effectively disperse risks among
parties involved. FIN No. 46 is effective immediately for variable
interest entities after January 31, 2003, and to variable interest entities
in which an enterprise obtained an interest after that date. FIN No. 46
applies in the first fiscal year or interim period beginning after June 15,
2003, to variable interest entities in which an enterprise holds a variable
interest that it acquired before February 1, 2003. The adoption of FIN No.
46 is not expected to have a material effect on the Company's financial
position and result of operations.
21
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
On January 2, 2003, the Company entered into an employment agreement
with Mr. Roy Toulan, who was appointed as the Company's vice-president and
general counsel. Pursuant to this employment agreement, the Company
granted Mr. Toulan 100,000 shares of common stock with the approval of the
Board of Directors. This common stock will be issued under a Form S-8
registration statement to be filed in the second quarter of 2003. The
Company recorded $28,000 of compensation expense in January 2003 for this
grant.
On January 2, 2003 the Company granted options for 100,000 shares of
common stock to Mr. Toulan pursuant to an employment contract. These
options vested immediately, expire on December 30, 2007 and have an
exercise price of $0.40 per share.
On January 2, 2003 the Company granted options for 100,000 shares of
common stock to Mr. Toulan pursuant to an employment contract. These
options vest on December 31, 2003, expire on December 30, 2008 and have an
exercise price of $0.40 per share.
On January 2, 2003 the Company granted options for 100,000 shares of
common stock to Mr. Toulan pursuant to an employment contract. These
options vest on December 31, 2004, expire on December 30, 2009 and have an
exercise price of $0.40 per share.
On February 21, 2003, the Company issued 50,000 shares of non-voting
Series J 8% Convertible Preferred stock, having a stated value of $10.00
per Preferred J share, and common stock warrants to Mid-Am Capital, L.L.C.
("Mid-Am") for the aggregate purchase price of $500,000. Each preferred
share is convertible to 40 shares of the Company's common stock of at a per
common share conversion price of $0.25, representing 2,000,000 shares of
common stock underlying the preferred. The issued warrants entitle the
holder to purchase 33.33 shares of common stock for each share of Series J
Convertible Preferred stock issued at an exercise price of $0.30 per common
stock share, representing 1,666,667 shares of common stock underlying the
warrants. The warrants are exercisable for a five-year period. The
February 21, 2003 closing market trading price was $0.23 per share. This
private offering was made to Mid-Am, an accredited investor, pursuant to
Rule 506 of Regulation D and Section 4(2) of the Securities Act of 1933. In
accordance with EITF 00-27, the Company recorded a deemed dividend of
$274,721 related to a beneficial conversion feature for this issuance.
On February 4, 2003, the Company issued 30,000 shares of common stock
to Keshet, LP, upon the conversion of 422 shares of Series G Convertible
Preferred, at a conversion price of $0.1960.
Subsequent Events
On April 17, 2003, the Company issued 50,000 shares of common stock
to Keshet, LP, upon the conversion of 520 shares of Series G Convertible
Preferred, at a conversion price of $0.1480.
22
On April 22, 2003, the Company issued 50,000 shares of common stock
to The Keshet Fund, LP, upon the conversion of 519 shares of Series G
Convertible Preferred, at a conversion price of $0.1480.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - Required by Item 601 of Regulation S-B: None
99.1 Certification pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002
99.2 Certification pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002
(b) Reports on Form 8-K
Form 8-K concerning matters discussed at open telephonic conference
in connection with annual report, filed on April 30, 2003
CONTROLS AND PROCEDURES
a) Evaluation of Disclosure Controls and Procedures. The Company's
Chief Executive Officer and the Company's principal financial officer,
after evaluating the effectiveness of the Company's disclosure controls and
procedures (as defined in the Securities Exchange Act of 1934 Rules 13a-
14(c) and 15d-14(c) as of a date within 90 days of the filing date of this
report on Form 10-KSB (December31, 2002), have concluded that as of the
Evaluation Date, the Company's disclosure controls and procedures were
adequate and effective to ensure that material information relating to the
Company and the Company's consolidated subsidiaries would be made known to
them by others within those entities, particularly during the period in
which this quarterly report on Form 10-Q was being prepared.
b) Changes in Internal Controls. There were no significant changes in
the Company's internal controls or in other factors that could
significantly affect the Company's disclosure controls and procedures
subsequent to the Evaluation Date, nor any significant deficiencies or
material weaknesses in such disclosure controls and procedures requiring
corrective actions. As a result, no corrective actions were taken.
SIGNATURES
In accordance with the requirements of the Exchange Act of 1934, the
registrant caused this report to be signed on its behalf of the
undersigned, duly authorized.
BRAVO! FOODS INTERNATIONAL CORP. (Registrant)
Date: May 15, 2003
/s/Roy G. Warren
-----------------------------------
Roy G. Warren, Chief Executive Officer
23
In accordance with the Securities Exchange Act of 1934, China Peregrine
Food Corporation has caused this amended report to be signed on its behalf
by the undersigned in the capacities and on the dates stated.
Signature Title Date
--------- ----- ----
/s/ Roy G. Warren Chief Executive Officer May 15, 2003
and Director
/s/ Michael L. Davis Chief Financial Officer May 15, 2003
CERTIFICATION
I, Roy G. Warren, certify that:
1. I have reviewed this report on Form 10-QSB of Bravo! Foods
International Corp.
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present
in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4. The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-
14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to
the Company by others within those entities, particularly
during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior
to the filing date of this report (the "Evaluation Date");
and
c) presented in this report the Company's conclusions about
the effectiveness of the disclosure controls and procedures
based on the Company's evaluation as of the Evaluation
Date;
5. The registrant's other certifying officers and I have
disclosed, based on the Company's most recent evaluation, to
the registrant's auditors and the audit
24
committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant role
in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated
in this report whether or not there were significant changes in
internal controls or in other factors that could significantly
affect internal controls subsequent to the date of the
Company's most recent evaluation, including any corrective
actions with regard to significant deficiencies and material
weaknesses.
May 15, 2003 By /s/ Roy G. Warren
________________________
Roy G. Warren
Chief Executive Officer
CERTIFICATION
I, Michael L. Davis, certify that:
1. I have reviewed this report on Form 10-QSB of Bravo! Foods
International Corp.
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present
in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4. The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-
14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to
the Company by others within those entities, particularly
during the period in which this report is being prepared;
25
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior
to the filing date of this report (the "Evaluation Date");
and
c) presented in this report the Company's conclusions about
the effectiveness of the disclosure controls and procedures
based on the Company's evaluation as of the Evaluation
Date;
5. The registrant's other certifying officers and I have
disclosed, based on the Company's most recent evaluation, to
the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant role
in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated
in this report whether or not there were significant changes in
internal controls or in other factors that could significantly
affect internal controls subsequent to the date of the
Company's most recent evaluation, including any corrective
actions with regard to significant deficiencies and material
weaknesses.
May 15, 2003 By /s/ Michael L. Davis
_________________________
Michael L. Davis