As
filed with the Securities and Exchange Commission on October 10,
2008.
SEC
File No. 333-
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
______________________
FORM
S-1
REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933
______________________
PURPLE
BEVERAGE COMPANY, INC.
(Exact
name of registrant as specified in its charter)
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Nevada
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2080
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01-0670370
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(State
or jurisdiction of
incorporation
or organization)
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(Primary
Standard Industrial
Classification
Code Number)
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(I.R.S.
Employer Identification No.)
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450
East Las Olas Blvd., Suite 830
Fort
Lauderdale, Florida 33301
(954)
462-8757
(Address,
including zip code, and telephone number, including area code, of registrant’s
principal executive offices)
Theodore
Farnsworth
Purple
Beverage Company, Inc.
450
East Las Olas Boulevard, Suite 830
Fort
Lauderdale, Florida 33301
(954)
462-8757
(Name,
address, including zip code, and telephone number, including area code, of
agent
for service)
Approximate
date of commencement of proposed sale to the public:
From
time to time after this Registration Statement becomes effective.
If
any of
the securities being registered on this Form are to be offered on a delayed
or
continuous basis pursuant to Rule 415 under the Securities Act of 1933 check
the
following box:
x
If
this
Form is filed to register additional securities for an offering pursuant
to Rule
462(b) under the Securities Act, please check the following box and list
the
Securities Act registration statement number of the earlier effective
registration statement for the same offering.
o
If
this
Form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the
same
offering.
o
If
this
Form is a post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the
same
offering.
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company.
See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one)
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Large
accelerated filer
o
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Accelerated
filed
o
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Non-accelerated
filer
o
(Do
not check if a smaller reporting company)
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Smaller
reporting company
x
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CALCULATION
OF REGISTRATION FEE
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Title
of each
class
of securities
to
be registered
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Amount to be registered
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Proposed Maximum
Aggregate Offering
Price
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Amount of
registration fee
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Common
Stock, $.001 par value
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33,733,722
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(1)
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$
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3,626,375.12
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(2)
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$
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142.52
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(1)
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Represents
(a) 15,000,000 shares of Registrant’s common stock being registered for
resale by the Registrant and (b) 18,733,722 shares of Registrant’s common
stock being registered for resale by selling
stockholders.
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(2)
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Estimated
at $0.1075 per share, the average of the high and low prices of
the common
stock as reported on the OTC Bulletin Board regulated quotation
service on
October 7, 2008, for the purpose of calculating the registration
fee in
accordance with Rule 457(c) under the Securities Act of 1933, as
amended.
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The
registrant hereby amends this registration statement on such date or dates
as
may be necessary to delay its effective date until the registrant shall file
a
further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section
8(a),
may determine.
The
information in this prospectus is not complete and may be changed. We may
not
sell these securities until the registration statement filed with the Securities
and Exchange Commission is effective. This prospectus is not an offer to
sell
these securities and we are not soliciting an offer to buy these securities
in
any state where the offer or sale is not permitted.
SUBJECT
TO COMPLETION, DATED OCTOBER 10, 2008
PRELIMINARY
PROSPECTUS
35,333,722
Shares
Purple
Beverage Company, Inc.
Common
Stock
_________________
We
are
offering 15,000,000 shares of our common stock at a price per share of
$
and
the
selling stockholders identified in this prospectus are offering an additional
18,733,722
shares
of
our common stock, which includes (i) 4,671,200 shares issued to investors
in
private placements, (ii) 12,800,000 shares issuable upon the conversion of
a
certain convertible promissory note with an outstanding principal balance
of
$640,000 as of October 7, 2008, based on a conversion price of $0.05 per
share
,
and
(iii) 1,262,522 shares issued to a selling stockholder pursuant to a consulting
agreement.
The
prices at which the selling stockholders may sell shares will be determined
by
the prevailing market price for the shares or in negotiated transactions.
We
will not receive any proceeds from the sale of these shares by the selling
stockholders.
We
will
bear all costs relating to the registration of these shares of our common
stock,
other than the selling stockholders’ legal or accounting costs or
commissions.
Our
common stock is quoted on the regulated quotation service of the OTC Bulletin
Board under the symbol “PPBV.OB”. The last reported sale price of our common
stock as reported by the OTC Bulletin Board on October 7, 2008, was $0.10
per
share.
We
are
offering these shares of common stock on a best-efforts basis. We have retained
to act as lead placement agent in connection with this offering.
Investing
in our common stock is highly speculative and involves a high degree of risk.
You should carefully consider the risks and uncertainties described under
the
heading “Risk Factors” beginning on page 4 of this prospectus before making
a decision to purchase our common stock.
Neither
the Securities and Exchange Commission nor any state securities commission
has
approved or disapproved of these securities or passed upon the accuracy or
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
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Per Share
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Total
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Public
Offering Price
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$
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$
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Placement
Agent’s Fee
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$
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$
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Proceeds,
before expenses, to us
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$
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$
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We
estimate the total expenses of this offering, excluding the placement agent’s
fees, will be approximately $
.
Because there is
no minimum offering amount required as a condition to closing in this offering,
the actual offering amount, the placement agent’s fees and net proceeds to us,
if any, in this offering may be substantially less than the total maximum
offering amounts set forth above. We are not required to sell any specific
number or dollar amount of the shares of common stock offered in this offering,
but the placement agent will use its commercially reasonable efforts to arrange
for the sale of all of the shares of common stock offered. Pursuant to an
escrow
agreement among us, the placement agent and an escrow agent, some or all
of the
funds received in payment for the shares of common stock sold in this offering
will be wired to a non-interest bearing escrow account and held until we
and the
placement agent notify the escrow agent that this offering has closed,
indicating the date on which the shares of common stock are to be delivered
to
the purchasers and the net proceeds are to be delivered to us.
The
date
of this prospectus is
,
2008
TABLE
OF CONTENTS
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Prospectus
Summary
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1
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Risk
Factors
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4
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Special
Note Regarding Forward-Looking Statements
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20
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Use
Of Proceeds
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20
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Market
For Our Common Stock And Related Stockholder Matters
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20
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Dividend
Policy
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21
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Management’s
Discussion And Analysis Of Financial Condition And Results Of
Operation
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21
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Business
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29
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Management
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36
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Executive
Compensation
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37
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Certain
Relationships And Related Transactions
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41
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Security
Ownership Of Certain Beneficial Owners And Management
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43
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Selling
Stockholders
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46
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Description
Of Securities
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48
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Plan
Of Distribution
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56
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Legal
Matters
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58
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Experts
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58
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Where
You Can Find Additional Information
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59
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Index
To Financial Statements
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F-1
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You
should rely only on the information contained in this prospectus. We have
not
authorized any other person to provide you with different information. If
anyone
provides you with different or inconsistent information, you should not rely
on
it. We are not making an offer to sell these securities in any jurisdiction
where an offer or sale is not permitted. You should assume that the information
appearing in this prospectus is accurate only as of the date on the front
cover
of this prospectus. Our business, financial condition, results of operations
and
prospects may have changed since that date.
The
following summary highlights information contained elsewhere in this prospectus.
It may not contain all the information that may be important to you. You
should
read this entire prospectus carefully, including the sections entitled “Risk
Factors” and “Management’s Discussion and Analysis or Plan of Operation,” and
our historical financial statements and related notes included elsewhere
in this
prospectus. In this prospectus, unless the context requires otherwise,
references to the “Company,” “we,” “our” and “us” for periods prior to the
closing of our reverse merger on December 12, 2007, refer to Venture Beverage
Company, a private Nevada corporation, and references to the “Company,” “we,”
“our” and “us” for periods subsequent to the closing of the reverse merger on
December 12, 2007, refer to Purple Beverage Company, Inc., a publicly traded
company.
Overview
We
develop, market, and distribute unique beverage brands and products that
are
positioned as “better for you” beverages and are targeted to the growing
category of “new age/functional” beverage consumers. We own the rights to the
“
Purple
™”
brand,
a new functional beverage that contains a high level of anti-oxidants that
are
found in seven different natural fruit juices that combine to make our product.
We launched
Purple
in the
summer of 2007.
Our
proprietary brand is directed to consumers who prefer new age beverage products
to traditional carbonated soft drinks such as Coca-Cola®, Pepsi® and 7-Up®. The
new age beverage category is attractive to us because it is a growth segment
of
the beverage market and we believe that consumers will pay higher prices
for
these products than carbonated soft drinks.
Our
principal executive office is located at 450 East Las Olas Boulevard, Suite
830,
Fort Lauderdale, Florida 33301 and our telephone number is (954) 462-8757.
Our
website address is http://www.drinkpurple.com. Information on or accessed
through our website is not incorporated into this prospectus and is not a
part
of this prospectus.
Our
History
We
were
formed in the State of Nevada on April 8, 2002. Pursuant to a stock purchase
agreement, on June 30, 2005, we acquired ninety-five percent of the issued
and
outstanding shares of Landes Daily, Inc. From our inception until our
acquisition of Landes Daily, Inc., we were engaged in event planning, especially
for weddings and other family events, all types of corporate events, and
special
access to nightclubs, restaurants and other VIP entertainment or sporting
venues
and events. After the acquisition of Landes Daily, Inc., our majority-owned
subsidiary, we designed, developed, marketed, distributed and sold t-shirts,
sweatshirts, thermals, twill shorts and other apparel. On June 6, 2006, we
agreed to rescind the stock purchase agreement and ceased all operations
in the
apparel industry. Thereafter we acted as an independent film production company
with the aim of developing, producing, marketing and distributing low budget
film and video productions. On December 12, 2007, Purple Acquisition Corp.,
a
newly formed wholly-owned subsidiary of ours, merged with and into Venture
Beverage Company, a private corporation. Upon closing of the merger, Venture
Beverage Company merged with and into us and we succeeded to the business
of
Venture Beverage Company as our sole line of business. In connection with
the
merger, we changed our name to Purple Beverage Company, Inc.
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Common
stock offered by us:
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15,000,000
shares.
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Common
stock offered by the selling stockholders:
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18,733,722
shares, consisting of (i) 4,671,200 shares issued to investors
in private
placements, (ii) 12,800,000 shares issuable upon the conversion
of a
certain convertible promissory note with an outstanding principal
balance
of $640,000 as of October 7, 2008, based on a conversion price
of $0.05
per share, and (iii) 1,262,522 shares issued to a selling stockholder
pursuant to a consulting agreement.
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Offering
price:
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$
per
share. Shares sold by the selling stockholders will be at market
price or
privately negotiated prices.
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Common
stock outstanding immediately after this offering:
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shares(1).
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Use
of proceeds
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We
intend to use the net proceeds of this offering to repay certain
indebtedness and for general corporate purposes. We will not receive
any
proceeds from the sale of the shares of common stock sold by the
selling
stockholders in this offering. See “Use of Proceeds” on page 20 of this
prospectus.
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OTC
Bulletin Board symbol:
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PPBV.OB
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Risk
Factors:
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You
should carefully consider the information set forth in this prospectus
and, in particular, the specific factors set forth in the “Risk Factors”
section beginning on page 4 of this prospectus before deciding
whether or not to invest in shares of our common
stock.
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(1)
The
number of outstanding shares after the offering is based upon 72,334,693
shares
outstanding as of October 7, 2008.
The
number of shares of common stock outstanding after this offering includes:
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·
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12,800,000
shares of common stock issuable upon the conversion of certain
promissory
notes in the aggregate amount of $640,000 based on a conversion
price of
$0.05 per share; and
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·
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47,256,561
shares of common stock issuable pursuant to certain anti-dilution
adjustments to our common stock based on the issuance of our convertible
promissory note at a conversion price of $0.05 per
share.
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The
number of shares of common stock outstanding after this offering excludes:
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·
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shares
of common stock issuable upon the exercise of currently outstanding
warrants with exercise prices ranging from $
to
$
per share and
having a weighted average exercise price of $
per
share;
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·
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shares
of common stock issuable upon the exercise of currently outstanding
options with exercise prices ranging from $
to
$
and having
a
weighted average exercise price of $
per share;
and
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·
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shares
of common stock available for future issuance under our 2007 Incentive
Plan.
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RISK
FACTORS
Investing
in our common stock involves a high degree of risk. Before investing in our
common stock you should carefully consider the following risks, together
with
the financial and other information contained in this prospectus. If any
of the
following risks actually occurs, our business, prospects, financial condition
and results of operations could be adversely affected. In that case, the
trading
price of our common stock would likely decline and you may lose all or a
part of
your investment.
Risks
Relating to Our Business
Our
payment of a monthly 6% performance bonus to Mr. Farnsworth, our chief executive
officer, will diminish our profitability.
We
allocate Mr. Farnsworth’s monthly 6% performance bonus to “other selling,
general and administrative” expenses, which currently approximate our net sales
on a quarterly basis. Until we meet our internal projections for increasing
our
net revenues, as to which increases there can be no assurance, our SG&A
expenses will not decline as rapidly as a percentage of our net revenues
as they
otherwise would due to the burden of the 6% monthly performance bonus. Although
we believe that our net revenues will increase according to our business
plan,
as to the realization of which we cannot provide you any assurance, our gross
margins will always be reduced to support the 6% monthly bonus, which reduction
may have a material impact on our overall profitability, the price of our
shares, and the return on your investment.
Our
limited operating history may not serve as an adequate basis to judge our
future
prospects and results of operations.
We
have a
relatively limited operating history and no history as a public reporting
company. Such limited operating history and the unpredictability of the beverage
industry makes it difficult for investors to evaluate our businesses and
future
operating results. An investor in our securities must consider the risks,
uncertainties, and difficulties frequently encountered by companies in new
and
rapidly evolving markets. The risks and difficulties we face include challenges
in accurate financial planning as a result of limited historical data and
the
uncertainties resulting from having had a relatively limited time period
in
which to implement and evaluate our business strategies as compared to older
companies with longer operating histories.
Our
independent auditors have expressed substantial doubt about our ability to
continue as a going concern, which may hinder our ability to obtain future
financing.
In
their
report dated December 3, 2007, our registered public accounting firm stated
that
our financial statements for the year ended September 30, 2007 were prepared
assuming that we would continue as a going concern, and that they have
substantial doubt about our ability to continue as a going concern. Our ability
to continue as a going concern is subject to our ability to generate a profit,
as we have experienced net operating losses since inception. Our continued
net
operating losses and our auditors’ doubts may hinder our ability to secure
financing in the future and our efforts to continue as a going concern may
not
prove successful.
We
may need additional financing to execute our business
plan.
The
revenues from the sale of our beverage products and the projected revenues
from
these products are not adequate to support our expansion and product development
programs. We will need substantial additional funds to:
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·
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effectuate
our business plan; expand our product
line;
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·
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obtain
related regulatory approvals if we should decide to bottle our
beverages
ourselves, market and produce our product internationally, or expand
our
bottling with additional co-packers who may not have all necessary
regulatory approvals;
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·
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file,
prosecute, defend and enforce our intellectual property rights;
and
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·
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produce
and market our products.
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We
will
seek additional funds through public or private equity or debt financing,
strategic transactions and other sources.
There
are
no assurances that future funding will be available on favorable terms or
at
all. If additional funding is not obtained, we will need to reduce, defer
or
cancel development programs, planned initiatives, or overhead expenditures
to
the extent necessary. The failure to fund our capital requirements could
have a
material adverse effect on our business, financial condition and results
of
operations. Moreover, the sale of additional equity securities to raise
financing could result in additional dilution to our stockholders and the
incurrence of indebtedness would result in increased debt service obligations
that could result in operating and financing covenants that would restrict
our
operations.
We
may need additional financing to meet our payroll
obligations.
We
have
downsized our workforce from 47 employees as of May 1, 2008 to 14 employees
as
of October 3, 2008. In addition, from time to time, we have issued bridge
notes
in order to raise capital to meet our payroll obligations. On September 30,
2008, we were unable to meet our payroll obligations, we have since obtained
funding to meet such obligations. We may need to obtain additional funding
to
meet our future payroll obligations. There are no assurances that funding
will
be available in the future on favorable terms or at all. If such additional
funding is not obtained, we may not be able to meet our payroll obligations,
and
in such an event, we may be required to further downsize our workforce or
cease
our operations.
The
lack of any significant market in future periods will adversely affect our
ability to increase our revenues and our margins.
A
key
element to our business model is the expansion of the distribution of our
proprietary brand. We face significant competition from other new age beverage
companies, the majority of which have greater brand recognition, a longer
operating history, and greater financial resources than we do. We cannot
assure
you that we will ever be successful in developing a meaningful market for
our
proprietary brand. Our inability to create demand in the marketplace for
our
proprietary product will prevent us, in future periods, from both increasing
our
revenues from sales attributable to our proprietary product as well as
increasing our margins on our sales.
Increased
competition could hurt our business.
The
beverage industry is highly competitive. The principal areas of competition
are
pricing, packaging, development of new products and flavors, and marketing
campaigns. Our products compete with a wide range of drinks produced by a
relatively large number of manufacturers, most of which have substantially
greater financial, marketing, and distribution resources than we
do.
Important
factors affecting our ability to compete successfully include:
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·
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the
taste and flavor of products; trade and consumer
promotions;
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rapid
and effective development of new, unique cutting-edge
products;
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·
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attractive
and different packaging;
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branded
product advertising; and
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Our
product competes with all liquid refreshments and with products of much larger
and substantially better financed competitors, including the products of
numerous nationally and internationally known producers such as The Coca-Cola
Company, PepsiCo Inc., Cadbury Schweppes plc, Red Bull Gmbh, Kraft Foods
Inc.,
Nestle Beverage Company, Tree Top, Inc., and Ocean Spray Cranberries, Inc.
We
also compete with companies that are smaller or primarily local in operation
and
with private label brands such as those carried by grocery store chains,
convenience store chains and club stores. There can be no assurance that
we will
not encounter difficulties in maintaining our current revenues or market
share
or position due to competition in the beverage industry. If our revenues
decline, our business, financial condition, and results of operations could
be
adversely affected.
We
are dependent on a limited number of distributors who purchase all of our
Purple
product, the loss of any of which could result in a material adverse effect
on
our business.
For
the
nine months ended June 30, 2008, two of our distributors, Haralambos Beverage
Co. and Big Geyser, Inc., accounted for approximately 15%, and 17% of our
revenues, respectively. We remain dependent, however, on all of our
distributors, and the loss of any of our major distributors would have a
material adverse effect on our operating results.
Change
in consumer preferences may reduce demand for our
product.
Consumers
are seeking greater variety in their beverages. Our future success will depend,
in part, upon our continued ability to develop and introduce different and
innovative beverages. In order to retain and expand our market share, we
must
continue to develop and introduce different and innovative beverages and
be
competitive in the areas of quality and health, although there can be no
assurance of our ability to do so. There is no assurance that consumers will
continue to purchase our product in the future. Additionally, our product
is
considered a premium product, and to maintain market share during recessionary
periods, we may have to reduce profit margins which would adversely affect
our
results of operations. Product lifecycles for our beverage brand and/or product
and/or packages may be limited to a few years before consumers’ preferences
change. The beverage industry is subject to changing consumer preferences,
and
shifts in consumer preferences may adversely affect us if we misjudge such
preferences. We may be unable to achieve volume growth through product and
packaging initiatives. We also may be unable to penetrate new markets. If
our
revenues decline, our business, financial condition, and results of operations
will be adversely affected.
There
is
increasing awareness and concern for the health consequences of obesity.
Our
product contains sugar naturally occurring from a blend of seven natural
fruit
juices. Since we do not offer a diet beverage, this could affect our
profitability.
We
rely on bottlers and other contract packers to manufacture our products.
If we
are unable to maintain good relationships with our bottlers and contract
packers
and/or their ability to manufacture our products becomes constrained or
unavailable to us, our business could suffer.
We
do not
directly manufacture our product, but instead outsource such manufacturing
to
bottlers and other contract packers. Although our production arrangements
are
generally of short duration or are terminable upon request, in the event
of a
disruption or delay, we may be unable to procure alternative packing facilities
at commercially reasonable rates and/or within a reasonably short time period.
In addition, there are limited packing facilities in the United States with
adequate capacity and/or suitable equipment for our product.
Increases
in cost or shortages of raw materials or increases in costs of co-packing
could
harm our business.
The
principal raw materials used by us are glass bottles, as well as fruit pulp
and
fruit juice concentrates, the costs and availability of which are subject
to
fluctuations caused by supply and demand forces influenced by, among other
factors, cost of energy, availability of fruit juices and concentrates, weather,
changing consumer tastes for certain of our ingredients and seasonal
availability of the various fruits. Due to the consolidations that have taken
place in the glass industry over the past few years, the prices of glass
bottles
continue to increase. The prices of fruit pulp and certain juice concentrates,
including apple, increased in 2006 and certain of these ingredients continued
to
increase in 2007. These increased costs, together with increased costs primarily
of energy, gas and freight, resulted in increases in our product costs, which
are ongoing and are expected to continue to exert pressure on our gross margins
in 2007. In addition, certain of our co-pack arrangements allow such co-packers
to increase their charges based on certain of their own cost increases. We
are
uncertain whether the prices of any of the above or any other raw materials
or
ingredients will continue to rise in the future and whether we will be able
to
pass any of such increases on to our customers.
During
the preceding two years, for two of our ingredients the average price decreased
by approximately 16%; for three of our ingredients the average price increased
by 78%, 100%, and 160%, respectively; for two of our ingredients the average
price increased materially in the first year and then decreased marginally
in
the second year for overall increases of 33% and 63%, respectively; and for
one
of our ingredients the average price remained relatively constant.
We
may
not accurately estimate the demand for our products, as our ability to do
so may
be imprecise, particularly since
Purple
is a new
product, and may be less precise during periods of rapid growth, particularly
in
new markets. If we materially underestimate the demand for our product or
are
unable to secure sufficient ingredients or raw materials including, but not
limited to, glass bottles, labels, fruit pulp concentrates, fruit juice
concentrates or packing arrangements, we might not be able to satisfy the
demand
on a short-term basis. Moreover, industry-wide shortages of certain fruit-pulp
and fruit-juice concentrates have been and could, from time to time in the
future, be experienced, which could interfere with and/or delay production
of
our product and could have a material adverse effect on our business and
financial results. We do not use hedging agreements or alternative instruments
to manage this risk.
The
costs of packaging supplies are subject to price increases from time to time
and
we may be unable to pass all or some of such increased costs on to our
customers.
The
majority of our packaging supplies contracts allow our suppliers to alter
the
costs they charge us for packaging supplies based on changes in the costs
of the
underlying commodities that are used to produce those packaging supplies.
These
changes in the prices we pay for our packaging supplies occur at certain
predetermined times that vary by product and supplier. Accordingly, we bear
the
risk of increases in the costs of these packaging supplies, including the
underlying costs of the commodities that comprise these packaging supplies.
We
do not use derivative instruments to manage this risk. If the costs of these
packaging supplies increase, we may be unable to pass these costs along to
our
customers through corresponding adjustments to the prices we charge, which
could
have a material adverse effect on our results of operations.
We
rely upon our on-going relationships with our key concentrate suppliers.
If we
are unable to source our concentrates on acceptable terms from our key
suppliers, we could suffer disruptions to our
business.
We
do not
have certain of our concentrates readily available to us, and we may be unable
to obtain these concentrates from alternative suppliers on short notice.
Industry-wide shortages of certain fruit-pulp and juice concentrates have
been
and could be, from time to time in the future, experienced, which could
interfere with and/or delay production of our product. If we have to replace
a
concentrate supplier, we could experience temporary disruptions in our ability
to deliver our product to our customers, which could have a material adverse
effect on our results of operations.
Our
intellectual property rights are critical to our success and the loss of
such
rights could materially adversely affect our
business.
We
own
trademarks that are very important to our business. We currently rely on
common
law rights to protect our trademark
Purple
, which
is used to identify our products. We are also attempting to obtain a federal
trademark registration for our trademark, but we are still in the application
phase of the process. There can be no assurance that we will be able to obtain
a
federal trademark registration for our trademark. Without a federal trademark
registration, we do not have: (1) constructive nationwide notice of our claim
to
the trademark; (2) a legal presumption of our ownership of the trademark;
(3) a
legal presumption of the validity of our trademark; (4) a legal presumption
of
our exclusive right to use the trademark on or in connection with our products;
(5) a presumption of federal court jurisdiction; (6) a basis for obtaining
trademark registrations in foreign countries; (7) the ability to prevent
the
importation of infringing foreign goods by filing the registration with the
US
Customs Service; (8) incontestable ownership of the trademark after the US
Patent & Trademark Office’s acceptance of an affidavit establishing five
years of our continued use of the trademark beyond the registration date;
(9)
incontestable exclusive rights to use our trademark on or in connection with
our
products after the US Patent & Trademark Office’s acceptance of an affidavit
establishing five years of our continued use of the trademark beyond the
registration date; and (10) many other benefits that a federal trademark
registration provides.
It
is
possible that our competitors will adopt or have already adopted trademarks
or
service marks similar to our trademark, thereby potentially impeding our
ability
to build brand identity and possibly leading to customer confusion. In fact,
a
few companies, some of which might be direct competitors, have existing federal
trademark registrations and/or are attempting to obtain federal trademark
registrations for trademarks that include the word “Purple” for their beverage
products. Our inability to protect our trademark, if any, will have a material
adverse effect on our business, results of operations, and financial
condition.
We
regard
our trademark and related intellectual property as critical to our success.
The
related intellectual property includes the good will associated with the
trademark, such as the recipes for our products. We attempt to protect the
related intellectual property by restricting the disclosure of and otherwise
maintaining the confidentiality of the related intellectual property. We
also
rely on trade secrets to protect our related intellectual property, which
further includes proprietary know-how. Such trade secrets and confidentiality
procedures, however, might not afford complete protection, and there can
be no
assurance that others will not independently develop similar know-how, which
is
permitted under the law, or that others will not obtain access to our
proprietary know-how. There can be no assurance that we will be able to protect
our trade secrets and other confidential and proprietary information adequately.
Additionally, third parties may assert infringement claims against us or
against
third parties upon whom we rely, and in the event of an unfavorable ruling
on
any claim, we may be unable to obtain a license or similar agreement to use
the
trade secrets, confidential information, proprietary information, or the
trademark that we rely upon to conduct our business.
Product
packages, mechanical designs, artwork, and trade dress are also important
to our
success. We attempt not to imitate the product packages, mechanical designs,
artwork, and trade dress of third parties to avoid being sued for infringement.
We will also attempt to protect against imitation of our product packages,
mechanical designs, artwork, trade dress, and trademark, as necessary. There
can
be no assurance, however, that third-parties will not infringe or misappropriate
our intellectual property or other proprietary rights or that third parties
will
not allege that we have done the same to them. If we lose some or all of
our
intellectual property or other proprietary rights, our business may be
materially adversely affected.
Significant
changes in government regulation may hinder sales.
The
production, distribution and sale in the United States of our products is
subject to the Federal Food, Drug and Cosmetic Act and various other federal,
state, and local statutes and regulations applicable to the production,
transportation, sale, safety, advertising, labeling, and ingredients of our
product. New statutes and regulations may also be instituted in the future.
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 our
product
may have to be recalled and/or reformulated and/or repackaged, thus adversely
affecting our financial condition and operations.
If
we are unable to maintain brand image or product quality, or if we encounter
product recalls, our business may suffer.
Our
success depends on our ability to build and maintain brand image for our
products. We have no assurance that our advertising, marketing, and promotional
programs will have the desired impact on our products’ brand image and on
consumer preferences. Product quality issues, real or imagined, or allegations
of product contamination, even if fake or unfounded, could tarnish the image
of
the affected brand and may cause consumers to choose other products. We may
be
required from time to time to recall products entirely or from specific
co-packers, markets, or batches. Product recalls could adversely affect our
profitability and our brand image. We do not maintain recall insurance at
this
time.
While
we
have to-date not experienced any credible product liability litigation, there
is
no assurance that we will not experience such litigation in the future. In
the
event we were to experience product liability claims or a product recall,
our
financial condition and business operations could be materially adversely
affected.
If
we do not maintain sufficient inventory levels or if we are unable to deliver
our products to our customers in sufficient quantities, or if our retailer’s
inventory levels are too high, our operating results will be adversely
affected.
If
we do
not accurately anticipate the future demand for a particular product or the
time
it will take to obtain new inventory, our inventory levels will not be
appropriate and our results of operations may be negatively impacted. If
we fail
to meet our delivery schedules, we could damage our relationships with
distributors and/or retailers, increase our shipping costs or cause sales
opportunities to be delayed or lost. In order to be able to deliver our products
on a timely basis, we need to maintain adequate inventory levels of the desired
products. If the inventory of our products held by our distributors and/or
retailers is too high, they will not place orders for additional products,
which
would unfavorably impact our future sales and adversely affect our operating
results.
If
we are not able to retain the services of senior management, there may be
an
adverse effect on our operations and/or our operating performance until we
find
suitable replacements.
Our
business is dependent, to a large extent, upon the services of our senior
management. We do not maintain key person life insurance for any members
of our
senior management at this time. We currently have a three year employment
agreement with Theodore Farnsworth, our chief executive officer and president,
and we had an at-will employment agreement with Michael Wallace, who served
as
our chief financial officer until September 15, 2008. Mr. Farnsworth is a
full-time employee. Mr. Farnsworth’s employment agreement restricts Mr.
Farnsworth during the term of his employment with us, and for a period ending
two years after he ceases to be employed by us for any reason, without our
prior
written consent, from directly or indirectly: (i) entering into the employ
of or
render any services to any individual or entity engaged in the business of
formulating, designing, producing manufacturing, marketing, distributing,
selling, consigning, and promoting beverages that contain anti-oxidants;
(ii)
engage in such a business for his own account within the states of New York,
Florida, or California, or any other jurisdiction in which we do business;
or
(iii) becoming associated with or lending any money to an individual or entity
having an ownership interest in any such business in any such territory.
Mr.
Wallace’s employment agreement states that during his employment with us, Mr.
Wallace and his spouse and immediate family members shall not own a material
interest in any entity or individual that competes with us and our business.
Mr.
Wallace and his spouse and immediate family members are also prohibited,
without
our prior written consent, from engaging in any other employment or business
that (i) directly competes with our current or future business; (ii) uses
any of
our information, equipment, supplies, facilities, or materials, or (iii)
otherwise conflicts with or causes a potential disruption of our operations.
The
loss of services of either of these persons, or any other key members of
our
senior management, could adversely affect our business until suitable
replacements can be found. There may be a limited number of personnel with
the
requisite skills to serve in these positions, and we may be unable to locate
or
employ qualified personnel on acceptable terms.
On
September 15, 2008, Mr. Wallace was laid off by the Company, and on September
15, 2008, Mr. Farnsworth was appointed as the principal financial and principal
accounting officer of the Company. We anticipate entering into negotiations
with
Mr. Wallace to become a consultant of the Company but there can be no assurance
that this will occur.
Weather
could adversely affect our supply chain and demand for our
products.
With
regard to fruit juice and natural flavors, the beverage industry is subject
to
variability of weather conditions, which may result in higher prices and/or
the
non-availability of any of such items. Sales of our products may also be
influenced to some extent by weather conditions in the markets in which we
operate. Weather conditions may influence consumer demand for certain of
our
beverages, which could have an adverse effect on our results of
operations.
We
rely on distributors to sell our products. Any delays in delivery or poor
handling by distributors and third-party transport operators may affect our
sales and damage our reputation.
We
rely
on distributors for the distribution of our product pursuant to a series
of
exclusive territory, multi-year agreements. The distribution service provided
by
these distributors could be suspended and could cause interruption to the
supply
of our product to retailers in the case of unforeseen events. Delivery
disruptions may occur for various reasons beyond our control, including poor
handling by distributors or third-party transport operators, transportation
bottlenecks, natural disasters and labor strikes, and could lead to delayed
or
lost transportation seasons. Poor handing by distributors and third-party
transport operators could also result in damage to our products. If our products
are not delivered to retailers on time, or are delivered damaged, we could
lose
business and our reputation could be harmed. Further, under certain
circumstances, the termination or non-renewal of any of such agreements could
have a material adverse effect upon our sales and gross profits, as well
as
potentially subjecting us to the payment of material amounts of funds to
our
then-former distributors.
Our
results of operations may fluctuate due to
seasonality.
Our
sales
are subject to seasonality. For example, we typically experience higher sales
in
summer time in coastal cities while sales remain constant throughout the
entire
year in some inland cities. In general, we believe our sales will be higher
in
the second and third quarter of the year when the weather is hot and dry,
and
lower in the fourth and first quarter of the year when the weather is cold
and
wet. Sales peak during the months from June to September. Sales can also
fluctuate during the course of a financial year for a number of other reasons,
including the timing of advertising and promotional campaigns. As a result
of
these reasons, our operating results may fluctuate. In addition, the seasonality
of our results may be affected by other unforeseen circumstances, such as
production interruptions. Due to these fluctuations, comparison of sales
and
operating results between the same periods within a single year, or between
different periods in different financial years, are not necessarily meaningful
and should not be relied on as indicators of our performance.
Our
inability to diversify our operations may subject us to economic fluctuations
within our industry.
Our
limited financial resources reduce the likelihood that we will be able to
diversify our operations. Our probable inability to diversify our activities
into more than one business area will subject us to economic fluctuations
within
the beverage industry and therefore increase the risks associated with our
operations.
We
may not be able to achieve the benefits we expect to result from becoming
a
public company.
On
December 12, 2007, we became a public company through consummation of a reverse
merger. We may not realize the benefits that we presently hope to receive
as a
result of the merger, which includes:
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access
to the capital markets of the United
States;
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the
increased market liquidity;
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the
ability to use registered securities to make acquisition of assets
or
businesses;
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increased
visibility in the financial
community;
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enhanced
access to the capital markets;
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improved
transparency of operations; and
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perceived
credibility and enhanced corporate image of being a publicly traded
company.
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There
can
be no assurance that any of the anticipated benefits of our reverse merger
will
be realized in respect to our business operations. In addition, the attention
and effort devoted to achieving the benefits of the reverse merger and attending
to the obligations of being a public company, such as reporting requirements
and
securities regulations, could significantly divert management’s attention from
other important issues, which could materially and adversely affect our
operating results or stock price in the future.
Past
activities of our and our affiliates may lead to future liability for
us.
Prior
to
our reverse merger on December 12, 2007, we operated for approximately three
years in the event planning industry, after which we operated for a little
under
one year in the apparel industry. From June 30, 2006 onwards, we were an
independent film production company seeking to develop, produce, market,
and
distribute low budget film and video productions. In addition, prior to December
12, 2007, we were controlled by persons unrelated to current management.
As a
result, we may have incurred liabilities related to our prior business or
the
actions of prior management that we are currently unaware of. The presence
of
any currently unknown liabilities or contingencies related to our past
operations or management activities could result in a material adverse effect
on
us and our operations. In addition, as we did not obtain any indemnifications
from prior management for such potential liabilities, our recourse to recover
any such losses from prior management may be limited to actions for breach
of
contract or fraud .
Risks
Relating to Our Organization
Theodore
Farnsworth, our chief executive officer and president, owns a substantial
portion of our outstanding common stock, which enables him to influence many
significant corporate actions and in certain circumstances may prevent a
change
in control that would otherwise be beneficial to our
stockholders.
Theodore
Farnsworth beneficially owns approximately 21.21% of our outstanding shares
of
common stock, or approximately 25.92% of our common stock should Mr. Farnsworth
exercise all of his stock options. As such, Mr. Farnsworth has a substantial
impact on matters requiring the vote of the stockholders, including the election
of our directors and most of our corporate actions. This control could delay,
defer, or prevent others from initiating a potential merger, takeover or
other
change in our control, even if these actions would benefit our stockholders
and
us. This control could adversely affect the voting and other rights of our
other
stockholders and could depress the market price of our common
stock.
Theodore
Farnsworth is our sole director. As such, we do not have any independent
directors and have not implemented various corporate governance measures,
in the
absence of which, stockholders may have more limited protections against
interested director transactions, conflicts of interest and similar
matters.
As
Theodore Farnsworth, our chief executive officer, serves as our sole director,
we do not currently have any independent directors to evaluate our decisions
nor
have we adopted corporate governance measures. Although not required by rules
or
regulations applicable to us, corporate governance measures such as the presence
of independent directors, or the establishment of an audit and other independent
committees of our board of directors, would be beneficial to our stockholders.
We do not presently maintain any of these protections for our stockholders.
It
is possible that if our board of directors included independent directors
and if
we were to adopt corporate governance measures, stockholders would benefit
from
greater assurance that decisions were being made with impartiality by directors
and that policies had been implemented to define conduct of our management
and
board members. For example, in the absence of audit, nominating and compensation
committees comprised of at least a majority of independent directors, decisions
concerning matters such as compensation packages to our senior officers and
recommendations for director nominees may be made by Theodore Farnsworth,
who
may have a direct interest in the outcome. Prospective investors should bear
in
mind our current failure to adopt these or other corporate governance measures
provides additional risk in connection with an investment in our
company.
Our
indebtedness and future indebtedness could adversely affect our financial
health, limit our cash flow available to invest in the ongoing needs of our
business, limit our operating flexibility and adversely affect the rights
of
holders of our common stock.
At
October 10, 2008, our outstanding indebtedness pursuant to promissory notes
that
we issued was $2,920,000.
On
August
8, 2008, we issued a promissory note in favor of Chelsea Development
International LTD in the principal amount of $250,000 (the “Chelsea Note”). The
Chelsea Note matured on September 8, 2008. Accordingly, the Company is currently
in default under the terms of the Chelsea Note
.
On June
6, 2008, we issued to Ben Rabinowitz a promissory note in the outstanding
principal amount of $250,000 (the “First Rabinowitz Note”). On June 24, 2008, we
issued to Mr. Rabinowitz a promissory note in the outstanding principal amount
of $250,000 (the “Second Rabinowitz Note”). The First Rabinowitz Note matured on
August 6, 2008, and the Second Rabinowitz Note matured on August 24, 2008.
We
have the ability to extend the maturity date of the First Rabinowitz Note
and
the Second Rabinowitz Note for up to two 30-day periods in exchange for the
prompt issuance of 25,000 shares of our common stock for each 30-day extension
for the First Rabinowitz Note and the Second Rabinowitz Note.
Additionally,
in accordance with the terms of the First Rabinowitz Note and the Second
Rabinowitz Note, an event of default has occurred as a result of the default
under the Chelsea Note. On July 28, 2008, we issued to Mr. Rabinowitz a
promissory note in the outstanding principal amount of $100,000 (the “Third
Rabinowitz Note”). The Third Rabinowitz Note is payable on
demand.
On
August
22, 2008, we issued to GS Holding LLC a promissory note in the principal
amount
of $100,000 (the “GS Holding Note”). We are obligated to repay the GS Holding
Note in monthly payments, with the first payment on September 22, 2008 and
the
final payment on June 22, 2009. We failed to make our payment on the GS Holding
Note on September 22, 2008, and accordingly are in default under the terms
of
the GS Holding Note.
On
September 5, 2008, we issued a promissory note in favor of Barry Honig (the
“First Honig Note”) in the principal amount of $250,000. All principal and
accrued interest on the First Honig Note is due and payable on the sooner
of
October 24, 2008, or within five days of our receipt of funds in excess
$250,000. On September 12, 2008, we issued a second promissory note in favor
of Barry Honig (the “Second Honig Note” and collectively with the
First Honig Note, the “Honig Notes”) in the principal amount of $500,000. All
principal and accrued interest on the Second Honig Note is due and payable
on October 13, 2008. The Company only received $250,000 subject to the terms
of
Second Honig Note.
On
October 10, 2008, the Honig Notes were cancelled in exchange for a convertible
promissory note in favor of Mr. Honig in the amount of $640,000, which matures
on October 10, 2009 and bears annual interest at 5% (the “Convertible Note”).
Mr. Honig funded an additional $140,000 to us. In addition, on October 10,
2008,
Mr. Rabinowitz advanced funds to us in the amount of $80,000. Proceeds of
the
funds advanced to us on October 10, 2008 will be used to meet our payroll
obligations.
We
may
incur additional debt from time to time to finance working capital, capital
expenditures and other general corporate purposes. Our common stock ranks
junior
in right of payment to all of our existing and future liabilities. Our
indebtedness could have important consequences to the holders of our common
stock. Our business may not generate sufficient cash to repay outstanding
debt.
In the event of a bankruptcy, liquidation or winding-up, we may not have
sufficient remaining assets to repay the amounts due on our obligations,
resulting in no funds remaining for the holders of our common stock.
Because
we became public by means of a reverse merger, we may not be able to attract
the
attention of major brokerage firms.
There
may
be risks associated with us becoming public through a reverse merger.
Specifically, securities analysts of major brokerage firms may not provide
coverage of us because there is no incentive to brokerage firms to recommend
the
purchase of our common stock. No assurance can be given that brokerage firms
will, in the future, want to conduct any secondary offerings on our
behalf.
We
are subject to financial reporting and other requirements for which our
accounting, internal audit and other management systems and resources may
not be
adequately prepared.
We
are
subject to reporting and other obligations under the Securities Exchange
Act of
1934, as amended, including the requirements of Section 404 of the
Sarbanes-Oxley Act. Section 404 requires us to conduct an annual management
assessment of the effectiveness of our internal controls over financial
reporting and to obtain a report by our independent auditors addressing these
assessments. The requirements of these rules and regulations will increase
our
legal and financial compliance costs, make some activities more difficult,
time-consuming or costly and will place significant demands on our management,
administrative, operational, internal audit and accounting systems and
resources. In connection with these requirements, we anticipate that we will
need to:
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implement
additional financial and management controls, reporting systems
and
procedures;
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implement
an internal audit function; and
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hire
additional accounting, internal audit and finance
staff.
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If
we are
unable to accomplish these objectives in a timely and effective fashion,
our
ability to comply with our financial reporting requirements and other rules
that
apply to reporting companies could be impaired. Any failure to maintain
effective internal controls could have a negative impact on our ability to
manage our business and on our stock price.
We
did not obtain necessary consents from investors prior to filing registration
statements with the Securities and Exchange
Commission.
In
accordance with Section 9(p) of that certain subscription agreement between
the
Company and each of certain stockholders, (the “Holders”) dated as of December
12, 2007, as amended (the “December 2007 Subscription Agreement”), prior to
December 12, 2008, we are required to obtain consent of Holders holding a
majority of the shares and warrant shares that were issued under the December
2007 Subscription Agreement and which are outstanding on the date such consent
is requested, prior to (i) filing a registration statement with the Securities
and Exchange Commission (the “SEC”) or with state regulatory authorities, (ii)
amending any already filed registration statement to increase the amount
of
common stock registered therein (including, but not limited to, Forms S-8),
or
(iii) reducing the price at which such common stock is registered therein.
We
did not obtain the necessary consents from Holders prior to filing a
registration statement on Form S-8 with the SEC on September 15, 2008. On
October 10, 2008, the foregoing restriction on filing a registration statement
was eliminated by amendment to the December 2007 Subscription Agreement.
If
securities or industry analysts do not publish research or publish inaccurate
or
unfavorable research about our business, our stock price and trading volume
could decline.
The
trading market for our common stock will depend in part on the research and
reports that securities or industry analysts publish about us or our business.
We do not currently have research coverage by securities and industry analysts.
If we obtain securities or industry analyst coverage and if one or more of
the
analysts who covers us downgrades our stock or publishes inaccurate or
unfavorable research about our business, our stock price would likely decline.
If one or more of these analysts ceases coverage of us or fails to publish
reports on us regularly, demand for our stock could decrease, which could
cause
our stock price and trading volume to decline.
Risks
Relating to Our Common Stock and the Offering
Purchasers
in this offering will experience immediate and substantial dilution in the
book
value of their investment.
The
public offering price of our common stock is substantially higher than the
net
tangible book value per share of our common stock immediately after this
offering. Therefore, if you purchase our common stock in this offering, you
will
incur an immediate dilution of
$ (or %)
in net tangible book value per share from the price you paid, based on the
public offering price of
$ per
share. The exercise of outstanding warrants and options will result in further
dilution of your investment. In addition, if we raise funds by issuing
additional shares or convertible securities, the newly issued shares may
further
dilute your ownership interest.
Our
stock price may be volatile, so investors could lose their
investment.
The
market price of our common stock is likely to be highly volatile and could
fluctuate widely in price in response to various factors, many of which are
beyond our control, including the following:
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new
products introduced by us or our
competitors;
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additions
or departures of key personnel;
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sales
of the common stock, particularly following effectiveness of the
resale
registration statement of which this prospectus forms a
part;
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our
ability to execute our business
plan;
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operating
results that fall below
expectations;
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economic
and other external factors; and
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period-to-period
fluctuations in our financial
results.
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In
addition, the securities markets have from time to time experienced significant
price and volume fluctuations that are unrelated to the operating performance
of
particular companies. These market fluctuations may also materially and
adversely affect the market price of our common stock.
There
may be a limited market for our securities and we may fail to qualify for
a
listing on a national securities exchange such as the NASDAQ Stock Market
or the
American Stock Exchange.
Although
we plan on applying for listing of our common stock on a national stock exchange
such as the NASDAQ Stock Market or the American Stock Exchange once we meet
the
qualifications, there can be no assurance that our initial listing application
will be granted, when the required listing criteria will be met or when,
or if,
our application will be granted. Thereafter, there can be no assurance that
trading of our common stock on such a market will be sustained or desirable.
In
the event that our common stock fails to qualify for initial or continued
inclusion, our common stock could thereafter only be quoted on the OTC Bulletin
Board or in what are commonly referred to as the “pink sheets.” Under such
circumstances, a stockholder may find it more difficult to dispose of, or
to
obtain accurate quotations, for our common stock, and our common stock would
become substantially less attractive to certain purchasers, such as financial
institutions, hedge funds, and large investors.
Furthermore,
for companies whose securities are quoted on the OTC Bulletin Board, it is
more
difficult to obtain coverage for significant news events because major wire
services generally do not publish press releases about such companies, and
to
obtain needed capital.
Our
common stock may be affected by limited trading volume and price fluctuations,
each of which could adversely impact the value of our common
stock.
There
has
been limited trading in our common stock and there can be no assurance that
an
active trading market in our common stock will be maintained. Our common
stock
has experienced, and is likely to experience in the future, significant price
and volume fluctuations, which could adversely affect the market price of
our
common stock without regard to our operating performance. In addition, we
believe that factors such as quarterly fluctuations in our financial results
and
changes in the overall economy or the condition of the financial markets
could
cause the price of our common stock to fluctuate substantially. These
fluctuations may also cause short sellers to enter the market from time to
time
in the belief that we will have poor results in the future. We cannot predict
the actions of market participants and, therefore, can offer no assurances
that
the market for our stock will be stable or appreciate over time.
Our
common stock is subject to penny stock rules, which may make it more difficult
for our stockholders to sell their common stock.
Broker-dealer
practices in connection with transactions in “penny stocks” are regulated by
certain penny stock rules adopted by the SEC. Penny stocks generally are
equity
securities with a price of less than $5.00 per share. The penny stock rules
require a broker-dealer, prior to a purchase or sale of a penny stock not
otherwise exempt from the rules, to deliver to the customer a standardized
risk
disclosure document that provides information about penny stocks and the
risks
in the penny stock market. The broker-dealer also must provide the customer
with
current bid and offer quotations for the penny stock, the compensation of
the
broker-dealer and its salesperson in the transaction, and monthly account
statements showing the market value of each penny stock held in the customer’s
account. In addition, the penny stock rules generally require that prior
to a
transaction in a penny stock the broker-dealer make a special written
determination that the penny stock is a suitable investment for the purchaser
and receive the purchaser’s written agreement to the transaction. These
disclosure requirements may have the effect of reducing the level of trading
activity in the secondary market for a stock that becomes subject to the
penny
stock rules.
Offers
or availability for sale of a substantial number of shares of our common
stock
may cause the price of our common stock to decline.
If
our
stockholders sell substantial amounts of common stock in the public market,
including shares issued upon the effectiveness of the registration statement
of
which this prospectus forms a part, upon the expiration of any statutory
holding
period under Rule 144 of the Securities Act of 1933, as amended or upon any
contractual holding or trading limitation periods, it could create a
circumstance commonly referred to as an “overhang” and in anticipation of which
the market price of our common stock could fall. The existence of an overhang,
whether or not sales have occurred or are occurring, also could make it more
difficult for us to secure additional financing through the sale of equity
or
equity-related securities in the future at a time and price that we deem
reasonable or appropriate.
The
elimination of monetary liability against our directors under Nevada law
and the
existence of indemnification rights to our directors may result in substantial
expenditures by us and may discourage lawsuits against our
directors.
Our
bylaws provides that, to the fullest extent that the Nevada Revised Statutes
permits, none of our directors shall be personally liable to either us or
our
stockholders for any breach in his or her fiduciary duties as a director.
This
provision creates an indemnification obligation by us that could ultimately
cause us to incur substantial expenditures to cover the cost of settlement
or
damage awards against our directors. This provision and resultant costs may
also
discourage us from bringing a lawsuit against directors for breaches of their
fiduciary duties and may similarly discourage the filing of derivative
litigation by our stockholders against our directors even though such actions,
if successful, might otherwise benefit us and our stockholders.
We
do not anticipate paying any cash dividends.
We
have
never paid cash dividends on our common stock and do not anticipate doing
so for
the foreseeable future. The payment of dividends, if any, would be contingent
upon our revenues and earnings, if any, capital requirements, and general
financial condition. The payment of any dividends will be within the discretion
of our board of directors. We presently intend to retain all earnings, if
any,
to implement our business plan; accordingly, we do not anticipate the
declaration of any dividends in the foreseeable future.
Options
granted to our celebrity endorsers and members of our management will have
a
dilutive effect on our common stock if such options are exercised; and if
the
underlying shares are ultimately sold in the public market, the market price
of
our common stock could decline.
On
January 18, 2008, we granted 1,275,000 options to purchase common stock to
an
accredited individual pursuant to an endorsement agreement and granted 225,000
options to purchase common stock to an accredited entity in connection with
such
endorsement agreement. The options are exercisable at $1.00 per share for
a term
of six months. In connection with an agreement related to such aforementioned
endorsement agreement, on January 18, 2008, we granted 500,000 options to
purchase common stock to three accredited investors. The options are exercisable
at $1.00 per share for a term of six months. In connection with an endorsement
agreement, on March 25, 2008, we granted to an accredited individual pursuant
to
such endorsement agreement a three-year non-qualified stock option to purchase
up to 1,414,286 shares of our common stock at an exercise price of $0.01.
This
option vested and became exercisable immediately.
In
connection with the commencement of employment, on February 18, 2008, we
granted
to an employee a 10-year non-qualified stock option to purchase up to 500,000
shares of our common stock at an exercise price of $2.44 per share. This
option
vests and becomes exercisable as to (i) 166,667 shares on February 18, 2009,
(ii) an additional 166,667 shares on February 18, 2010, and (iii) the remaining
166,666 shares on February 18, 2011, assuming that such employee is employed
by
us as of such dates. In connection with his employment agreement, on March
19,
2008, we granted to Mr. Wallace, our then current chief financial officer,
a
10-year non-qualified stock option to purchase up to 1,663,826 shares of
our
common stock at an exercise price of $1.50 per share. This option vested
and
became exercisable as to 554,609 shares on the date of grant. The remainder
of
this option vests and becomes exercisable as to (i) 554,609 shares on March
19,
2009, and (ii) the remaining 554,608 shares on March 19, 2010, assuming that
Mr.
Wallace is employed by us as of such dates. On September 15, 2008, Mr. Wallace
was laid off by the Company, and on September 15, 2008, Mr. Farnsworth was
appointed as the principal financial and principal accounting officer of
the
Company. We anticipate entering into negotiations with Mr. Wallace to become
a
consultant of the Company but there can be no assurance that this will
occur.
In
connection with an employment agreement, on March 21, 2008, we granted to
an
employee a 10-year non-qualified stock option to purchase up to 1,000,000
shares
of our common stock at an exercise price of $0.80 per share. This option
vests
and becomes exercisable as to (i) 333,333 shares on March 21, 2009, (ii)
an
additional 333,333 shares on March 21, 2010, and (iii) the remaining 333,334
shares on March 21, 2011, assuming that such employee is employed by us as
of
such dates. In connection with another employment agreement, on March 21,
2008,
we granted to an employee a 10-year non-qualified stock option to purchase
up to
600,000 shares of our common stock at an exercise price of $0.80 per share.
This
option vests and becomes exercisable as to (i) 200,000 shares on March 21,
2009,
(ii) an additional 200,000 shares on March 21, 2010, and (iii) the remaining
200,000 shares on March 21, 2011, assuming that such employee is employed
by us
as of such dates.
If
any of
the foregoing optionees decide to exercise any of their vested options, they
will receive shares of our common stock and such issuances will have a dilutive
effect on the number of shares of our outstanding common stock. In addition,
if
such optionees, when they are able to do so under Rule 144 of the Securities
Act, elect to sell a substantial amount of our common stock in the public
market, or there is a perception in the public market of such sales, this
could
decrease the market price of our common stock significantly. A decline in
the
price of shares of our common stock might impede our ability to raise capital
through the issuance of additional shares of our common stock or other equity
securities.
Shares
of our common stock issued to our debt holders and to certain consultants
will
have a dilutive effect on our common stock; and if the shares are sold in
the
public market, the market price of our common stock could
decline.
Pursuant
to promissory notes, as of September 15, 2008 we have issued an aggregate
of
300,000 shares of restricted stock, par value $0.001 per share, two-year
warrants to purchase 300,000 shares of our common stock at an exercise price
of
$2.00 per share and two-year warrants to purchase 100,000 shares of our common
stock at an exercise price of $3.50 per share. In addition, we entered into
a
consulting agreement whereby the consultant is entitled to receive 2,500,000
shares of our common stock in consideration of bridge loans advanced by the
consultant and the consultant has received 2,000,000 freely tradable shares
of
common stock issued under our 2007 Incentive Plan. As of the date hereof,
we
have issued to the consultant 1,262,522 of the 2,500,000 shares of common
stock
that he is entitled to receive, which are being registered for resale by
this
prospectus. The consultant has not received all 2,500,000 shares of common
stock
as of the date hereof since we are precluded by resolutions adopted by our
Board
of Directors on September 12, 2008 from issuing any shares of capital stock
or
warrants to any person (including, in connection with any anti-dilution
adjustments), and from issuing to any consultant or advisor, shares of capital
stock unless and until such issuance, together with all other holdings, shall
not cause such person to hold beneficially in excess of 9.99% of our then
issued
and outstanding shares of common stock.
The
eventual sale of shares of our restricted and/or unrestricted stock issued
to
our debt holders and/or consultants will have a dilutive effect on the number
of
shares of our outstanding common stock, which could decrease the market price
of
our common stock significantly. A decline in the price of shares of our common
stock might impede our ability to raise capital through the issuance of
additional shares of our common stock or other equity securities.
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
prospectus contains “forward-looking statements,” which include information
relating to future events, future financial performance, strategies,
expectations, competitive environment and regulations. Words such as “may,”
“should,” “could,” “would,” “predicts,” “potential,” “continue,” “expects,”
“anticipates,” “future,” “intends,” “plans,” “believes,” “estimates,” and
similar expressions, as well as statements in future tense, identify
forward-looking statements. Forward-looking statements should not be read
as a
guarantee of future performance or results and will probably not be accurate
indications of when such performance or results will be achieved.
Forward-looking statements are based on information we have when those
statements are made or our management’s good faith belief as of that time with
respect to future events, and are subject to risks and uncertainties that
could
cause actual performance or results to differ materially from those expressed
in
or suggested by the forward-looking statements. You should review carefully
the
section entitled “Risk Factors” beginning on page 4 of this prospectus for
a discussion of the risks that relate to our business and investing in shares
of
our common stock.
USE
OF PROCEEDS
We
will
receive net proceeds from our offering of common stock under this prospectus
of
approximately $
, after deducting
estimated placement agent’s fees and offering expenses payable by us. These
amounts are based on the offering price of $
per share. We intend
to use the proceeds of our offering of shares to repay certain indebtedness
and
for general corporate and working capital purposes. We will not receive any
of
the proceeds from the common stock sold by the selling stockholders in this
offering.
MARKET
FOR OUR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Our
common stock has been quoted on the OTC Bulletin Board since April 25, 2007.
From April 25, 2007 through January 6, 2008, our trading symbol was REDZ.OB
and
since January 7, 2008 our trading symbol has been PPBV.OB. Prior to December
13,
2007, there was no active market for our common stock. The following table
sets
forth the high and low bid prices for our common stock for the periods
indicated, as reported by the OTC Bulletin Board. The quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commission, and
may
not represent actual transactions.
|
Fiscal
Year Ending September 30, 2009
|
|
High
|
|
Low
|
|
|
First
Quarter (through October 7, 2008)
|
|
$
|
0.19
|
|
$
|
0.10
|
|
|
Fiscal
Year Ending September 30, 2008
|
|
High
|
|
Low
|
|
|
Fourth
Quarter
|
|
$
|
1.80
|
|
$
|
0.18
|
|
|
Third
Quarter
|
|
$
|
3.25
|
|
$
|
1.60
|
|
|
Second
Quarter
|
|
$
|
8.00
|
|
$
|
1.25
|
|
|
First
Quarter (from December 13, 2007)
|
|
$
|
1.70
|
|
$
|
1.30
|
|
The
last
reported sales price of our common stock on the OTC Bulletin Board on October
7,
2008, was $0.10 per share. As of October 7, 2008, there were approximately
158
holders of record of our common stock. The number of stockholders of record
does
not include beneficial owners of our common stock whose shares are held in
the
names of various dealers, clearing agencies, banks, brokers and other
fiduciaries.
DIVIDEND
POLICY
In
the
past, we have not declared or paid cash dividends on our common stock, and
we do
not intend to pay any cash dividends on our common stock. Rather, we intend
to
retain future earnings, if any, to fund the operation and expansion of our
business and for general corporate purposes.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATION
Recent
Events
Prior
to
December 12, 2007, we were a public shell company, as defined by the SEC,
without material assets or activities that engaged in event planning between
the
years 2002 and 2005, the apparel industry from 2005 to 2006, and thereafter
aimed to develop, produce, market and distribute low budget film and video
productions. On December 12, 2007, we completed a reverse merger, pursuant
to
which a wholly-owned subsidiary of ours merged with and into a private company,
Venture Beverage Company, with such private company being the surviving company.
In connection with this reverse merger, we discontinued our former business
and
succeeded to the business of Venture Beverage Company as our sole line of
business. For financial reporting purposes, Venture Beverage Company, and
not
us, is considered the accounting acquiror. Accordingly, the historical financial
statements presented and the discussion of financial condition and results
of
operations herein are those of Venture Beverage Company and do not include
our
historical financial results. All costs associated with the reverse merger,
other than financing related costs in connection with the simultaneous sale
of
$3,015,000 of units consisting of common stock and warrants and the costs
related to the repurchase of securities from two former stockholders, were
expensed as incurred.
Overview
We
develop, market, and distribute unique beverage brands and products that
are
positioned as a “better for you” beverages and are targeted to the growing
category of “new age/functional” beverage consumers. We own the rights to the
Purple
brand, a
new functional beverage that contains a high level of anti-oxidants that
are
found in seven different natural fruit juices that combine to make our product.
We launched
Purple
in the
summer of 2007.
As
our
business began on May 8, 2007, we have not provided any historical comparative
analysis below.
Critical
Accounting Policies and Estimates
Use
of Estimates.
In
preparing the financial statements, we are required to make estimates and
assumptions that affect the reported amounts of assets and liabilities as
of the
date of the statements of financial condition, revenues, and expenses for
the
period then ended. Actual results may differ significantly from those estimates.
Significant estimates made by us include, but are not limited to, stock-based
compensation, valuation of debt discounts, and useful life of property and
equipment.
Accounts
Receivable.
We have
a policy of reserving for uncollectible accounts based on its best estimate
of
the amount of probable credit losses in its existing accounts receivable.
We
periodically review our accounts receivable to determine whether an allowance
is
necessary based on an analysis of past due accounts and other factors that
may
indicate that the realization of an account may be in doubt. Account balances
deemed to be uncollectible are charged to the allowance after all means of
collection have been exhausted and the potential for recovery is considered
remote.
Inventories.
Inventories are stated at the lower of cost or market utilizing the first-in,
first-out method and consist of raw materials related to our products. We
write
down inventory for estimated obsolescence or unmarketable inventory based
upon
assumptions and estimates about future demand and market conditions. If actual
market conditions are less favorable than those projected by us, additional
inventory write-downs may be required.
Property
and Equipment.
Property
and equipment are carried at cost. Depreciation and amortization are provided
using the straight-line method over the estimated economic lives of the assets.
The cost of repairs and maintenance is expensed as incurred; major replacements
and improvements are capitalized. When assets are retired or disposed of,
the
cost and accumulated depreciation are removed from the accounts, and any
resulting gains or losses are included in income in the year of
disposition.
Revenue
Recognition.
We
record revenue when persuasive evidence of an arrangement exists, services
have
been rendered or product has been shipped, the sales price to the customer
is
fixed or determinable, and our ability to collect the receivable is reasonably
assured. We do not ship product without receipt of an official order from
the
customer. The customer does not have the right to return the product except
for
matters related to manufacturing defects on our part. We regularly review
our
policies for sales allowances and, if deemed appropriate, we adjust those
policies based on available, historical trends; net sales are inclusive of
these
estimated allowances. We primarily sell our product to distributors and
recognize revenue upon shipment to them, as opposed to recognizing revenue
upon
their resale of the product to the ultimate customers. In limited cases where
we
retain ownership of the product after shipment to the distributor, we defer
recognition of the revenue until such time as the product is sold to the
ultimate customer and all other revenue recognition criteria have been
satisfied.
Stock
Based Compensation.
We
adopted Statement of Financial Accounting Standards No. 123 (revised 2004),
Share Based Payment (“SFAS No. 123R”). SFAS No. 123R establishes the financial
accounting and reporting standards for stock-based compensation plans. As
required by SFAS No. 123R, we recognized the cost resulting from all stock-based
payment transactions including shares issued under its stock option plans
in the
financial statements.
Non-Employee
Stock-Based Compensation.
The cost
of stock based compensation awards issued to non-employees for services are
recorded at either the fair value of the services rendered or the instruments
issued in exchange for such services, whichever is more readily determinable,
using the measurement date guidelines enumerated in Emerging Issues Task
Force
Issue (“EITF”) 96-18, “Accounting for Equity Instruments That Are Issued to
Other Than Employees for Acquiring, or in Conjunction with Selling, Goods
or
Services” (“EITF 96-18”).
Recent
Accounting Pronouncements
In
July
2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation
(FIN) No. 48,
“Accounting
for Uncertainty in Income Taxes-an interpretation of FASB Statement No.
109.”
This
interpretation provides guidance for recognizing and measuring uncertain
tax
positions, as defined in SFAS No. 109, “Accounting for Income Taxes.” FIN No. 48
prescribes a threshold condition that a tax position must meet for any of
the
benefits of an uncertain tax position to be recognized in the financial
statements. Guidance is also provided regarding de-recognition, classification,
and disclosure of uncertain tax positions. FIN No. 48 is effective for fiscal
years beginning after December 15, 2006. We believe the adoption of this
interpretation did not have an impact on our financial position, results
of
operations, or cash flows.
In
September 2006, the FASB issued Statement of Financial Accounting Standards
No.
157,
“Fair
Value Measurements”
(“FAS
157”). This Statement defines fair value as used in numerous accounting
pronouncements, establishes a framework for measuring fair value in generally
accepted accounting principles, and expands disclosure related to the use
of
fair value measures in financial statements. The Statement is to be effective
for our financial statements issued in 2008; however, earlier application
is
encouraged. We believe the adoption of this interpretation did not have an
impact on our financial position, results of operations, or cash
flows.
In
September 2006, the SEC issued Staff Accounting Bulletin No. 108,
Considering
the Effects of Prior Year Misstatements when quantifying Misstatements in
Current Year Financial Statements
(“SAB
108”). SAB 108 requires companies to evaluate the materiality of identified
unadjusted errors on each financial statement and related financial statement
disclosures using both the rollover approach and the iron curtain approach,
as
those terms are defined in SAB 108. The rollover approach quantifies
misstatements based on the amount of the error in the current year financial
statement, whereas the iron curtain approach quantifies misstatements based
on
the effects of correcting the misstatement existing in the balance sheet
at the
end of the current year, irrespective of the misstatement’s year(s) of origin.
Financial statements would require adjustment when either approach results
in
quantifying a misstatement that is material. Correcting prior year financial
statements for immaterial errors would not require previously filed reports
to
be amended. If a company determines that an adjustment to prior year financial
statements is required upon adoption of SAB 108 and does not elect to restate
its previous financial statements, then it must recognize the cumulative
effect
of applying SAB 108 in fiscal 2006 beginning balances of the affected assets
and
liabilities with a corresponding adjustment to the fiscal 2006 opening balance
in retained earnings. SAB 108 is effective for interim periods of the first
fiscal year ending after November 15, 2006. We believe the adoption of SAB
108
did not have an impact on our financial statements.
In
December 2006, FASB Staff Position No. EITF 00-19-2,
“Accounting
for Registration Payment Arrangements,”
was
issued. This Staff Position specifies that the contingent obligation to make
future payments or otherwise transfer consideration under a registration
payment
arrangement, whether issued as a separate agreement or included as a provision
of a financial instrument or other agreement, should be separately recognized
and measured in accordance with SFAS No. 5,
“Accounting
for Contingencies.”
We
believe that our current accounting is consistent with this Staff
Position.
In
February 2007, the FASB issued SFAS No. 159,
“The
Fair Value Option for Financial Assets and Financial Liabilities, Including
an
Amendment of FASB Statement No. 115,”
under
which entities will now be permitted to measure many financial instruments
and
certain other assets and liabilities at fair value on an
instrument-by-instrument basis. This Statement is effective as of the beginning
of an entity’s first fiscal year that begins after November 15, 2007. Early
adoption is permitted as of the beginning of a fiscal year that begins on
or
before November 15, 2007, provided the entity also elects to apply the
provisions of SFAS 157. We believe the adoption of this interpretation did
not
have an impact on our financial position, results of operations, or cash
flows.
In
May
2007, the FASB issued FASB Staff Position No. FIN 48-1,
“Definition
of Settlement in FASB Interpretation No. 48
.
“
This
Staff Position provides guidance about how an enterprise should determine
whether a tax position is effectively settled for the purpose of recognizing
previously unrecognized tax benefits. Under this Staff Position, a tax position
could be effectively settled on completion of examination by a taxing authority
if the entity does not intend to appeal or litigate the result and it is
remote
that the taxing authority would examine or re-examine the tax position. We
do
not expect that this interpretation will have a material impact on our financial
position, results of operations, or cash flows.
In
December 2007, the FASB issued SFAS No. 141(R),
“Business
Combinations,”
which
replaces SFAS No. 141,
“Business
Combinations,”
which,
among other things, establishes principles and requirements for how an acquirer
entity recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed (including intangibles), and any
noncontrolling interests in the acquired entity. SFAS No. 141(R) applies
prospectively to business combinations for which the acquisition date is
on or
after the beginning of the first annual reporting period beginning on or
after
December 15, 2008. We are currently evaluating what impact, if any, the adoption
of SFAS No. 141(R) will have on our financial statements.
In
December 2007, the FASB issued SFAS No. 160, “
Noncontrolling
Interests in Consolidated Financial Statements, an amendment of ARB No.
51.”
SFAS No.
160 amends ARB 51 to establish accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. It also amends certain of ARB 51’s consolidation procedures for
consistency with the requirements of SFAS No. 141(R). SFAS No. 160 is effective
for fiscal years, and interim periods within those fiscal years, beginning
on or
after December 15, 2008. We are currently evaluating what impact the adoption
of
SFAS No. 160 will have on our financial statements.
Other
accounting standards that have been issued or proposed by FASB or other
standards-setting bodies that do not require adoption until a future date
are
not expected to have a material impact on the financial statements upon
adoption.
Results
of Operations
Three
and
Nine Months Ended June 30, 2008
Net
Sales.
Our
sales during the three and nine months ended June 30, 2008 amounted to $365,494
and $544,869, respectively, and were comprised of revenues related to the
sale
of our beverage product,
Purple.
For the
three months ended June 30, 2008, three of our customers, Haralambros, Great
State Beverages and General Nutrition Distribution accounted for approximately
19%, 16%, and 15% of our revenues, respectively. For the nine months ended
June
30, 2008, Big Geyser and Haralambros accounted for approximately 17% and
15% of
our revenues, respectively. Although we recognized sales during the three
and
nine months ended June 30, 2008, there can be no assurances that we will
continue to recognize similar revenues in the future.
Cost
of Sales.
The cost
of sales during the three and nine months ended June 30, 2008 amounted to
$354,099 and $536,289, respectively. Our cost of sales includes the
manufacturing costs of our proprietary brand. The cost of sales as a percentage
of net sales was approximately 97% and 98%for the three and nine months ended
June 30, 2008, respectively. We anticipate that our cost of sales will decrease
and related gross profit margins will increase for the remainder of our current
fiscal year due to the refinement of our production process in strategically
located production facilities and from expected economies of scale in the
purchasing of raw materials.
Operating
Expenses.
Total
operating expenses for the three and nine months ended June 30, 2008, were
$8,464,222 and $22,121,310, respectively, and consisted of the
following:
|
|
|
Three months
ended
June 30, 2008
|
|
Six months ended
June 30, 2008
|
|
|
Compensation
expense and related taxes
|
|
$
|
2,843,723
|
|
$
|
7,223,366
|
|
|
Advertising
and marketing
|
|
|
1,176,077
|
|
|
8,766,355
|
|
|
Professional
and consulting fees
|
|
|
3,801,663
|
|
|
4,796,015
|
|
|
Other
selling, general and administrative
|
|
|
322,106
|
|
|
533,108
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
8,464,222
|
|
$
|
22,121,310
|
|
|
|
·
|
compensation
expense and related taxes were attributable to salaries, benefits,
and
related taxes to our officers and employees. For the nine months
ended
June 30, 2008, we recorded non-cash expenses of $4,737,700 related
to
stock-based compensation expense, which includes approximately
$3,495,528
attributable to options granted to our chief executive officer
and chief
financial officer. Stock-based compensation - options represented
approximately 21% of our total operating expenses for the nine
months
ended June 30, 2008. Under SFAS No. 123(R), which was effective
January 1,
2006, companies are now required to measure the compensation costs
of
share-based compensation arrangements based on the grant date fair
value
and recognize the costs in the financial statements over the period
during
which employees are required to provide services. We anticipate
that
compensation expense will increase during the remainder of our
current
fiscal year as we continue to build the
Purple
brand, which will require additional market activation personnel
and
support staff.
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·
|
advertising
and marketing expenses represent our brand development and promotional
expenses for our proprietary brand. These expenses include promotional
spending at point of sale. For the nine months ended June 30, 2008,
we
issued 1,186,546 shares of common stock for advertising and promotional
services valued at approximately $1,502,217. Additionally, we recorded
non-cash expenses of $5,304,858 related to stock-based expense,
primarily
attributable to options granted in connection with endorsement
agreements
entered into during the nine months ended June 30, 2008.We anticipate
that
our advertising and marketing expenses, in both cash and equity
components, will continue to increase for the remainder of our
current
fiscal year, subject to our ability to generate operating
capital.
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|
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·
|
professional
and consulting fees represent expenses incurred for expenses related
to
accounting, legal, public relations and financial and business
advisory
services. For the nine months ended June 30, 2008, we recorded
non-cash
expenses related to profession and consulting services in the form
of
54,000 stock options. We anticipate that our professional fees
will
continue to increase for the remainder of our current fiscal year
as we
continue to raise additional working capital and develop the
Purple
brand.
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·
|
other
selling, general and administrative expenses include rent expense,
travel
expense, office, supplies, telephone and communications expenses,
and
other expenses. We anticipate that these expenses will continue
to
increase during the remainder of our current fiscal year as we
continue to
grow our Purple brand.
|
Loss
from Operations.
We
reported a loss from operations of $8,452,827 and $22,112,730 for the three
and
nine months ended June 30, 2008, respectively.
Other
Expenses.
For the
nine months ended June 30, 2008, interest expense amounted to $1,060,450
and
$1,472,987, respectively. Of such amount, approximately $155,228 was
attributable to amortization of the debt discount in connection with the
issuance of the 12% notes payable, all of which was included in interest
expense
for the nine-month period ended June 30, 2008, and none of which was included
in
interest expense for the three-month period then ended. We recognized interest
expense on notes payable amounting to approximately $11,000 and $62,000 during
the respective three and nine months ended June 30, 2008. Additionally, we
issued shares in connection with notes payable valued at $1,053,268 and warrants
valued at $201,550 throughout the nine months ending June 30, 2008 – shares
and warrants were valued based on the fair market values at the date of
issuance.
Net
Loss.
We
reported a net loss of $9,512,128 and $23,581,665 for the three and nine
months
ended June 30, 2008, respectively, which translates to basic and diluted
net
loss per common share of $0.16 during the three months ended June 30, 2008,
and
basic and diluted net loss per common share of $0.45 during the nine months
ended June 30, 2008.
Liquidity
and Capital Resources
Liquidity
is the ability of a company to generate funds to support its current and
future
operations, satisfy its obligations, and otherwise operate on an ongoing
basis.
At June 30, 3008, we had a cash balance of $8,709, a net decrease in cash
of
$61,181 during the quarter ended June 30, 2008, and negative working capital
of
$860,569. We have been funding our operations though the sale of our securities
and short-term bridge notes. As of October 10, 2008, we had outstanding
indebtedness in the amount of $2,920,000.
In
December 2007, we issued and sold an aggregate of 60.3 units of our securities
to 31 investors for the aggregate price of $3,015,000 (“December 2007 Private
Placement”). Each unit (“Unit”) consisted of 100,000 shares of our common stock
and 100,000 warrants to purchase an equivalent number of shares of our common
stock. The purchase price of each Unit was $50,000.
On
March
11, 2008, we offered a temporary reduction in the exercise price of 50% of
the
warrants that we had granted as part of the December 2007 Private Placement.
The
per-share exercise price of the warrants was reduced from $2.00 to $1.25
from
March 11 to April 2, 2008. 934,000 warrants were exercised, resulting in
$1,167,500 of proceeds. At the request of certain warrant holders, we eliminated
the 50% limit. In connection with the temporary reduction, the exercising
warrant holders were granted an aggregate of 467,000 common stock purchase
warrants, at an exercise price of $3.50, on the basis of one new warrant
for
each two original warrants exercised.
On
April
2, 2008, we closed an additional private offering in which we raised
approximately $2.275 million in net proceeds, in addition to the funds we
received through the above-referenced exercise of warrants. In connection
with
this private offering, we issued 1,635,786 shares of our common stock at
a
per-share purchase price of $1.40 to eight investors, some of whom were parties
to our December 2007 financing.
In
June
2008, we received aggregate proceeds of $500,000 in consideration of a sixty-day
unsecured promissory note in the same amount, with an interest rate of 18%,
payable to one investor. We also issued such investor 100,000 shares of common
stock, granted him 100,000 warrants to purchase an equivalent number of shares
of our common stock at $2.00 per share, and granted him 100,000 warrants
to
purchase an equivalent number of shares of our common stock at $3.50 per
share.
Also, in July 2008, we received aggregate proceeds of $1,000,000 in
consideration of a ninety-day unsecured promissory note in the same amount,
with
an interest rate of 11%, payable to another investor. We also issued such
investor 200,000 shares of common stock and granted it 200,000 warrants to
purchase an equivalent number of shares of our common stock at $2.00 per
share.
In connection with the latter loan and issuance of securities, we also issued
150,000 shares of our common stock as a finder’s fee to a third party.
On
July
28, 2008, we received aggregate proceeds of $100,000 in consideration of
a
promissory note that is payable on demand, and bears annual interest at 18%.
On
August 8, 2008, we received aggregate proceeds of $250,000 in consideration
of a
promissory note that matured on September 7, 2008 and bore annual interest
at
8%. On August 27, 2008, we received aggregate proceeds of $250,000 in
consideration of a promissory note that matured on September 26, 2008 and
bore
annual interest at 8%. On August 11, 2008, we entered into a short-term bridge
loan in the principal amount of $250,000, which matured on September 10,
2008,
bore annual interest at 8%, and was unsecured. On August 22, 2008, we received
aggregate proceeds of $100,000 in consideration of a promissory note that
bears
annual interest at 11%. We are obligated to repay such note in monthly payments,
with the first payment on September 22, 2008 and the final payment on June
22,
2009. On August 14, 2008 we received aggregate proceeds of $45,000 in
consideration of a demand promissory note that bears annual interest at 2.54%,
in favor of our then chief financial officer, Michael Wallace. We repaid
such
note on September 5, 2008. On September 5, 2008, we received aggregate proceeds
of $250,000 in consideration of a promissory note that is due and payable
on or
prior to October 24, 2008, or within 5 days of our receipt of funds in excess
of
$250,000, and bears annual interest at 5%. On September 12, 2008, we received
aggregate proceeds of $500,000 in consideration of a promissory note that
matures on October 13, 2008 and bears annual interest at 5%. On September
12,
2008, we issued a promissory note in the principal amount of $500,000, which
was
due and payable on October 13, 2008 and bears interest on the unpaid principal
balance at a rate of 5% per annum. We received $250,000 subject to the terms
of the note.
On
October 10, 2008, the Honig Notes were cancelled in exchange for a convertible
promissory note in favor of Mr. Honig in the amount of $640,000, which matures
on October 10, 2009 and bears annual interest at 5%. Mr. Honig funded an
additional $140,000 to us. In addition, on October 10, 2008, Mr. Rabinowitz
advanced funds to us in the amount of $80,000. Proceeds of the funds advanced
to
us on October 10, 2008 will be used to meet our payroll
obligations.
Net
cash
flows used in operating activities for the nine months ended June 30, 2008,
amounted to $7,275,434 and were primarily attributable to our net losses
of
$23,581,665, offset by stock-based expenses of $15,775,531, depreciation
of
$10,299, amortization of debt discount of $155,228, and changes in assets
and
liabilities of $365,173, which includes $(881,726) of accounts receivable,
$(944,607) of inventory, $(377,497) of other current assets, $1,342,842 of
accounts payable, $650,161 of accrued expenses, and $576,000 of deferred
revenue. Net cash flows used in investing activities for the nine months
ended
June 30, 2008, amounted to $124,862 and were primarily attributable to the
purchase of property and equipment. Net cash flows provided by financing
activities were $7,339,115 for the nine months ended June 30, 2008. Further,
for
the nine months ended June 30, 2008, we received net proceeds from the sale
of
our common stock and exercise of warrants of $5,638,515 and $1,167,500,
respectively. Additionally, we received proceeds from the issuance of a note
payable of $1,593,000, and repaid $1,000,000 of principal and paid $60,000
in
connection with a stock repurchase agreement upon the closing of our reverse
merger on December 12, 2007.
We
pay
Mr. Farnsworth a salary of $225,000 per year and a monthly performance bonus
equal to 6% of the net invoice price for all sales, at wholesale or retail,
of
Purple
during
the corresponding month in accordance with our revenue recognition policies.
Mr.
Farnsworth’s bonus is based upon the sales of our product, whether at wholesale
or retail, if such sales are recognized as revenue by us. Thus, in the case
of
our sale to one of our distributors that, in turn, re-sells the product to
a
retail store, which sell the product to a consumer, Mr. Farnsworth’s bonus is
calculated on that sale. We allocate Mr. Farnsworth’s monthly 6% performance
bonus to “other selling, general and administrative” (“SG&A”) expenses,
which currently approximate our net sales on a quarterly basis. If we meet
our
internal projections for increasing our net revenues, as to which increases
there can be no assurance, our SG&A expenses will decrease as a percentage
thereof. However, those expenses will not decline as rapidly as they otherwise
would due to the burden of the 6% monthly performance bonus. We believe that,
if
our net revenues increase according to our business plan, our gross margins
will
support the 6% monthly bonus, although not necessarily without a material
adverse impact on our overall profitability.
We
currently have no material commitments for capital expenditures. Other than
our
cash on hand ($249,361 as of August 13, 2008), we presently have no alternative
source of operating capital. We may not have sufficient capital to fund the
expansion of our operations and to provide capital necessary for our ongoing
operations and obligations. We will need to raise significant additional
capital
to fund our operating expenses, pay our obligations, and grow our company.
We do
not presently have any firm commitments for any additional capital, and our
financial condition may make our ability to secure this capital difficult.
There
are no assurances that we will be able to continue our business, and we may
be
forced to cease operations if we do not raise significant additional working
capital, in which event investors could lose their entire investment in
us.
Off
Balance Sheet Arrangements
We
do not
have any off-balance sheet arrangements.
BUSINESS
General
We
were
formed in the State of Nevada on April 8, 2002 as an event planning company
and
operated as such until June 30, 2005, when we acquired ninety-five percent
of
the issued and outstanding shares of Landes Daily, Inc. and began operating
in
the apparel industry. On June 6, 2006, we ceased all operations in the apparel
industry and began operations as an independent film production company that
aimed to develop, produce, market and distribute low budget film and video
productions. On December 12, 2007, Purple Acquisition Corp., a newly formed
wholly-owned subsidiary of ours, merged with and into Venture Beverage Company,
a private corporation. Upon closing of the merger, Venture Beverage Company
merged with and into us and we succeeded to the business of Venture Beverage
Company as our sole line of business. In connection with the merger, we changed
our name to Purple Beverage Company, Inc.
We
develop, market, and distribute unique beverage brands and products that
are
positioned as “better for you” beverages and are targeted to the growing
category of “new age/functional” beverage consumers. We own the common law
rights to the
Purple
brand, a
new functional beverage that contains a high level of anti-oxidants that
are
found in seven different natural fruit juices that combine to make our product.
We launched
Purple
in the
summer of 2007.
The
new
age or alternative beverage category combines non-carbonated, ready-to-drink
iced teas, lemonades, juice cocktails, single-serve juices and fruit beverages,
ready-to-drink dairy and coffee drinks, energy drinks, sports drinks, and
single-serve still water (flavored, unflavored and enhanced) with “new age”
beverages, including sodas that are considered natural, sparkling juices
and
flavored sparkling waters. The alternative beverage category is the fastest
growing segment of the beverage marketplace. Further, according to a 2006
study
in Packaged Facts, sales of “better for you” and functional beverages reached
approximately $40 billion in the United States in 2005 with forecasted sales
in
2007 of $46.3 billion, reaching $53.9 billion by 2011.
Category-sales
increases in 2006 were led by beverages offering health benefits and we believe
that consumers have altered a shift in priorities from pure weight management
to
total health management - a shift that is reflected in slower growth of “lo-cal”
and “light” products and increased growth in functional beverages. Of growth
products in 2006, the most successful products were those with a health or
functional characteristic, such as energy and sport drinks for their
performance-enhancing benefits, or ready-to-drink tea for its antioxidant
claims. The market was estimated at $36 billion in 2006, and management projects
sales of $60 billion by 2009. Based on our direct and indirect knowledge
of the
beverage and functional beverage industry, we predict:
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·
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Future
category growth will likely be among functional products offering
specific
health benefits - for example, heart, health and antioxidant products;
and
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With
increased availability and greater consumer demand, functional
beverages
are at the beginning of a major growth wave in the United
States.
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Functional
beverages are beverages that include ingredients designed to provide specific
benefits to the consumer. The sector typically includes juices, smoothies,
teas,
soy-based drinks, energy drinks, enhanced waters and sports drinks. “Better for
you” beverages are a sub-sector of the functional beverage industry which
includes drinks designed to provide specific health benefits to
consumers.
While
the
soft drink business is a $68 billion industry in the United States, the amount
of soda sold in the United States dropped in 2005 for the first time in recent
history, and even diet soda sales slowed. Thus, beverage companies are entering
the specialty beverage arena as a way to make up for the slowing carbonated
soft
drink sales.
There
were 1,007 new specialty beverages offered in 2005, on top of 1,010 in 2004.
Juices and functional beverage sales increased 51.1% from 2003 to 2005; coffee
and cocoa sales were up 37%; and carbonated, functional, and ready-to-drink
tea
and coffee beverages jumped 65.7%.
Products
Our
proprietary brand is directed to consumers who prefer new age beverage products
to traditional carbonated soft drinks such as Coca-Cola®, Pepsi® and 7-Up®. The
new age beverage category is attractive to us because it is a growth segment
of
the beverage market and we believe that consumers will pay higher prices
for
these products than carbonated soft drinks.
Our
sole
product is named
Purple
a
functional beverage that contains a high level of anti-oxidants from seven
different fruit sources that are combined to make this product. The seven
anti-oxidant-rich fruits combined in our unique formula are the natural juices
of açai, black cherry, pomegranate, black currant, purple plum, cranberry and
blueberry. While we do not currently have any additional products in development
at this time, we are constantly evaluating new product offerings.
Sales,
Marketing and Distribution
Our
sales
and marketing strategy is to focus our efforts on developing brand awareness
and
trial through sampling both in stores and at events. We employ a “PUSH” - “PULL”
promotional and advertising strategy (as more particularly described below)
to
build brand awareness, generate trial/sampling purchases and gain distribution
of
Purple
. Our
three stage “go-to-market” approach first educates the consumer about the
product through a combination of advertising and public relations initiatives,
then makes the product readily available with direct and three-tier
distribution, and finally implement programs to motivate consumers to buy
Purple
.
“PUSH,”
or “getting the product on the shelf,” provides the programs necessary to gain
distribution and secure product placement on retailer’s limited shelves and/or
nightclub’s back bar-space. It consists of customer marketing funds designed to
support the customers’ best promotional and consumption-building vehicles, as
well as employee incentive and training programs, while providing materials
that
clearly communicate
Purple
’s
key
brand benefit: “The Most Powerful Antioxidant Beverage on the Planet!” The
foregoing statement is a tagline or advertising slogan used by us that is
not a
specific or measurable claim or factual statement regarding our product.
These
materials consist of a variety of “communication messages,” including those
listed above, as well as shelf and cooler signs, neck hangers, window banners,
floor displays with header cards, table tents, menus, back bar pieces and
logo
apparel. We intend to budget approximately 10% of our gross revenues as a
contribution to these customer marketing funds, as well as provide participation
with our distributors by matching funds (
i.e.
, we
provide $1.00 per case and the distributor provides $1.00 per case; together,
we
contribute $2.00 towards the customers’ best promotional vehicles).
“PULL,”
or getting the product “off-the-shelf” and into the hands of happy consumers,
answers the biggest question posed by buyers: “What are you doing to drive
consumers into my store to purchase your product?” Pull programs are designed to
entice and educate consumers, while motivating them to sell or purchase our
product. Various Pull programs include advertising directed towards the consumer
(print, radio, TV, internet, direct mail, etc.), instant redeemable or mail-in
coupons, mail-in money back rebates, retailer loyalty programs, co-branding
with
complementary products, and wet sampling events. We will employ all of the
above, budgeting an additional 10% to support these programs that reach our
targeted audience.
The
following are a sample of the creative approaches and tactics we use to build
our Purple brand:
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Media
advertisements (newspaper and magazine) that will be placed with
the
advice of media buying
professionals;
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Improved
electronic presence (enhanced website and e-mail
communication);
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In-store
sales promotions;
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Targeted
sponsorship of brand-building
events;
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Use
of celebrity endorsers and related
promotions;
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Trade
show marketing; and
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On
premise marketing with the
Purple
Girls.
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Each
of
these approaches is capital intensive, and additional capital will be needed
to
continue these efforts.
Celebrity
Endorsement Agreements
As
part
of our marketing and advertising campaign to promote
Purple
,
we have
entered into celebrity endorsement agreements with Chaka Kahn, Torii Hunter
and
Mariano Rivera. Such celebrities will be the focus of
Purple
advertising campaigns and will conduct public appearances. In addition, our
celebrity endorsers will support the
Purple
brand at
events and programs that we intend to sponsor. A description of the material
terms of our celebrity endorsement agreements are summarized below.
Chaka
Kahn Endorsement Agreement
In
November, 2007, we entered into a three year endorsement agreement with
Grammy®-Award winning entertainer Chaka Kahn. In connection with her agreement,
we granted to Chaka Kahn Enterprises 550,712 shares of our common
stock.
Torii
Hunter Endorsement Agreement
In
January 2008, we entered into a three year endorsement agreement with Torii
Hunter of the Los Angeles Angels of Anaheim. In connection with his agreement,
we paid Mr. Hunter $150,000 with $50,000 payable on signing and $50,000 payable
on the first and second anniversaries of the agreement. In addition, Mr.
Hunter
and his representative and certain others were paid an aggregate of $10,000,
were issued and aggregate of 275,000 shares of our common stock, and were
granted an aggregate of 2,000,000 stock options. The options are exercisable
at
$1.00 per share and expire on July 18, 2008.
Mariano
Rivera Endorsement Agreement
In
May
2008, we entered into a three year endorsement agreement with Mariano Rivera
of
the New York Yankees. In connection with his agreement, we agreed to pay
Mr.
Rivera $150,000 with $50,000 payable on signing and $50,000 payable on the
first
and second anniversaries of the agreement. In addition, Mr. Rivera and certain
others were paid an aggregate of $25,000, issued an aggregate of 160,000
shares
of our common stock, and granted an aggregate of three-year non-qualified
stock
options to purchase up to 1,414,286 shares of our common stock at an exercise
price of $0.01 per share.
Seasonality
Sales
of
ready-to-drink beverages are somewhat seasonal, with the second and third
calendar quarters accounting for the highest sales volumes. The volume of
sales
in the beverage business may be affected by weather conditions. Sales of
our
beverage products may become increasingly subject to seasonal fluctuations.
Quarterly fluctuations may also be affected by other factors, including the
introduction of new products, the opening of new markets where temperature
fluctuations are more pronounced, the addition of new bottlers and distributors,
changes in the mix of sales of our finished products and changes in and/or
increased advertising, marketing and promotional expenses.
Research
and Development
The
new
age beverage category growth is largely sustained by the constant addition
of
new products, brands and brand extensions. An integral part of our strategy
is
to develop and introduce innovative products and packages. The development
time
from inception of the concept through product development and testing to
the
manufacture and sale of the finished product is several months. Not all new
ideas survive consumer research. Our research, development, manufacture,
and
distribution of
Purple
and
other beverage products have thus far been limited by our capital
resources.
We
are
not currently engaged in any research and development activities. However,
we
recently began exploring the possibility of engaging a third party to commence
research on our behalf in connection with expanding our line of products
and
further determining the implications of mixing
Purple
with
components such as teas and alcoholic beverages.
Manufacturing
Process
The
principal raw materials used by us are glass bottles, as well as fruit pulp
and
fruit juice concentrates, the costs and availability of which are subject
to
fluctuations. Due to the consolidations that have taken place in the glass
industry over the past few years, the prices of glass bottles continue to
increase. The prices of fruit pulp concentrates and certain juice concentrates,
including apple, increased in 2006 and certain of these ingredients continued
to
increase in 2007. These increased costs, together with other increased costs,
primarily energy, gas and freight, resulted in increases in certain product
costs that are ongoing and are expected to continue to exert pressure on
our
gross margins in the foreseeable future.
We
rely
on third-party manufacturers to produce our products, using our proprietary
formula and flavor ingredients. Chemists continually observe the
product-manufacture and production-run and test the finished beverage product
and the package integrity. We obtain the raw materials for the manufacture
of
our products from several sources and arrange for the direct delivery of
these
raw materials to the third-party manufacturer, except for acai, which we
obtain
from a single source. We normally pre-pay for the manufacture and packaging
materials. We own the finished inventory that is shipped to warehouses upon
completion.
We
use
several suppliers of all necessary raw materials within the United States.
In
addition, there are numerous manufacturers in the United States that can
manufacture our products for us. We do not have any agreements with our material
suppliers or manufacturers, and we do not anticipate having contracts with
any
entities or persons committing such suppliers to provide the materials required
for the production of our products or committing such manufacturers to provide
manufacturing services to us or committing us to purchase any materials or
manufacturing services from any specific entities.
The
following are our principal suppliers:
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Principal
Suppliers
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Product
Supplied
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Stiebs
Pomegranate Products
|
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Açai
& Pomegranate Juice
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National
Fruit & Essences, LLC
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Juices:
Black Cherry, Black Currant, Purple
|
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King
Juice Company, Inc.
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Blending
& Bottling
|
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MFCI
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Re-Packing
|
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Zuckerman
Honickman
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Glass
bottle - 10 oz
|
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Silgan
White Cap Americas
|
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Bottle
Cap
|
|
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CL&D
Graphics, Inc.
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Labels
|
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Green
Bay Packaging, Inc.
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Cartons
and corrugated inserts
|
Distributors
For
the
nine months ended June 30, 2008, two of our distributors, Haralambos Beverage
Co. and Big Geyser, Inc., accounted for approximately 15%, and 17% of our
revenues, respectively. We remain dependent, however, on all of our
distributors, and the loss of any of our major distributors would have a
material adverse effect on our operating results.
We
have
agreements with most of our distributors, and we believe the agreements with
Crosset Company, Big Geyser, Inc., B & E Juice Co, and General Nutrition
Distribution, LP are material to our business. Those agreements are attached
as
exhibits to the registration statement of which this prospectus forms a part;
however, certain terms have been redacted, as we believe the public disclosures
thereof would put us at a competitive disadvantage. The duration of our material
distributor agreements (not including renewals), and the territories covered
by
such agreements, are as follows:
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DISTRIBUTOR
|
|
DURATION
OF AGREEMENT
(not
including renewals)
|
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TERRITORY
|
|
Crosset
Company
|
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Through
January 25, 2013
|
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State
of Kentucky and 150-mile radius from City of Independence; includes
all
Kroger Food stores presently being served by
Distributor
|
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Big
Geyser, Inc.
|
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Through
February 26, 2013
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Manhattan
(New York County)
Brooklyn
(Kings County)
Queens
Staten
Island (Richmond County)
Bronx
Nassau
Suffolk
Westchester
|
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B
& E Juice Co.
|
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Through
March 26, 2013
|
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Fairfield
County, Connecticut
|
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General
Nutrition Distribution, LP
|
|
December
6, 2008
|
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United
States
|
Competition
The
beverage industry is highly competitive. The principal areas of competition
are
pricing, packaging, development of new products and flavors, and marketing
campaigns. Our product competes with a wide range of drinks produced by a
relatively large number of manufacturers, most of which have substantially
greater financial, marketing, and distribution resources than we
do.
Important
factors affecting our ability to compete successfully include:
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|
the
taste and flavor of our products;
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·
|
trade
and consumer promotions;
|
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·
|
rapid
and effective development of new, unique, cutting-edge
products;
|
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·
|
attractive
and different packaging;
|
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·
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branded
product advertising; and
|
We
also
compete for distributors who will concentrate on marketing our products over
those of our competitors, provide stable and reliable distribution, and secure
adequate shelf-space in retail outlets. Competitive pressures in the
alternative, energy, and functional beverage categories could cause our products
to be unable to gain market share and we could experience price erosion,
which
could have a material adverse affect on our business and results.
We
compete not only for consumer acceptance, but also for maximum marketing
efforts
by multi-brand licensed bottlers, brokers and distributors, many of which
have a
principal affiliation with competing companies and brands. Our product competes
with all liquid refreshments and with products of much larger and substantially
better-financed competitors, including the products of numerous nationally
and
internationally known producers such as The Coca-Cola Company, PepsiCo, Inc.,
Cadbury Schweppes plc, Red Bull Gmbh, Kraft Foods, Inc., Nestle Beverage
Company, Tree Top, Inc., and Ocean Spray Cranberries, Inc. We also compete
with
companies that are smaller or primarily local in operation. Our products
also
compete with private label brands such as those carried by grocery store
chains,
convenience store chains and club stores.
To
date,
our significant competition includes the following companies:
|
|
·
|
Bossa
Nova Beverage Group;
|
|
|
·
|
POM
Wonderful, LLC; and
|
Our
product is most closely comparable with the natural beverage products created
by
those companies listed above. In particular, Bossa Nova Beverage Group produces
a line of
“Açai
Juices,”
which
contains açai berries and anti-oxidants. Fuze Beverage, LLC produces a product
line named “
Vitalize,”
which
are non-carbonated beverages that contain anti-oxidants and electrolytes.
POM
Wonderful, LLC produces a line of
“POM
Wonderful Pomegranate Juices,”
which
contains naturally occurring polyphenol antioxidants, and Sambazon, Inc.’s
“
Organic
Açai Juice”
contains
açai berries and blue agave syrup.
Intellectual
Property
We
rely
on common law rights to our trademark
Purple
.
The
common law rights protect the use of this mark used to identify our product.
It
is possible that our competitors will adopt product or service names similar
to
ours, thereby impeding our ability to build brand identity and possibly leading
to customer confusion. Our inability to protect our trade name will have
a
material adverse effect on our business, results of operations, and financial
condition. We also rely on trade secrets and proprietary know-how to protect
our
concepts. However, such methods may not afford complete protection, and there
can be no assurance that others will not independently develop similar know-how
or obtain access to our know-how and concepts. There can be no assurance
that we
will be able to adequately protect our trade secrets. Third parties may assert
infringement claims against us or against third parties upon whom we rely
and,
in the event of an unfavorable ruling on any claim, we may be unable to obtain
a
license or similar agreement to use trade secrets that we rely upon to conduct
our business.
Regulation
The
Food
and Drug Administration issues rules and regulations for the beverage industry,
including, but not limited to, the labeling and formulary ingredients of
beverage products. We are also subject to various state and local statutes
and
regulations applicable to the production, transportation, sale, safety,
advertising, and labeling of our product. 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.
Regulatory guidelines, however, are constantly changing, and there can be
no
assurance that our product and our third-party manufacturers will be able
to
comply with ongoing government regulations.
Employees
As
of
October 3, 2008, we had 14 employees, all of whom are full-time. None of
our
employees is covered by a collective bargaining agreement, nor are they
represented by a labor union. We have not experienced any work stoppages,
and we
consider relations with our employees to be good.
Description
of Property
We
lease
approximately 3,070 square feet of office space in Fort Lauderdale, Florida
for
$5,533.68 per month, which rate increases by 3% each year commencing on March
1,
2009. The current lease term expires on April 30, 2012. This facility serves
as
our corporate headquarters. We believe that this facility is 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,
this property is adequately covered by insurance.
We
do not
invest in real estate or real estate interests.
From
time
to time we may be involved in claims arising in the ordinary course of business.
To our knowledge, no legal proceedings, government actions, administrative
actions, investigations or claims are currently pending against us or involve
us
that, in the opinion of our management, could reasonably be expected to have
a
material adverse effect on our business and financial condition.
MANAGEMENT
The
following table sets forth information regarding our sole director and our
executive officers. Our sole director holds office for a one-year term until
the
election and qualification of his successor. Subject to any written employment
agreements, our officers are elected annually by the board of directors and
serve at the discretion of the board. Each of Messrs. Farnsworth and Wallace
has
a three-year employment agreement with us.
|
Name
|
|
Age
|
|
Position
|
|
Theodore
Farnsworth
|
|
46
|
|
Chief
Executive Officer, President, Secretary and Director
|
|
|
|
|
|
|
|
Michael
Wallace(1)
|
|
39
|
|
Chief
Financial Officer and Executive Vice
President
|
(1)
On
September 15, 2008, Mr. Wallace was laid off by the Company, and on September
15, 2008, Mr. Farnsworth was appointed as the principal financial and principal
accounting officer of the Company. We anticipate entering into negotiations
with
Mr. Wallace to become a consultant of the Company but there can be no assurance
that this will occur.
Theodore
Farnsworth, Chief Executive Officer, President, Secretary and
Director.
Mr.
Farnsworth has served as our chief executive officer, president, secretary
and
as a director since December 2007, and has served as our principal financial
and
principal accounting officer since September 15, 2008. Mr. Farnsworth was
the
chief executive officer, president, secretary and as a director of Venture
Beverage Company from May 2007 to December 2007. From September 2001 to October
2007, Mr. Farnsworth served as chairman of Xstream Beverage Network, Inc.
and
from November 2004 to November 2007, Mr. Farnsworth served as Xstream Beverage
Network, Inc.’s chief executive officer. Prior to that, from April 1998 to March
2001, Mr. Farnsworth served as chairman and founder of Farmbid.com, an
agricultural Internet portal site. From May 1997 to March 1998, Mr. Farnsworth
was president of Fontal Restaurant Group, Inc., parent of Burrito Grill
restaurants.
There
are
no family relationships among our director or executive officer.
Board
Committees
Audit
Committee.
We
intend to establish an audit committee of the board of directors, which will
consist of independent directors, of which at least one director will qualify
as
a qualified financial expert as defined in Item 407(d)(5)(ii) of Regulation
S-K.
The audit committee’s duties would be to recommend to our board of directors the
engagement of independent auditors to audit our financial statements and
to
review our accounting and auditing principles. The audit committee would
review
the scope, timing and fees for the annual audit and the results of audit
examinations performed by the internal auditors and independent public
accountants, including their recommendations to improve the system of accounting
and internal controls. The audit committee would at all times be composed
exclusively of directors who are, in the opinion of our board of directors,
free
from any relationship which would interfere with the exercise of independent
judgment as a committee member and who possess an understanding of financial
statements and generally accepted accounting principles.
Compensation
Committee.
We
intend to establish a compensation committee of the board of directors. The
compensation committee would review and approve our salary and benefits
policies, including compensation of executive officers. The compensation
committee would also administer our stock option plans and recommend and
approve
grants of stock options under such plans.
Compensation
Committee Interlocks and Insider Participation
During
the fiscal year ended September 30, 2008, all executive officer compensation
was
determined by Theodore Farnsworth, our chief executive officer, president
and
director.
Code
of Ethics
We
intend
to adopt a code of ethics that applies to our officers, directors and employees,
including our chief executive officer and chief financial officer, but have
not
done so to date due to our relatively small size.
EXECUTIVE
COMPENSATION
Summary
Compensation Table
The
following table summarizes the annual and long-term compensation paid to
Theodore Farnsworth, our chief executive officer, who we refer to in this
prospectus as the “named executive officer.” During the year ended September 30,
2008, no executive officer received annual remuneration in excess of
$100,000.
|
Name
and Principal Position
|
|
Year
|
|
Salary
($)
|
|
Bonus
($)
|
|
Option
Awards(1)
($)
|
|
All Other
Compensation
($)
|
|
Total
($)
|
|
|
Theodore
Farnsworth
Chief
Executive Officer,
President
and Secretary
(principal
executive officer)
|
|
|
2007
|
|
|
11,712
|
(1)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
11,712
|
|
(1)
Annual salary of $225,000, which commenced on December 12, 2007.
Employment
Agreements
On
December 12, 2007, we entered into a three-year employment agreement with
Theodore Farnsworth, which agreement shall be automatically renewed for
additional one-year periods until either we or Mr. Farnsworth, as the case
may
be, gives the other written notice of its intent not to renew the agreement
at
least 90 days prior to the end of the then current term. Pursuant to this
agreement, Mr. Farnsworth shall serve at our chief executive officer and
shall
receive a salary of $225,000 per year and a monthly performance bonus equal
to
6% of the net invoice price for all sales, at wholesale or retail, of
Purple
during
the corresponding month in accordance with our revenue recognition policies.
Mr.
Farnsworth’s bonus is based upon sales of our product, whether at wholesale or
retail, if such sales are recognized as revenue by us. Thus, in the case
of our
sale to one of our distributors that, in turn, re-sells the product to a
retail
store, which sell the product to a consumer, Mr. Farnsworth’s bonus is
calculated on the original sale to our distributor. In the case of a sale
directly to a consumer, Mr. Farnsworth’s bonus is calculated on that sale. Such
bonus shall be paid on the 15th day of the month following the respective
measuring month. In addition, Mr. Farnsworth is entitled to participate in
employee medical, health, pension, welfare and insurance benefit plans
maintained by us for the general benefit of our executive employees, as well
as
all other benefits and perquisites made generally available to our executive
employees, up to three weeks of vacation per year and a monthly car allowance
of
$800. If Mr. Farnsworth’s employment is terminated by us without cause or
because of Mr. Farnsworth’s death or disability or by Mr. Farnsworth for good
reason (including as a result of a change in control), or if we deliver a
timely
non-renewal notice, then we shall pay to Mr. Farnsworth:
|
|
·
|
subject
to Mr. Farnsworth executing a general release of all claims in
our favor
in a form approved by our board, a severance payment equal to three
times
the sum of (x) Mr. Farnsworth base salary in the calendar year
in which
the termination occurs plus (y) the bonus earned for the year prior
to the
year in which the termination
occurs;
|
|
|
·
|
a
bonus for the year in which termination occurred based on payments
received by us through the last day of actual employment;
and
|
|
|
·
|
for
a period of three years following the termination date, Mr. Farnsworth’s
costs of COBRA continuation coverage of health insurance, or if
COBRA
coverage is unavailable, the actual cost incurred by Mr. Farnsworth
in
obtaining comparable coverage.
|
Notwithstanding
anything else to the contrary, the aggregate of the payments above are limited
to the extent that Mr. Farnsworth would incur an excise tax under Section
4999(a) of the Internal Revenue Code of 1986, as amended, if the payments
to be
made above were deemed to be an “excess parachute payment.” Our obligation to
make the above described payments are not subject to mitigation or a duty
to
mitigate.
If
Mr.
Farnsworth’s employment is terminated by us for cause, or by Mr. Farnsworth
without good reason:
|
|
·
|
Mr.
Farnsworth will receive payment of his base salary through and
including
the date of termination, payment of any earned but unpaid bonus
for the
prior fiscal year, payment for all accrued but unused vacation
time
existing as of the date of termination, and reimbursement of business
expenses incurred prior to the date of termination;
and
|
|
|
·
|
Mr.
Farnsworth may continue to participate in our employee benefit
plans to
the extent permitted by and in accordance with the terms thereof
or as
otherwise required by law.
|
On
March
19, 2008, we entered into a three-year employment agreement with Michael
Wallace, pursuant to which Mr. Wallace served as our chief financial officer
and
was to receive a salary of $250,000 during the first fiscal year of employment,
$275,000 for the second fiscal year of employment and $300,000 for the third
fiscal year of employment. Mr. Wallace also received a signing bonus of $25,000
upon execution of this agreement and was entitled to receive a prorated bonus
of
at least $75,000 for the current fiscal year, $100,000 for the subsequent
fiscal
year and at the discretion of our board of directors thereafter. In addition,
Mr. Wallace was entitled to participate in all employee medical, health,
dental,
pension, welfare and insurance benefit plans maintained by us for the general
benefit of our executive employees, as well as all other benefits and
perquisites made generally available to our executive employees, as well
as
group medical and dental insurance for Mr. Wallace’s family, a monthly auto
allowance of $1,000 and up to four weeks of vacation per year. Pursuant to
the
employment agreement, if Mr. Wallace’s employment is terminated by us because of
Mr. Wallace’s death, disability or without cause, then:
|
|
·
|
we
shall pay to Mr. Wallace a severance payment equal to payment of
that
amount equal to six months of Mr. Wallace’s then-current base salary,
payment of that amount equal to six months of Mr. Wallace’s annual bonus,
and reimbursement of business expenses incurred prior to the date
of
termination; and
|
|
|
·
|
all
of Mr. Wallace’s unvested options shall
vest.
|
However,
if Mr. Wallace’s employment is terminated by us for cause, or by Mr. Wallace for
any reason, then:
|
|
·
|
we
shall pay to Mr. Wallace his base salary through and including
the date of
termination, any earned but unpaid bonus for the prior fiscal
year,
|
|
|
·
|
we
shall reimburse Mr. Wallace for all business expenses incurred
prior to
the date of termination;
|
|
|
·
|
all
options granted under the agreement will cease vesting on the date
of
termination of employment, and to the extent vested and not previously
exercised or expired, may be exercised in accordance with the terms
and
conditions of his option grant; and
|
|
|
·
|
Mr.
Wallace shall continue to participate in our employee benefit plans
to the
extent permitted by and in accordance with the terms thereof or
as
otherwise required by law.
|
In
connection with Mr. Wallace’s employment agreement, Mr. Wallace was granted a
ten-year option to purchase 1,663,826 shares of common stock at an exercise
price of $1.50 per share. One-third of the option vested upon grant; one-third
would vest on the first anniversary of the employment agreement; and one-third
would vest on the second anniversary of the employment agreement, assuming
that
Mr. Wallace is employed by us as of such dates. The agreement also contains
certain non-competition and confidentiality provisions, as well as intellectual
property assignment provisions.
On
September 15, 2008, Mr. Wallace was laid off by the Company, and on September
15, 2008, Mr. Farnsworth was appointed as the principal financial and principal
accounting officer of the Company. We anticipate entering into negotiations
with
Mr. Wallace to become a consultant of the Company but there can be no assurance
that this will occur.
Currently,
decisions pertaining to incentive based compensation of our executive officers
(including, without limitation, changes in the amount of bonuses payable
to our
chief executive officer and chief financial officer) are made unilaterally
by
Mr. Farnsworth. However, we intend in the near future to expand our board
membership to include independent directors, and such decisions will be then
made by our compensation committee comprised of independent directors. In
determining incentive based compensation, it is contemplated that we will
look
at the incentive based compensation awarded to members of senior management
of
comparable companies of our size in our industry or similar
industries.
Outstanding
Equity Awards at Fiscal Year-End
There
were no outstanding equity awards held by our named executive officer as
of
September 30, 2008.
2007
Incentive Plan
On
December 12, 2007, our sole director adopted the Venture Beverage Company
2007
Incentive Plan. The purpose of the 2007 Incentive Plan is to provide an
incentive to attract and retain directors, officers, consultants, advisors
and
employees whose services are considered valuable, to encourage a sense of
proprietorship and to stimulate an active interest of such persons in our
development and financial success. Under the 2007 Incentive Plan, we are
authorized to issue incentive stock options intended to qualify under Section
422 of the Internal Revenue Code of 1986, as amended, non-qualified stock
options, stock appreciation rights, performance shares, restricted stock,
cash
based awards and other share based awards. The 2007 Incentive Plan is
administered by our sole director. Options were granted under the 2007 Incentive
Plan to certain of our employees employed at the time of our reverse merger
to
incentivize their continued employment with us. The number of options granted
by
our sole director to himself was determined after consultation with the
placement agent for our December private placement and with the concurrence
of
each of the investors in such offering. The conclusion was based upon the
number
of options initially available under the 2007 Incentive Plan, the number
of
options under such plan to be granted to our other personnel, and the number
of
shares of our common stock owned by Mr. Farnsworth and the percentage of
our
capital stock that such shares would represent upon the closing of our December
private placement. Our sole director determined the terms of such awards
based
on the services the employees provided or were expected to provide to us.
Since
consummation of our reverse merger on December 12, 2007, we have granted
options
to purchase common stock under the 2007 Incentive Plan to the following
executive officer:
|
Name
|
|
Shares
Subject to
Options
|
|
Exercise
Price
|
|
Grant
Date
|
|
Vesting
Schedule
|
|
Expiration
|
|
|
Theodore
Farnsworth
|
|
|
3,405,000
|
(1)
|
$
|
0.55
|
|
|
December 12,
2007
|
|
|
Immediately
|
|
|
5 years from date of
grant
|
|
(1)
On
September 15, 2008, Theodore Farnsworth waived all rights to receive 2,000,000
shares of our common stock, par value $0.001 per share, which were granted
to
him pursuant to options exercisable under our 2007 Incentive Plan. Accordingly,
such options were cancelled and became available for re-issuance under the
2007
Incentive Plan.
Director
Compensation
We
do not
currently compensate our director for acting as such, although we may do so
in
the future, including with cash or equity. We reimburse our director for
reasonable expenses incurred in connection with his services as a director.
As
of September 30, 2008, our director did not receive any compensation from
us.
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
We
review
all relationships and transactions in which the company and our directors and
executive officers or their immediate family members are participants to
determine whether such persons have a direct or indirect material interest.
Transactions that we have determined to be directly or indirectly material
to us
or a related person are disclosed below. We believe each transaction is on
terms
no less favorable to us than the terms generally available to an unaffiliated
third-party under the same or similar circumstances.
Upon
the
closing of our reverse merger on December 12, 2007, Christopher Johnson, a
former director and former officer, and Lissa Johnson sold their holdings in
us
to us for $60,000 in cash and all of our historical operating assets prior
to
the closing of the reverse merger on December 12, 2007.
From
inception through January 22, 2008, we were a subtenant of a company owned
by
our sole director and chief executive officer. The rent that we paid was the
same as such affiliated entity was charged by its sublessor. From and after
January 22, 2008, we have been a direct subtenant of such sublessor. Management
believes that the rent that we have paid both prior and subsequent to January
22, 2008, is competitive with local market conditions.
On
July
14, 2008, we issued a promissory note in favor of Theodore Farnsworth, our
chief
executive officer, in the amount of $100,000 and, bearing annual interest of
2.42%, with an unspecified maturity period. The promissory note was repaid
on
July 22, 2008. On July 28, 2008, we issued a promissory note in favor of Mr.
Farnsworth in the amount of $100,000 and, bearing annual interest of 2.42%,
with
an unspecified maturity period.
On
August
14, 2008, we issued a promissory note in favor of Michael Wallace, our then
chief financial officer, in the principal amount of $45,000. The promissory
note
bore interest on the unpaid principal balance at a rate of 2.54% per annum.
All
principal and accrued interest on the promissory note was payable on demand.
We
repaid the promissory note on September 5, 2008.
Director
Independence
We
do not
currently have any independent directors.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth information with respect to the beneficial ownership
of our common stock as of October 7, 2008 by:
|
|
·
|
each
person known by us to beneficially own more than 5.0% of our common
stock;
|
|
|
·
|
our
named executive officer; and
|
|
|
·
|
our
sole director and executive officers as a
group.
|
The
percentages of common stock beneficially owned are reported on the basis of
regulations of the SEC governing the determination of beneficial ownership
of
securities. Under the rules of the SEC, 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 to direct the voting of the security, or investment power,
which includes the power to dispose of or to direct the disposition of the
security. Except as indicated in the footnotes to this table, each beneficial
owner named in the table below has sole voting and sole investment power with
respect to all shares beneficially owned and each person’s address is c/o Purple
Beverage Company, Inc. 450 East Las Olas Boulevard, Suite 830, Fort Lauderdale,
Florida 33301. As of October 7, 2008, we had 72,334,693 shares outstanding.
|
Name
and Address of Beneficial Owner
|
|
Number of Shares Beneficially
Owned(1)
|
|
Percentage
Beneficially
Owned(1)
|
|
|
Theodore
Farnsworth
|
|
|
18,750,493
|
(2)
|
|
25.92
|
%
|
|
|
|
|
|
|
|
|
|
|
Michael
Wallace
|
|
|
554,609
|
(3)
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
Barry
Honig
595
South Federal Highway, Suite 600
Boca
Raton, Florida 33432
|
|
|
20,026,235
|
|
|
9.98
|
%
(4)
|
|
|
|
|
|
|
|
|
|
|
All
directors and executive officers as a group (2 persons)
|
|
|
26,335,815
|
|
|
36.41
|
%
|
*
Less
than 1%.
|
(1)
|
Shares
of common stock beneficially owned and the respective percentages
of
beneficial ownership of common stock assumes the exercise of all
options,
warrants and other securities convertible into common stock beneficially
owned by such person or entity currently exercisable or exercisable
within
60 days of October 7, 2008. Shares issuable pursuant to the exercise
of
stock options and warrants exercisable within 60 days are deemed
outstanding and held by the holder of such options or warrants for
computing the percentage of outstanding common stock beneficially
owned by
such person, but are not deemed outstanding for computing the percentage
of outstanding common stock beneficially owned by any other
person.
|
|
(2)
|
Includes
3,405,000 shares of common stock issuable upon the exercise of options.
Mr. Farnsworth’s shares, options, and shares underlying options are
subject to a two-year “lock-up,” which expires on December 12, 2009.
During such lock-up period, without our prior written consent, which
may
be withheld, delayed, or denied for any reason or for no reason,
Mr.
Farnsworth is precluded from selling, transferring, or otherwise
disposing
of any of such shares. Notwithstanding the term of such lock-up,
upon our
prior written consent, which may be withheld, delayed, or denied
for any
reason or for no reason, during each calendar month of the last year
of
the lock-up period, Mr. Farnsworth may sell, pledge, hypothecate,
or
otherwise derive economic value from an amount of shares underlying
his
options equivalent to not more than 5% of such shares subject to
the
restrictions. In the event Mr. Farnsworth does not sell 5% of such
shares
in any of such months (assuming permission has been so granted),
such
unsold shares may be sold in any future month without reducing such
future
month’s 5% allowance (assuming permission has been so
granted).
|
|
|
|
|
(3)
|
Includes
554,609 shares of common stock issuable upon the exercise of options.
Mr.
Wallace’s options are subject to a two-year “lock-up,” which expires on
the second anniversary of grant, or March 19, 2010. Notwithstanding
the
term of such lock-up, Mr. Wallace, during each month of the second
year of
the lock-up, may sell, pledge, hypothecate, or otherwise derive economic
value from an amount of such shares equivalent to not more than 5%
of the
number of shares owned by him. In the event he does not sell 5% of
his
shares in any of such months, such unsold shares may be sold in any
future
month without reducing such future month’s 5% allowance. On September 15,
2008, Mr. Wallace was laid off by the Company, and on September 15,
2008,
Mr. Farnsworth was appointed as the principal financial and principal
accounting officer of the Company. We anticipate entering into
negotiations with Mr. Wallace to become a consultant of the Company
but
there can be no assurance that this will occur.
|
|
|
|
|
(4)
|
Includes
(i) 450,000 shares of common stock issuable upon the exercise of
warrants
held by Barry Honig, the president of GRQ Consultants, Inc., and
(ii)
2,209,999 shares of common stock held by GRQ Consultants, Inc, with
respect to which Barry Honig is the president. 1,450,000 of Mr. Honig’s
shares are subject to a two-year “lock-up,” which expires on December 12,
2009. During such lock-up period, without our prior written consent,
which
may be withheld, delayed, or denied for any reason or for no reason,
Mr.
Honig is precluded from selling, transferring, or otherwise disposing
of
any of such shares. Further, another 450,000 shares and 450,000 shares
underlying his warrants are subject to a lock-up period for six months,
which expired June 12, 2008; now that the six-month period has expired,
Mr. Honig may, upon our prior written consent, which may be withheld,
delayed, or denied for any reason or for no reason, during each calendar
month for the following six-months, sell, pledge, hypothecate, or
otherwise derive economic value from an amount of such shares equivalent
to not more than 5% of such shares subject to the restrictions. In
the
event Mr. Honig does not sell 5% of such shares in any of such months
(assuming permission has been so granted), such unsold shares may
be sold
in any future month without reducing such future month’s 5% allowance
(assuming permission has been so granted). With regard to the shares
held
of record by GRQ Consultants, Inc., 1,450,000 shares are subject
to a
lock-up period for one year, which expires December 12, 2008; after
the
expiration of the one-year period, GRQ Consultants, Inc. may, upon
our
prior written consent, which may be withheld, delayed, or denied
for any
reason or for no reason, during each calendar month for the following
six-months, sell, pledge, hypothecate, or otherwise derive economic
value
from an amount of such shares equivalent to not more than 5% of such
shares subject to the restrictions. In the event GRQ Consultants,
Inc.
does not sell 5% of such shares in any of such months (assuming permission
has been so granted), such unsold shares may be sold in any future
month
without reducing such future month’s 5% allowance (assuming permission has
been so granted).
|
|
|
Also
includes, pursuant to that certain consulting agreement dated September
15, 2008, between the Company and Mr. Honig (the “Honig Consulting
Agreement”), 683,000 shares of common stock issued under the Company’s
2007 Incentive Plan and registered under Form S-8 on September 15,
2008,
out of a total of 2,000,000 shares originally issued to Mr. Honig
pursuant
to the Company’s 2007 Incentive Plan. Also includes an aggregate of
1,899,998 shares of common stock issued to Mr. Honig and GRQ Consultants,
Inc. pursuant to certain anti-dilution adjustments pursuant to that
certain Amendment No. 2 to Subscription Agreement and to Common Stock
Purchase Warrant to Purchase Shares of Common Stock of the Company,
dated
September 10, 2008. Also includes, pursuant to the Honig Consulting
Agreement, 1,262,522 shares of common stock issued on October 7,
2008 out
of a total of 2,500,000 shares of common stock that Mr. Honig is
entitled
to receive thereunder. Mr. Honig has not received all 2,500,000 shares
of
common stock as of the date hereof since we are precluded by resolutions
adopted by our Board of Directors on September 12, 2008 from issuing
any
shares of capital stock or warrants to any person (including, in
connection with any anti-dilution adjustments), and from issuing
to any
consultant or advisor, shares of capital stock unless and until such
issuance, together with all other holdings, shall not cause such
person to
hold beneficially in excess of 9.99% of our then issued and outstanding
shares of common stock.
Excludes
12,800,000 shares of common stock issuable upon conversion of that
certain
convertible promissory note issued by us to Mr. Honig, dated October
10,
2008. Pursuant to the terms of the convertible promissory note, we
are
precluded from issuing any conversion shares of capital stock unless
and
until such issuance, together with all other holdings, shall not
cause
such person to hold beneficially in excess of 9.99% of our then issued
and
outstanding shares of common stock.
|
SELLING
STOCKHOLDERS
18,733,772
shares of common stock are being offered by this prospectus, all of which are
being registered for sale for the accounts of the selling security holders
and
include the following:
|
|
·
|
4,671,200
shares of common stock issued in private placements;
|
|
|
·
|
12,800,000
shares of common stock issuable upon the conversion of a certain
convertible promissory note with an outstanding principal balance
of
$640,000 as of October 7, 2008, based on a conversion price of $0.05
per
share; and
|
|
|
·
|
1,262,522
shares issued to a selling stockholder pursuant to a consulting
agreement.
|
The
shares of common stock referred to above are being registered to permit public
sales of the shares, and the selling stockholders may offer the shares for
resale from time to time pursuant to this prospectus. The selling stockholders
may also sell, transfer or otherwise dispose of all or a portion of their shares
in transactions exempt from the registration requirements of the Securities
Act
of 1933, as amended, or pursuant to another effective registration statement
covering those shares. We may from time to time include additional selling
stockholders in supplements or amendments to this prospectus.
The
table
below sets forth certain information regarding the selling stockholders and
the
shares of our common stock offered by them in this prospectus. None of the
selling stockholders have had a material relationship with us within the past
three years other than as described in the footnotes to the table below or
as a
result of their acquisition of our shares or other securities. To our knowledge,
subject to community property laws where applicable, the selling stockholders
have sole voting and investment power with respect to the shares of common
stock
set forth in the table below.
The
following table sets forth certain information known to us with respect to
the
beneficial ownership of our common stock by the selling stockholders as of
October 7, 2008, based on 72,334,693 shares of our common stock then
outstanding. The share numbers in the column labeled “Number of Shares Offered”
represent all of the shares that the selling stockholders may offer in this
prospectus. The table assumes that the selling stockholders exercise all of
their warrants. We are unable to determine the exact number of shares that
will
actually be sold. We do not know how long the selling stockholders will hold
the
shares before selling them. Other than our agreement with the selling
stockholders to maintain the effectiveness of the registration statement of
which this prospectus forms a part until all shares covered hereby have been
sold, or may be sold without volume restrictions pursuant to Rule 144 under
the
Securities Act of 1933, as amended, we currently have no agreements,
arrangements or understandings with the selling stockholders regarding the
sale
of any of their shares.
|
Name
of Selling Stockholder
|
|
Number of
Shares
Beneficially
Owned
Prior to Offering
|
|
|
Maximum
Number of Shares
to
be Sold
Pursuant to
this
Prospectus
|
|
Number
of
Shares
Beneficially
Owned
After Offering
(1)
|
|
|
Percentage
Owned After Offering
|
|
Barry
Honig
(2)
|
|
20,026,235
(3)
|
|
|
14,062,522
(4)
|
|
5,963,713
(5)
|
|
|
9.98%
(6)
|
|
Tobanna
Enterprises Corp
.(7)
|
|
1,330,950
|
|
|
571,000
|
|
759,950
|
|
|
1.05%
|
|
Chase
Mortgage Inc
.(8)
|
|
1,170,797
|
|
|
420,000
|
|
750,797
|
|
|
1.03%
|
|
Peter
Lee
|
|
560,000
|
|
|
320,000
|
|
240,000
|
|
|
*
|
|
Chase
Financing Inc
.(9)
|
|
485,000
|
|
|
227,000
|
|
258,000
|
|
|
*
|
|
Shelley
Koffler
|
|
420,000
|
|
|
240,000
|
|
180,000
|
|
|
*
|
|
Mangrove
Bay, Inc
.(10)
|
|
347,600
|
|
|
252,800
|
|
94,800
|
|
|
*
|
|
Nachum
Stein
|
|
630,050
|
|
|
263,200
|
|
366,850
|
|
|
*
|
|
Brio
Capital L.P
.(11)
|
|
366,000
|
|
|
206,600
|
|
159,400
|
|
|
*
|
|
Brian
Silber
|
|
255,000
|
|
|
163,200
|
|
91,800
|
|
|
*
|
|
Susan
S. Auerbach
|
|
280,000
|
|
|
160,000
|
|
120,000
|
|
|
*
|
|
Daniel
Brauser
|
|
840,000
|
|
|
160,000
|
|
680,000
|
|
|
*
|
|
FB
Capital Partners
(12)
|
|
552,500
|
|
|
120,000
|
|
432,500
|
|
|
*
|
|
Alan
Horowitz
|
|
875,000
|
|
|
200,000
|
|
675,000
|
|
|
*
|
|
Irwin
L. Zalcberg Profit Sharing Plan UAD 8/15/1984
|
|
388,500
|
|
|
120,000
|
|
268,500
|
|
|
*
|
|
Harvey
Kesner
|
|
657,249
(13)
|
|
|
107,000
(14)
|
|
550,429
(15)
|
|
|
*
|
|
Robert
Samans and Barbara Samans
|
|
140,000
|
|
|
80,000
|
|
60,000
|
|
|
*
|
|
Melechdavid,
Inc
.(16)
|
|
590,000
|
|
|
80,000
|
|
51,000
|
|
|
*
|
|
Michael
Lustigman
|
|
125,000
|
|
|
80,000
|
|
45,000
|
|
|
*
|
|
Andrea
S. Groussman
|
|
140,000
|
|
|
80,000
|
|
60,000
|
|
|
*
|
|
Michael
L. Feinman
|
|
140,000
|
|
|
80,000
|
|
60,000
|
|
|
*
|
|
Chocolate
Chip Investments L.P
.(17)
|
|
140,000
|
|
|
80,000
|
|
60,000
|
|
|
*
|
|
David
Adelman
|
|
225,000
|
|
|
40,000
|
|
185,000
|
|
|
*
|
|
Phyllis
Ulreich
|
|
70,000
|
|
|
40,000
|
|
30,000
|
|
|
*
|
|
Susan
E. Saxton
|
|
70,000
|
|
|
40,000
|
|
30,000
|
|
|
*
|
|
Beverly
Pinnas
|
|
70,000
|
|
|
40,000
|
|
30,000
|
|
|
*
|
|
Alfred
G. Gladstone
|
|
70,000
|
|
|
40,000
|
|
30,000
|
|
|
*
|
|
Harold
E. Gelber and Patricia E. Gelber Trustees Harold E. Gelber Revocable
Trust
|
|
70,000
|
|
|
40,000
|
|
30,000
|
|
|
*
|
|
Robert
Millet and Chaya Millet
|
|
107,500
|
|
|
32,000
|
|
75,500
|
|
|
*
|
|
Steven
Friedman and Batsheva Friedman
|
|
99,450
|
|
|
28,800
|
|
70,650
|
|
|
*
|
*Represents
less than 1%.
|
(1)
|
Represents
the amount of shares that will be held by the selling stockholders
after
completion of this offering based on the assumptions that (a) all
shares
registered for sale by the registration statement of which this
prospectus
is part will be sold and (b) that no other shares of our common
stock are
acquired or sold by the selling stockholders prior to completion
of this
offering. However, the selling stockholders may sell all, some
or none of
the shares offered pursuant to this prospectus and may sell other
shares
of our common stock that they may own pursuant to another registration
statement under the Securities Act of 1933, as amended, or sell
some or
all of their shares pursuant to an exemption from the registration
provisions of the Securities Act of 1933, as amended, including
under Rule
144.
|
|
(2)
|
Barry
Honig is the president and a control person of GRQ Consultants,
Inc., and,
in such capacity, may be deemed to have voting and dispositive
power over
the securities held for the account of GRQ Consultants,
Inc.
|
|
(3)
|
Includes
(i) 450,000 shares of common stock issuable upon the exercise of
warrants,
(ii) 3,040,713 shares of common stock held by GRQ Consultants,
Inc, (iii)
3,735,522 shares of common stock held by Barry Honig and (iv) 12,800,000
shares of common stock issuable upon conversion of a promissory
note.
|
|
(4)
|
Includes
(i) 1,262,522 shares of common stock held by Barry Honig and (ii)
includes
12,800,000
shares of common stock issuable upon conversion of that certain
convertible promissory note issued by us to Mr. Honig, dated October
10,
2008. Pursuant to the terms of the convertible promissory note,
we are
precluded from issuing any conversion shares of capital stock unless
and
until such issuance, together with all other holdings, shall not
cause
such person to hold beneficially in excess of 9.99% of our then
issued and
outstanding shares of common stock
.
|
|
(5)
|
Includes
(i) 450,000 shares of common stock issuable upon the exercise of
warrants,
(ii) 3,040,713 shares of common stock held by GRQ Consultants,
Inc., (iii)
2,113,000 shares of common stock held by Barry Honig and (iv) excludes
12,800,000 shares of common stock issuable upon conversion of that
certain
convertible promissory note issued by us to Mr. Honig, dated October
10,
2008. Pursuant to the terms of the convertible promissory note,
we are
precluded from issuing any conversion shares of capital stock unless
and
until such issuance, together with all other holdings, shall not
cause
such person to hold beneficially in excess of 9.99% of our then
issued and
outstanding shares of common stock.
|
|
(6)
|
Excludes
12,800,000 shares of common stock issuable upon conversion of that
certain
convertible promissory note issued by us to Mr. Honig, dated October
10,
2008. Pursuant to the terms of the convertible promissory note,
we are
precluded from issuing any conversion shares of capital stock unless
and
until such issuance, together with all other holdings, shall not
cause
such person to hold beneficially in excess of 9.99% of our then
issued and
outstanding shares of common stock.
|
|
(7)
|
David
Rosenbaum is a control person of Tobanna Enterprises Corp and,
in such
capacity, may be deemed to have voting and dispositive power over
the
securities held for the account of this selling
stockholder.
|
|
(8)
|
Mark
Herskovitz is vice president and a control person of Chase Mortgage,
Inc.,
and, in such capacity, may be deemed to have voting and dispositive
power
over the securities held for the account of this selling
stockholder.
|
|
(9)
|
Robert
Herskovitz is the president and a control person of Chase Financing,
Inc.,
and, in such capacity, may be deemed to have voting and dispositive
power
over the securities held for the account of this selling
stockholder.
|
|
(10)
|
Arthur
Jones is the director and a control person of Mangrove Bay,
Inc., and, in such capacity, may be deemed to have voting and dispositive
power over the securities held for the account of this selling
stockholder.
|
|
(11)
|
Shaye
Hirsch is the managing member of Brio Capital Management, LLC,
the general
partner of Brio Capital L.P., and, in such capacity, may be deemed
to have
voting and dispositive power over the securities held for the account
of
this selling stockholder.
|
|
(12)
|
Michael
Forman is the President and a control person of FB Capital Partners
and,
in such capacity, may be deemed to have voting and dispositive
power over
the securities held for the account of this selling
stockholder.
|
|
(13)
|
Includes
(i) 339,750 shares of common stock held by Harvey Kesner and (ii)
150,832
shares of common stock and immediately exercisable options to purchase
166,667 shares held by Paradox Capital Partners, LLC, with respect
to
which Harvey Kesner is the sole member and has voting and dispositive
power over the securities held for the account of this selling
stockholder. Mr. Kesner is a member of Haynes and Boone, LLP, and
counsel
to the Company.
|
|
(14)
|
Represents
107,400 shares of common stock held by Harvey Kesner.
|
|
(15)
|
Includes
(i) 232,750 shares of common stock held by Harvey Kesner and (ii)
150,832
shares of common stock and immediately exercisable options to purchase
166,667 shares held by Paradox Capital Partners, LLC.
|
|
(16)
|
Mark
Groussman is the president and control person of Melechdavid, Inc.,
and in
such capacity may be deemed to have voting and dispositive power
over the
securities held for the account of this selling
stockholder.
|
|
(17)
|
Stratum
Wealth Management LLC has the discretionary right to make investment
decisions with respect to the shares held by Chocolate Chip Investments
LP. Charles B. Ganz is a principal of Stratum Wealth Management
LLC and,
in such capacity, may be deemed to have voting and dispositive
power over
the securities held for the account of this selling
stockholder.
|
We
have
been notified by each selling stockholder that he, she or it is not a not
a
broker-dealer or affiliate of a broker-dealer. Each selling stockholder has
informed us that he, she or it did not have at the time he, she or it was
issued
the common stock, any agreements, understandings or arrangements with any
other
persons, directly or indirectly, to dispose of his, her or its
securities.
DESCRIPTION
OF SECURITIES
We
are
authorized to issue 412,500,000 shares of common stock. On October 7, 2008,
there were 72,334,693 shares of common stock issued and
outstanding.
Common
Stock
The
holders of common stock are entitled to one vote per share. Our articles of
incorporation do not provide for cumulative voting. The holders of our common
stock are entitled to receive ratably such dividends, if any, as may be declared
by the board of directors out of legally available funds. Upon liquidation,
dissolution or winding-up, the holders of our common stock are entitled to
share
ratably in all assets that are legally available for distribution. The holders
of our common stock have no preemptive, subscription, redemption or conversion
rights. The rights, preferences and privileges of holders of our common stock
are subject to, and may be adversely affected by, the rights of the holders
of
any series of preferred stock, which may be designated solely by action of
the
board of directors and issued in the future.
Warrants
May
2007 Warrants
From
May
2007 to July 2007, we issued investors five year warrants to purchase up to
an
aggregate of 300,000 shares of common stock at an exercise price of $2.00 per
share. The exercise price of the warrants and the number of shares issuable
upon
exercise of the warrants are subject to adjustments for stock splits,
combinations or similar events. These warrants also contain a callable feature
requiring their exercise upon 30 days prior written notice. If a warrant holder
fails to exercise a warrant within 30 days of receiving a call notice, the
warrants held by such warrant holder may be purchased by us for a purchase
price
equal to $.01 per warrant share. These warrants are exercisable only for cash.
In
connection with Amendment No. 2 to the December 2007 Subscription Agreement
discussed below, the foregoing warrants were cancelled.
December
2007 Investor Warrants
In
connection with our December 12, 2007 private placement, we entered into the
December 2007 Subscription Agreement by and among us and holders listed therein.
Pursuant to the December 2007 Subscription Agreement, we issued to such holders
shares of the Company’s common stock, and issued five year warrants (“2007
Warrants”) to purchase up to an aggregate of 6,030,000 shares of common stock
that entitled the holders to purchase a certain number of the Company’s common
stock (the “Underlying Shares”) at an exercise price of $2.00 per share.
The
exercise price of the 2007 Warrants and the number of shares issuable upon
exercise of the 2007 Warrants are subject to adjustments for stock splits,
combinations or similar events. We are prohibited from effecting the exercise
of
the 2007 Warrants to the extent that as a result of such exercise the holder
of
the exercised 2007 Warrants beneficially owns more than 4.99% (or, if such
limitation is waived by the holder upon no less than 61 days prior notice to
us,
9.99%) in the aggregate of the issued and outstanding shares of our common
stock
calculated immediately after giving effect to the issuance of shares of our
common stock upon the exercise of the 2007 Warrants. If at any time there is
no
effective registration statement registering, or no current prospectus available
for, the resale of the shares of common stock underlying the 2007 Warrants,
then
the holders of such warrants have the right to exercise the 2007 Warrants by
means of a cashless exercise.
If
within
seven business days from date on which the exercise of the 2007 Warrants shall
be effected (the “Warrant Share Delivery Date”) we fail to deliver to a holder
of the 2007 Warrants certificates representing the shares into which such 2007
Warrants are convertible, and if after such Warrant Share Delivery Date the
holder of the 2007 Warrants is required by its brokerage firm to purchase,
or
the holder’s brokerage firm otherwise purchases, shares of our common stock to
deliver in satisfaction of a sale by such holder of the shares of our common
stock which the holder was entitled to receive upon the exercise, then we are
obligated to pay in cash to the holder the amount by which (x) the holder’s
total purchase price for our common stock so purchased exceeds (y) the product
of (1) the aggregate number of shares of common stock that such holder was
entitled to receive from the exercise multiplied by (2) the then effective
exercise price of the 2007 Warrant, together with interest thereon at a rate
of
15% per annum, accruing until such amount and any accrued interest thereon
is
paid in full.
The
2007
Warrants also contain a callable feature requiring their automatic exercise
if
the market price of our common stock is equal to or in excess of 175% of the
then effective exercise price for a period of 20 consecutive trading days,
the
average volume of the common stock during such period has been at least 150,000
shares per day and, the shares issuable upon exercise of the 2007 Warrant are
freely tradable without limitation pursuant to Rule 144 of the Securities Act
of
1933, as amended, and there is an effective registration statement covering
the
resale of the Underlying Shares. If a warrant holder fails to exercise a 2007
Warrant within 14 days of receiving notice of our satisfaction of these
automatic exercise conditions, the 2007 Warrants held by such warrant holder
shall expire.
As
of
September 10, 2008, the Company entered into amendments to the terms of the
December 2007 Subscription Agreement and the 2007 Warrants (“Amendment No. 2”).
As a result of the Amendment No. 2: (i) the Company issued newly-issued shares
of restricted common stock, in an amount equal to 15% of the number of shares
into which each unexercised 2007 Warrants outstanding was exercisable, and
each
2007 Warrant (other than 2007 Warrants exercised or exercisable for registered
shares) will be forfeited and cancelled; (ii) the exercise price of all 2007
Warrants registered with the SEC has been adjusted to $0.40 per share; and
(iii)
the Company issued all previous purchasers of shares of common stock at prices
over $0.40 per share additional shares of common stock so that their effective
purchase price per share will be equal to $0.40 per share.
Accordingly,
as of October 3, 2008, after giving effect to Amendment No. 2, the Company
issued 7,523,447 shares of common stock and after giving effect of such
issuance, the Company’s outstanding common stock increased to 68,374,896 shares.
In addition, the Company has issued warrants to purchase 4,624,200 shares at
an
exercise price of $0.40.
In
connection with Amendment No. 2, the Company was able to agree to
the assignment and exercise of 2007 Warrants at adjusted exercise prices to
be agreed by negotiation, or $0.40 per share as a maximum exercise price. In
addition, the Company agreed to pursue a registered offering of its
securities and to file this registration statement with the SEC and use its
best
efforts to submit an American Stock Exchange or other national exchange listing
application prior to January 30, 2009. The Company does not presently qualify
for approval of an original listing application with any national securities
exchange and no 2007 Warrants have been exercised.
On
October 6, 2008, the Company sought, and as of October 10, 2008, obtained the
requisite approvals to amend the December 2007 Subscription Agreement and the
2007 Warrant (the “October 2008 Amendments”). In addition, as discussed below,
the Company issued an unsecured convertible promissory note to an existing
lenders who cancelled his existing promissory notes and advanced additional
finds to the Company.
As
a
result of the October 2008 Amendments, the effective purchase price of all
shares purchased by the Company’s December 2007 and later investors was adjusted
to $0.10 per share through the issuance of new shares. The exercise price of
the
Company’s warrants was adjusted to $0.10. In addition, as a result of the
October 2008 Amendments, (i) there are no further restrictions on filing any
registration statement by the Company and Section 9(p) of the subscription
Agreement is deemed to be intentionally deleted; (ii) all contractual lockups
on
sales of the company’s shares are removed; and (iii) all most favored
nations and price protection features applicable to the Company's shares
and warrants (including, without limitation, those set forth in Section 12
of
the December 2007 Subscription Agreement) are waived in connection with the
issuance of the Convertible Promissory Notes. In addition, the Company obtained
written consent and/or verbal representations that the Holders had agreed that
(x) each Holder consented to the assignment of the 2007 Warrants, the underlying
shares of common stock that have been registered for resale with the SEC, and
all other transactions, amendments, modifications and waivers to the December
2007 Subscription Agreement and 2007 Warrants contemplated by the October 2008
Amendments, provided the exercise price of such 2007 Warrants is determined
by
negotiation by the Company and the Holder of such 2007 Warrants; and (y) all
provisions of Amendment No. 2 or the assignment which made reference to a
specific exercise price for 2007 Warrants was amended to delete any such
reference, and approvals therein do not require a specific exercise price of
2007 Warrants following the Effective Date (as defined in Amendment No.
2).
2008
Convertible Promissory Note
On
October 10, 2008, an existing lender of the Company cancelled promissory notes
evidencing an aggregate principal amount of $500,000 of the Company’s
indebtedness and funded an additional $140,000 to the Company. In connection
with the foregoing, the Company issued a convertible promissory note in a
principal amount of $640,000. The convertible promissory note matures on October
10, 2009 and bears interest at a rate of 5% per annum. Under the terms of the
convertible promissory note, any overdue principal and interest will bear
interest at a rate equal to the greater of (i) 10% or (ii) the highest rate
permitted by applicable law. We will be required to pay overdue principal and
interest on demand. At the option of the holder, upon written notice to the
Company, the outstanding principal balance and accrued interest evidenced by
the
convertible promissory note is convertible into shares of our common stock
at a
conversion price of $0.05 per share. As noted above, as a result of the October
2008 Amendments, the effective purchase price of all shares purchased by the
Company’s December 2007 and later investors was adjusted to $0.10 per share
through the issuance of new shares.
Accordingly,
as of October 10, 2008, after giving effect to the foregoing, the Company is
obligated to issue 47,256,561 shares of common stock and after giving effect
of
such issuance, the Company’s outstanding common stock will increase to
119,591,254 shares.
December
2007 Placement Agent Warrants
In
connection with our private placement completed on December 12, 2007, we issued
warrants to purchase up to an aggregate of 731,900 shares of common stock to
Palladium Capital Advisors, LLC, our placement agent, and an affiliate of
Palladium Capital Advisors, LLC. Such warrants have the same terms as the
warrants issued to the investors in the private placement completed on December
12, 2007, including the right to exercise the warrants by means of a cashless
exercise if there is no effective registration statement registering, or no
current prospectus available for, the resale of the shares of common stock
underlying the warrants at the time.
April
2008 Warrants
On
April
2, 2008, in connection with the exercise of the December 2007 investor warrants
to acquire 934,000 shares of common stock, we issued the holders of such
exercising holders warrants to purchase up to an aggregate of 467,000 shares
of
common stock. Such warrants have the same terms as the warrants issued to the
investors in the private placement completed on December 12, 2007, except that
the initial exercise price of such April 2, 2008 warrants is $3.50 per share.
In
addition, as with the December 2007 investor warrants, if at any time there
is
no effective registration statement registering, or no current prospectus
available for, the resale of the shares of common stock underlying the warrants,
then the holders of these warrants have the right to exercise the warrants
by
means of a cashless exercise.
Please
see the disclosure provided in the below section “Lock-up Agreements” for
certain restrictions on the sale, transfer, exercise or other disposition of
the
herein referenced warrants.
Limitation
on Certain Issuances
On
September 12, 2008, our Board of Directors adopted a resolution precluding
us
from issuing any shares of capital stock or warrants to any person (including,
in connection with any anti-dilution adjustments), and precluding us from
issuing to any consultant or advisor, shares of capital stock unless and until
such issuance, together with all other holdings, shall not cause such person
to
hold beneficially in excess of 9.99% of our then issued and outstanding shares
of common stock.
Registration
Rights
December
2007 Private Placement
On
April
2, 2008, we entered into a registration rights agreement with those persons
who
agreed to exercise our December 2007 investor warrants pursuant to which we
agreed to provide certain registration rights with respect to the common stock
issued. Specifically, we agreed to file a registration statement (of which
this
prospectus forms a part) with the SEC on or before May 2, 2008 covering the
resale of the common stock issued pursuant to the warrant exercises and to
cause
such registration statement to be declared effective by the SEC on or before
June 30, 2008. If (i) the registration statement is not filed on or before
May
2, 2008 or (ii) the registration statement is not declared effective by the
SEC
on or before June 30, 2008, then we are subject to liquidated damage payments
to
the holders of the exercised warrants in an amount equal to 1.5% of aggregate
exercise price of the exercised warrants pro rata for every 30 days of
delinquency. However, if the registration statement is declared effective by
the
SEC on or before June 30, 2008, all liquidated damages that we may be obligated
to pay for our failure to file a registration statement on or prior to May
2,
2008 are deemed to be automatically waived.
Pursuant
to an amendment to our December 2007 Subscription Agreement and a separate
waiver agreement, we have also agreed to register an additional 1,893,450 shares
of common stock issued in our December 12, 2007 private placement and 1,893,450
shares of common stock underlying warrants issued our December 12, 2007 private
placement. The holders of these shares, however, are not entitled to any
liquidated damages should we fail to file a registration statement with the
SEC
on or before May 2, 2008 or cause a registration statement to be declared
effective by the SEC on or before June 30, 2008.
April
2008 Private Placement
On
April
2, 2008, in connection with a private placement, we entered into a registration
rights agreement with the investors, pursuant to which we agreed to provide
certain registration rights with respect to the common stock issued.
Specifically, we agreed to file a registration statement (of which this
prospectus forms a part) with the SEC on or before May 2, 2008 covering the
resale of the common stock issued and to cause such registration statement
to be
declared effective by the SEC on or before June 30, 2008. If (i) the
registration statement is not filed on or before May 2, 2008 or (ii) the
registration statement is not declared effective by the SEC on or before June
30, 2008, then we are subject to liquidated damage payments to the holders
of
the exercising warrant holders in an amount equal to 1.5% of aggregate amount
paid for the shares pro rata for every 30 days of delinquency. However, if
the
registration statement is declared effective by the SEC on or before June 30,
2008, all liquidated damages that we may be obligated to pay for our failure
to
file a registration statement on or prior to May 2, 2008 are deemed to be
automatically waived.
Consulting
Agreement
Pursuant
to a consulting agreement that we entered into on September 15, 2008, we have
granted piggyback registration rights to a consultant with respect to 2,500,000
shares of our common stock
,
of
which 1,262,522 shares have been issued to the consultant as of the date hereof,
and are being registered for resale by this prospectus. The consultant has
not
received all 2,500,000 shares of our common stock as of the date hereof since
we
are precluded by resolutions adopted by our Board of Directors on September
12,
2008 from issuing any shares of capital stock or warrants to any person
(including, in connection with any anti-dilution adjustments), and from issuing
to any consultant or advisor, shares of capital stock unless and until such
issuance, together with all other holdings, shall not cause such person to
hold
beneficially in excess of 9.99% of our then issued and outstanding shares of
common stock.
Lock-up
Agreements
On
December 12, 2007, the holders of 26,395,452 shares of our common stock,
including Theodore Farnsworth, our chief executive officer and president,
entered into lock-up agreements pursuant to which they agreed not to sell,
transfer or otherwise dispose of any shares of common stock or any options,
warrants or other rights to purchase shares of common stock until December
12,
2009. Any stockholder, including any officer, desiring to sell any of these
shares during the lock-up period must send a letter to us requesting a waiver
of
the restrictions against transfer provided in the lock-up agreements. Upon
receipt of such a letter, our chief executive officer, Theodore Farnsworth,
will
determine whether to approve or deny the request.
On
December 12, 2007, the holders of 7,812,477 shares of our common stock entered
into lock-up agreements pursuant to which they agreed not to sell, transfer
or
otherwise dispose of any shares of common stock or any options, warrants or
other rights to purchase shares of common stock until December 12, 2009. We
have
agreed not to waive our rights under the lock-up agreements during the first
year of their term. However, these holders, during each month of the second
year
of the lock-up term may, subject to our prior written consent, sell, pledge,
hypothecate, or otherwise derive economic value from an amount of such shares
equivalent to not more than five percent of the number of shares owned by each
such holder. In the event any such holder does not sell five percent of such
holder’s shares in any of such months (assuming permission has been so granted),
such unsold shares may be sold in any future month without reducing such future
month’s five percent allowance (assuming permission has been so granted). From
and after the beginning of the 24
th
month,
none of such holders is subject to any contractual limitations on the
disposition of such shares.
On
December 12, 2007, six holders of 2,822,494 shares of our common stock entered
into lock-up agreements pursuant to which they agreed not to sell, transfer
or
otherwise dispose of any shares of common stock or any options, warrants or
other rights to purchase shares of common stock until June 12, 2008. During
each
of the six months following the expiration of such lock-up period, each of
the
holders of such shares may sell, pledge, hypothecate, or otherwise derive
economic value from an amount of such shares equivalent to not more than five
percent of the number of shares owned by each such holder. In the event any
such
holder does not sell five percent of such holder’s shares in any of such months
(assuming permission has been so granted), such unsold shares may be sold in
any
future month without reducing such future month’s five percent allowance
(assuming permission has been so granted). From and after the beginning of
the
13th month, none of such holders is subject to any contractual limitations
on
the disposition of such shares.
The
terms
of the market standoff adopted pursuant to the Amendment No. 2 to the December
2007 Subscription Agreement also provide that the subscribers’ agreements to
refrain from sales at the request of an underwriter or placement agent will
be
limited to a maximum of nine months. The market standoff will expire no later
than 90 days following the date on which the Company enters into an underwriting
or placement agent agreement for a public offering. There is also a condition
that the Company’s officers, directors and major shareholders will enter into
equivalent market standoff agreements. In the event of any modification or
release, all subscribers subject to the market standoff will benefit on a pro
rata basis and be treated comparably.
In
accordance with the October 2008 Amendments to the December 2007 Subscription
Agreement and the 2007 Warrant, our lock-up agreements have been
terminated.
Rule
144 Damages
Pursuant
to the subscription agreement from our December 12, 2007 private placement,
if
those investors are not allowed to resell certain shares of common stock or
shares of common stock underlying warrants issued in such private placement,
without limitation, pursuant to Rule 144 of the Securities Act of 1933, as
amended, for any reason except for an investor’s status as an affiliate or
“control person”, then we shall pay such investors liquidated damages equal to
1.5% of the purchase price for all such securities that are not subject to
any
lock-up provisions for each 30 day period of delinquency. The resale rights
of
such investors are limited to 5% per month (for the second six months after
closing) of the shares held by them, as increased by any shares purchased by
them through the exercise of their private placement warrants.
Anti-Takeover
Effect of Nevada Law and Certain By-Law Provisions
Our
bylaws contain provisions that could have the effect of discouraging potential
acquisition proposals or tender offers or delaying or preventing a change of
control of our company. These provisions are as follows:
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they
provide that special meetings of stockholders may be called only
by our
chairman, our president or by a resolution adopted by a majority
of our
board of directors; and
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they
do not include a provision for cumulative voting in the election
of
directors. Under cumulative voting, a minority stockholder holding
a
sufficient number of shares may be able to ensure the election of
one or
more directors. The absence of cumulative voting may have the effect
of
limiting the ability of minority stockholders to effect changes in
our
board of directors.
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In
the
future we may also become subject to Nevada’s control share law. A corporation
is subject to Nevada’s control share law if it has more than 200 stockholders,
at least 100 of whom are stockholders of record and residents of Nevada, and
if
the corporation does business in Nevada or through an affiliated
corporation.
The
law
focuses on the acquisition of a “controlling interest” which means the ownership
of outstanding voting shares is sufficient, but for the control share law,
to
enable the acquiring person to exercise the following proportions of the voting
power of the corporation in the election of directors: (1) one-fifth or more
but
less than one-third, (2) one-third or more but less than a majority or (3)
a
majority or more. The ability to exercise voting power may be direct or
indirect, as well as individual or in association with others.
The
effect of the control share law is that the acquiring person, and those acting
in association with that person, obtain only voting rights in the control shares
as are conferred by a resolution of the stockholders of the corporation,
approved at a special or annual meeting of stockholders. The control share
law
contemplates that voting rights will be considered only once by the other
stockholders. Thus, there is no authority to take away voting rights from the
control shares of an acquiring person once those rights have been approved.
If
the stockholders do not grant voting rights to the control shares acquired
by an
acquiring person, those shares do not become permanent non-voting shares. The
acquiring person is free to sell its shares to others. If the buyers of those
shares themselves do not acquire a controlling interest, their shares do not
become governed by the control share law.
If
control shares are accorded full voting rights and the acquiring person has
acquired control shares with a majority or more of the voting power, any
stockholder of record, other than an acquiring person, who has not voted in
favor of approval of voting rights is entitled to demand fair value for the
stockholder’s shares.
Nevada’s
control share law may have the effect of discouraging corporate
takeovers.
In
addition to the control share law, Nevada has a business combination law, which
prohibits some business combinations between Nevada corporations and “interested
stockholders” for three years after the “interested stockholder” first becomes
an “interested stockholder” unless the corporation’s board of directors approves
the combination in advance. For purposes of Nevada law, an “interested
stockholder” is any person who is (1) the beneficial owner, directly or
indirectly, of ten percent or more of the voting power of the outstanding voting
shares of the corporation, or (2) an affiliate or associate of the corporation
and at any time within the three previous years was the beneficial owner,
directly or indirectly, of ten percent or more of the voting power of the then
outstanding shares of the corporation. The definition of the term “business
combination” is sufficiently broad to cover virtually any kind of transaction
that would allow a potential acquirer to use the corporation’s assets to finance
the acquisition or otherwise to benefit its own interests rather than the
interests of the corporation and its other stockholders.
The
effect of Nevada’s business combination law is to potentially discourage parties
interested in taking control of our company from doing so if it cannot obtain
the approval of our board of directors.
Indemnification
of Directors and Officers
Sections
78.7502 and 78.751 of the Nevada Revised Statutes provide us with the power
to
indemnify any of our directors and officers. The director or officer must have
conducted himself/herself in good faith and reasonably believe that his/her
conduct was in, or not opposed to, our best interests. In a criminal action,
the
director or officer must not have had reasonable cause to believe his/her
conduct was unlawful.
Under
Section 78.751 of the Nevada Revised Statutes, advances for expenses may be
made
by agreement if the director or officer affirms in writing that he/she believes
he/she has met the standards and will personally repay the expenses if it is
determined the officer or director did not meet the standards.
Our
bylaws include an indemnification provision under which we have the power to
indemnify, to the fullest extent permitted under Nevada law, our current and
former directors and officers, or any person who serves or served at our request
for our benefit as a director or officer of another corporation or our
representative in a partnership, joint venture, trust or other enterprise,
against all expenses, liability and loss reasonably incurred by reason of being
or having been a director, officer or representative of ours or any of our
subsidiaries. We may make advances for expenses upon receipt of an undertaking
by or on behalf of the director or officer to repay the amount if it is
ultimately determined by a court of competent jurisdiction that he/she is not
entitled to be indemnified by us.
We
are
also permitted to apply for insurance on behalf of any director, officer,
employee or other agent for liability arising out of his actions.
Disclosure
of Commission Position on Indemnification for Securities Act
Liabilities
Insofar
as indemnification for liabilities arising under the Securities Act of 1933,
as
amended, may be permitted to our directors, officers and persons controlling
us,
we have been advised that it is the SEC’s opinion that such indemnification is
against public policy as expressed in the Securities Act of 1933, as amended,
and is, therefore, unenforceable.
PLAN
OF DISTRIBUTION
Securities
Offered by the Company
We
may
sell the common stock offered through this prospectus: (i) to or
through placement agents or dealers, (ii) directly to purchasers,
including our affiliates, (iii) through agents, or (iv) through a
combination of any these methods. The common stock will be sold at a
price per share of $
. This prospectus will be updated to include the following information:
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the
names of any placement agents;
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the
terms of any agreement we enter into with any placement
agent;
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the
purchase price of the common stock offered by
us;
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the
net proceeds from the sale of the common
stock;
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any
delayed delivery arrangements;
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any
underwriting discounts, commissions and other items constituting the
placement agents’ compensation;
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any
discounts or concessions allowed or reallowed or paid to dealers;
and
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any
commissions paid to agents.
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Securities
Offered By the Selling Stockholders
The
selling stockholders of the common stock and any of their pledgees, assignees
and successors-in-interest may, from time to time, sell any or all of their
shares of common stock on the OTC Bulletin Board or any other stock exchange,
market or trading facility on which the shares are traded or in private
transactions. These sales may be at fixed or negotiated prices. The selling
stockholders may use any one or more of the following methods when selling
shares:
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ordinary
brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
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block
trades in which the broker-dealer will attempt to sell the shares
as agent
but may position and resell a portion of the block as principal to
facilitate the transaction;
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purchases
by a broker-dealer as principal and resale by the broker-dealer for
its
account;
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an
exchange distribution in accordance with the rules of the applicable
exchange;
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privately
negotiated transactions;
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settlement
of short sales entered into after the effective date of the registration
statement of which this prospectus is a
part;
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broker-dealers
may agree with the selling stockholders to sell a specified number
of such
shares at a stipulated price per
share;
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through
the writing or settlement of options or other hedging transactions,
whether through an options exchange or
otherwise;
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a
combination of any such methods of sale;
or
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any
other method permitted pursuant to applicable
law.
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The
selling stockholders may also sell shares under Rule 144 under the Securities
Act of 1933, as amended, if available, rather than under this
prospectus.
Broker-dealers
engaged by the selling stockholders may arrange for other brokers-dealers to
participate in sales. Broker-dealers may receive commissions or discounts from
the selling stockholders (or, if any broker-dealer acts as agent for the
purchaser of shares, from the purchaser) in amounts to be negotiated, but,
except as set forth in a supplement to this prospectus, in the case of an agency
transaction not in excess of a customary brokerage commission in compliance
with
FINRA Rule 2440; and in the case of a principal transaction a markup or markdown
in compliance with FINRA IM-2440.
In
connection with the sale of the common stock or interests therein, the selling
stockholders may enter into hedging transactions with broker-dealers or other
financial institutions, which may in turn engage in short sales of the common
stock in the course of hedging the positions they assume. The selling
stockholders may also sell shares of the common stock short and deliver these
securities to close out their short positions, or loan or pledge the common
stock to broker-dealers that in turn may sell these securities. The selling
stockholders may also enter into option or other transactions with
broker-dealers or other financial institutions or the creation of one or more
derivative securities which require the delivery to such broker-dealer or other
financial institution of shares offered by this prospectus, which shares such
broker-dealer or other financial institution may resell pursuant to this
prospectus (as supplemented or amended to reflect such
transaction).
The
selling stockholders and any broker-dealers or agents that are involved in
selling the shares may be deemed to be “underwriters” within the meaning of the
Securities Act of 1933, as amended, in connection with such sales. In such
event, any commissions received by such broker-dealers or agents and any profit
on the resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act of 1933, as amended. Each
selling stockholder has informed us that he, she or it does not have any written
or oral agreement or understanding, directly or indirectly, with any person
to
distribute the common stock. In no event shall any broker-dealer receive fees,
commissions and markups which, in the aggregate, would exceed eight percent
(8%).
We
are
required to pay certain fees and expenses incurred by us incident to the
registration of the shares. We have agreed to indemnify the selling stockholders
against certain losses, claims, damages and liabilities, including liabilities
under the Securities Act of 1933, as amended.
Because
each selling stockholder may be deemed to be an “underwriter” within the meaning
of the Securities Act of 1933, as amended, the selling stockholders will be
subject to the prospectus delivery requirements of the Securities Act of 1933,
as amended, including Rule 172 thereunder. In addition, any securities covered
by this prospectus which qualify for sale pursuant to Rule 144 under the
Securities Act of 1933, as amended may be sold under Rule 144 rather than under
this prospectus. There is no underwriter or coordinating broker acting in
connection with the proposed sale of the resale shares by the selling
stockholders.
We
agreed
to keep this prospectus effective until the earlier of (i) the date on which
the
shares may be resold by the selling stockholders without registration and
without the requirement to be in compliance with Rule 144(c)(1) and otherwise
without restriction or limitation pursuant to Rule 144 or (ii) all of the shares
have been sold pursuant to this prospectus or Rule 144 under the Securities
Act
or any other rule of similar effect. The resale shares will be sold only through
registered or licensed brokers or dealers if required under applicable state
securities laws. In addition, in certain states, the resale shares may not
be
sold unless they have been registered or qualified for sale in the applicable
state or an exemption from the registration or qualification requirement is
available and is complied with.
Under
applicable rules and regulations under the Securities Exchange Act of 1934,
as
amended, any person engaged in the distribution of the resale shares may not
simultaneously engage in market making activities with respect to the common
stock for the applicable restricted period, as defined in Regulation M, prior
to
the commencement of the distribution. In addition, the selling stockholders
will
be subject to applicable provisions of the Securities Exchange Act of 1934,
as
amended, and the rules and regulations thereunder, including Regulation M,
which
may limit the timing of purchases and sales of shares of the common stock by
the
selling stockholders or any other person. We will make copies of this prospectus
available to the selling stockholders and have informed the selling stockholders
of the need to deliver a copy of this prospectus to each purchaser at or prior
to the time of the sale (including by compliance with Rule 172 under the
Securities Act of 1933, as amended).
LEGAL
MATTERS
will
pass upon the
validity of the shares of our common stock offered by us pursuant to this
prospectus.
is
counsel for the
placement agent in connection with this offering.
EXPERTS
The
financial statements as of September 30, 2007, and for the period from May
8,
2007 (Inception) to September 30, 2007 included in this prospectus have been
audited by Sherb & Co. LLP, an independent registered public accounting
firm, as stated in their report appearing herein and elsewhere in the
registration statement, and are included in reliance upon the report of such
firm given upon their authority as experts in accounting and
auditing.
WHERE
YOU CAN FIND ADDITIONAL INFORMATION
We
have
filed with the SEC a registration statement on Form S-1, together with any
amendments and related exhibits, under the Securities Act of 1933, as amended,
with respect to our shares of common stock offered by this prospectus. The
registration statement contains additional information about us and our shares
of common stock that we are offering in this prospectus.
We
file
annual, quarterly and current reports and other information with the SEC under
the Securities Exchange Act of 1934, as amended. Our SEC filings are available
to the public over the Internet at the SEC’s website at http://www.sec.gov. You
may also read and copy any document we file at the SEC’s public reference room
located at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC
at
1-800-SEC-0330 for further information on the public reference rooms and their
copy charges. In addition, through our website, http://www.drinkpurple.com,
you
can access electronic copies of documents we file with the SEC, including our
Annual Report on Form 10-KSB, our Quarterly Reports on Form 10-QSB, and Current
Reports on Form 8-K and any amendments to those reports. Information on our
website is not incorporated by reference in this prospectus. Access to those
electronic filings is available as soon as practicable after filing with the
SEC. You may also request a copy of those filings, excluding exhibits, from
us
at no cost. Any such request should be addressed to us at: Theodore Farnsworth,
Purple Beverage Company, Inc., 450 East Las Olas Blvd., Suite 830, Fort
Lauderdale, Florida 33301.
This
prospectus is part of a registration statement filed by us with the SEC. Because
the SEC’s rules and regulations allow us to omit certain portions of the
registration statement from this prospectus, this prospectus does not contain
all the information set forth in the registration statement. You may review
the
registration statement and the exhibits filed with, or incorporated therein
by
reference in, the registration statement for further information regarding
us
and the shares of our common stock offered by this prospectus. Statements
contained in this prospectus as to the contents of any contract or any other
documents filed, or incorporated therein by reference, as an exhibit to the
registration statement, we refer you to the exhibits for a more complete
description of the matter involved. The registration statement and its exhibits
may be inspected at the SEC’s Public Reference Room at the location described
above.
PURPLE
BEVERAGE COMPANY, INC.
INDEX
TO FINANCIAL STATEMENTS
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Report
of Independent Registered Public Accounting Firm
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F-2
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Balance
Sheet as of September 30, 2007
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F-3
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Statement
of Operations for the period from May 8, 2007 (Inception) to
September 30,
2007
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F-4
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Statement
of Changes in Stockholders’ Deficiency
for
the period from May 8, 2007 (Inception) to September 30,
2007
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F-5
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Statement
of Cash Flows the period from May 8, 2007 (Inception) to September
30,
2007
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F-6
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Notes
to Financial Statements
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F-7
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Balance
Sheet as of June 30, 2008 (unaudited)
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F-19
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Statement
of Operations (unaudited) for the three months ended June 30,
2008
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F-20
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Statement
of Cash Flows (unaudited) for the three months ended June 30,
2008
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F-21
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Notes
to Unaudited Financial Statements
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F-22
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REPORT
OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the
Board of Directors and Shareholders:
Purple
Beverage Company, Inc.
Fort
Lauderdale, Florida
We
have
audited the accompanying balance sheet of Purple Beverage Company, Inc. as
of
September 30, 2007, and the related statements of operations, changes in
stockholders’ deficiency and cash flows for the period from May 8, 2007
(Inception) to September 30, 2007. These financial statements are the
responsibility of the Company’s management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required
to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control
over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purposes of expressing
an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes examining
on a test basis, evidence supporting the amount and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In
our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Purple Beverage Company, Inc.
as of
September 30, 2007, and the results of its operations and its cash flows
for the
period from May 8, 2007 (Inception) to September 30, 2007, in conformity
with
accounting principles generally accepted in the United States of
America.
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 2 to the financial
statements, the Company has experienced net losses since inception. The
Company’s financial position and operating results raise substantial doubt about
the Company’s ability to continue as a going concern. Management’s plans in
regards to these matters are also described in Note 2. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
|
|
/s/
Sherb & Co., LLP
|
|
|
|
|
|
Certified
Public Accountants
|
Boca
Raton, Florida
December
3, 2007 (except for Stockholders’ Deficiency
as
included in the Balance Sheet, and the Statement of
Changes
in Stockholders’ Deficiency, related references
and
calculations, as to which the date is June 5, 2008 and
the
Restatement described in Note 10 as to which the
date
is
July 30, 2008)
(FORMERLY
RED CARPET ENTERTAINMENT,
INC.)
BALANCE
SHEET
September
30, 2007
(As
Restated - See Note 10)
|
ASSETS
|
|
|
|
|
|
CURRENT
ASSETS:
|
|
|
|
|
|
Cash
|
|
$
|
69,890
|
|
|
Inventories
|
|
|
145,941
|
|
|
Prepaid
expenses and other current assets
|
|
|
19,822
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
235,653
|
|
|
|
|
|
|
|
|
PROPERTY
AND EQUIPMENT, net
|
|
|
10,232
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
245,885
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY (DEFICIENCY)
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES:
|
|
|
|
|
|
Convertible
notes payable, net of discount of $0 and $155,228,
respectively
|
|
$
|
594,772
|
|
|
Accounts
payable
|
|
|
30,880
|
|
|
Accrued
expenses
|
|
|
25,672
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
651,324
|
|
|
|
|
|
|
|
|
STOCKHOLDERS'
EQUITY (DEFICIENCY):
|
|
|
|
|
|
Common
stock, $.001 par value, 412,500,000 shares
authorized;
|
|
|
|
|
|
58,340,545
and 37,113,993 shares issued and
outstanding,respectively
|
|
|
37,114
|
|
|
Additional
paid-in capital
|
|
|
649,351
|
|
|
Accumulated
deficit
|
|
|
(1,091,904
|
)
|
|
|
|
|
|
|
|
Total
stockholders' equity (deficiency)
|
|
|
(405,439
|
)
|
|
|
|
|
|
|
|
Total
liabilities and stockholders' equity (deficiency)
|
|
$
|
245,885
|
|
See
notes to financial statements.
PURPLE
BEVERAGE COMPANY, INC.
(FORMERLY
RED CARPET ENTERTAINMENT, INC.)
STATEMENT
OF OPERATIONS
For
the Period from May 8, 2007 (Inception) to September 30,
2007
(As
Restated - See Note 10)
|
Net
sales
|
|
$
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
Compensation
expense
|
|
|
8,717
|
|
|
Advertising
and marketing
|
|
|
249,058
|
|
|
Professional
fees
|
|
|
65,023
|
|
|
Consulting
fees
|
|
|
380,676
|
|
|
Other
selling, general and administrative
|
|
|
192,066
|
|
|
|
|
|
|
|
|
Total
operating expenses
|
|
|
895,540
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(895,540
|
)
|
|
|
|
|
|
|
|
Other
expense:
|
|
|
|
|
|
Interest
expense
|
|
|
(196,364
|
)
|
|
|
|
|
|
|
|
Total
other expense
|
|
|
(196,364
|
)
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(1,091,904
|
)
|
|
|
|
|
|
|
|
Net
loss per common share - basic and diluted
|
|
$
|
(0.03
|
)
|
|
|
|
|
|
|
|
Weighted
average number of shares outstanding - basic and
diluted
|
|
|
36,356,925
|
|
See
notes to financial statements.
PURPLE
BEVERAGE COMPANY, INC.
(FORMERLY
RED CARPET ENTERTAINMENT,
INC.)
STATEMENTS
OF CHANGES IN STOCKHOLDERS' DEFICIENCY
For
the Period from May 8, 2007 (Inception) to September 30,
2007
(As
Restated - See Note 10)
|
|
|
Common Stock, $.001 Par Value
|
|
Additional
|
|
|
|
Total
|
|
|
|
|
Number of
|
|
|
|
Paid-in
|
|
Accumulated
|
|
Stockholders'
|
|
|
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Deficit
|
|
Deficiency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
May 8, 2007 (Inception)
|
|
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued to founder
|
|
|
27,839,016
|
|
|
27,839
|
|
|
(19,651
|
)
|
|
-
|
|
|
8,188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued for services
|
|
|
8,012,477
|
|
|
8,012
|
|
|
(5,655
|
)
|
|
-
|
|
|
2,357
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued for cash
|
|
|
700,000
|
|
|
700
|
|
|
349,300
|
|
|
-
|
|
|
350,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued in connection with notes payable
|
|
|
562,500
|
|
|
563
|
|
|
280,687
|
|
|
-
|
|
|
281,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value of warrants granted in connection with notes
payable
|
|
|
-
|
|
|
-
|
|
|
44,670
|
|
|
-
|
|
|
44,670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss for the period
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1,091,904
|
)
|
|
(1,091,904
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
September 30, 2007
|
|
|
37,113,993
|
|
$
|
37,114
|
|
$
|
649,351
|
|
$
|
(1,091,904
|
)
|
$
|
(405,439
|
)
|
See
notes to financial statements.
(FORMERLY
RED CARPET ENTERTAINMENT, INC.)
STATEMENT
OF CASH FLOWS
For
the Period from May 8, 2007 (Inception) to September 30,
2007
(As
Restated - See Note 10)
|
Cash
flows from operating activities:
|
|
|
|
|
|
Net
loss
|
|
|
($1,091,904
|
)
|
|
Adjustments
to reconcile net loss to net cash used in
operations:
|
|
|
|
|
|
Depreciation
|
|
|
1,105
|
|
|
Stock
based compensation and consulting
|
|
|
10,545
|
|
|
Amortization
of debt discount
|
|
|
170,692
|
|
|
Changes
in assets and liabilities:
|
|
|
|
|
|
Inventories
|
|
|
(145,941
|
)
|
|
Prepaid
expense and other current assets
|
|
|
(19,822
|
)
|
|
Accounts
payable
|
|
|
30,880
|
|
|
Accrued
expenses
|
|
|
25,672
|
|
|
|
|
|
|
|
|
Total
adjustments
|
|
|
73,131
|
|
|
|
|
|
|
|
|
Net
cash used in operating activities
|
|
|
(1,018,773
|
)
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
Purchase
of property and equipment
|
|
|
(11,337
|
)
|
|
|
|
|
|
|
|
Net
cash flows used in investing activities
|
|
|
(11,337
|
)
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
Proceeds
from notes payable
|
|
|
750,000
|
|
|
Proceeds
from sale of common stock
|
|
|
350,000
|
|
|
|
|
|
|
|
|
Net
cash flows provided by financing activities
|
|
|
1,100,000
|
|
|
|
|
|
|
|
|
Net
increase in cash
|
|
|
69,890
|
|
|
|
|
|
|
|
|
Cash
- beginning of period
|
|
|
-
|
|
|
|
|
|
|
|
|
Cash
- end of period
|
|
$
|
69,890
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
Cash
paid for :
|
|
|
|
|
|
Interest
|
|
$
|
-
|
|
|
Income
taxes
|
|
$
|
-
|
|
|
|
|
|
|
|
|
NON-CASH
INVESTING AND FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value of common stock and warrants issued in connection
|
|
|
|
|
|
with
the issuance of notes payable
|
|
$
|
325,920
|
|
See
notes to financial statements.
PURPLE
BEVERAGE COMPANY, INC.
NOTES
TO
FINANCIAL STATEMENTS
SEPTEMBER
30, 2007
|
NOTE
1 -
|
BASIS
OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
|
Organization
Purple
Beverage Company, Inc. (the “Company”), formerly Red Carpet Entertainment, Inc.
(“Red”), was incorporated in April 2002 under the laws of the State of
Nevada.
On
November 12, 2007, the Company obtained, through a vote of its majority
stockholder, approval for an 8.25-for-1 stock split of its issued and
outstanding common stock. All amounts stated herein have been retroactively
adjusted to reflect this split.
On
December 12, 2007, the Company, Venture Beverage Company, Inc., a Nevada
corporation (“Venture”), and a newly-created, wholly-owned subsidiary of the
Company’s, Purple Acquisition Corp., a Nevada corporation (the “Acquisition
Subsidiary”), entered into an agreement and plan of merger (the “Merger
Agreement”). The transactions contemplated by the Merger Agreement (the
“Merger”) closed on December 12, 2007 (the “Closing”).
In
December 2007, the Company obtained through a consent of the holders of the
majority of outstanding stock the approval to increase the authorized common
shares from 50,000,000 to 412,500,000 shares of common stock at $0.001 par
value.
Pursuant
to the Merger Agreement, Venture merged with and into the Acquisition
Subsidiary, with Venture surviving. Immediately thereafter, Venture merged
with
and into the Company, with the Company surviving. In connection with the
latter
merger, the Company changed its name to “Purple Beverage Company, Inc.” As a
result of the Merger, the former stockholders of Venture held approximately
68%
of the Company’s outstanding common shares at Closing. Further, as a result of
the Merger, Venture was deemed to be the acquirer for accounting purposes.
Accordingly, the results of operations represent the operations of Venture
through December 12, 2007. The results of operations subsequent to that date
reflect the operations of the Company. The Company has retroactively restated
the net loss per share and the stockholders’ deficiency section of the balance
sheet to reflect the reverse acquisition.
The
following summarize the more significant accounting and reporting policies
and
practices of the Company:
Use
of
Estimates
In
preparing the financial statements, management is required to make estimates
and
assumptions that affect the reported amounts of assets and liabilities as
of the
date of the statements of financial condition, and revenues and expenses
for the
period then ended. Actual results may differ significantly from those estimates.
Significant estimates made by management include, but are not limited to,
include the stock-based compensation, valuation of debt discounts, and the
useful life of property and equipment.
Cash
and Cash Equivalents
The
Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
PURPLE
BEVERAGE COMPANY, INC.
NOTES
TO
FINANCIAL STATEMENTS
SEPTEMBER
30, 2007
|
NOTE
1 -
|
BASIS
OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
|
The
Company places its cash with high credit quality financial institution. Account
at this institution is insured by the Federal Deposit Insurance Corporation
("FDIC") up to $100,000. For the period ended September 30, 2007, the Company
has not reached bank balances exceeding the FDIC insurance limit. To reduce
its
risk associated with the failure of such financial institution, the Company
evaluates at least annually the rating of the financial institution in which it
holds deposits.
Inventories
Inventories
are stated at the lower of cost or market utilizing the first-in, first-out
method and consist of raw materials related to the Company’s products. The
Company writes down inventory for estimated obsolescence or unmarketable
inventory based upon assumptions and estimates about future demand and market
conditions. If actual market conditions are less favorable than those projected
by the Company, additional inventory write-downs may be required.
Property
and Equipment
Property
and equipment are carried at cost. Depreciation and amortization are provided
using the straight-line method over the estimated economic lives of the assets.
The cost of repairs and maintenance is expensed as incurred; major replacements
and improvements are capitalized. When assets are retired or disposed of,
the
cost and accumulated depreciation are removed from the accounts, and any
resulting gains or losses are included in income in the year of
disposition.
Impairment
of Long-Lived Assets
In
accordance with Statement of Financial Accounting Standards (SFAS) No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets," The Company
periodically reviews its long-lived assets for impairment whenever events
or
changes in circumstances indicate that the carrying amount of the assets
may not
be fully recoverable. The Company recognizes an impairment loss when the
sum of
expected undiscounted future cash flows is less than the carrying amount
of the
asset. The amount of impairment is measured as the difference between the
asset’s estimated fair value and its book value. The Company did not consider it
necessary to record any impairment charges during the period ended September
30,
2007.
PURPLE
BEVERAGE COMPANY, INC.
NOTES
TO
FINANCIAL STATEMENTS
SEPTEMBER
30, 2007
|
NOTE
1 -
|
BASIS
OF PRESENTATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING
POLICIES (continued)
|
Income
Taxes
Under
the
asset and liability method of FASB Statement 109, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing
assets
and liabilities, and their respective tax bases and operating loss and tax
credit carryforwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. Deferred
tax assets are reduced by a valuation allowance, when in the Company's opinion
it is likely that some portion or the entire deferred tax asset will not
be
realized.
Revenue
Recognition
The
Company records revenue when persuasive evidence of an arrangement exists,
services have been rendered or product has been shipped, the sales price
to the
customer is fixed or determinable, and the Company's ability to
collect the receivable is reasonably assured. The Company does not
ship product without receipt of an official order from the customer. The
customer does not have the right to return the product except for matters
related to manufacturing defects on the Company's part. The
Company regularly review its policies for sales allowances and, if
deemed appropriate, the Company adjusts those policies based on available,
historical trends; net sales are inclusive of these estimated allowances.
The
Company primarily sells its product to distributors and recognizes revenue
upon
shipment to them, as opposed to recognizing revenue upon their resale of
the
product to the ultimate customers. In limited cases where the Company retains
ownership of the product after shipment to the distributor, the Company defers
recognition of the revenue until such time as the product is sold to the
ultimate customer and all other revenue recognition criteria have been
satisfied.
Fair
Value of Financial Instruments
The
carrying amounts reported in the balance sheet for cash, inventories, accounts
payable and accrued expenses, and notes payable approximate their fair market
value based on the short-term maturity of these instruments.
Stock
Based Compensation
The
Company adopted Statement of Financial Accounting Standards No. 123
(revised 2004),
Share
Based Payment
(“SFAS
No. 123R”). SFAS No. 123R establishes the financial accounting and
reporting standards for stock-based compensation plans. As required by SFAS
No. 123R, the Company recognized the cost resulting from all stock-based
payment transactions including shares issued under its stock option plans
in the
financial statements. For the period from May 8, 2007 (Inception) to September
30, 2007, the Company did not grant any stock options.
PURPLE
BEVERAGE COMPANY, INC.
NOTES
TO
FINANCIAL STATEMENTS
SEPTEMBER
30, 2007
|
NOTE
1 -
|
BASIS
OF PRESENTATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING
POLICIES (continued)
|
Non-Employee
Stock-Based Compensation
The
cost
of stock based compensation awards issued to non-employees for services are
recorded at either the fair value of the services rendered or the instruments
issued in exchange for such services, whichever is more readily determinable,
using the measurement date guidelines enumerated in Emerging Issues Task
Force
Issue (“EITF”) 96-18, “Accounting for Equity Instruments That Are Issued to
Other Than Employees for Acquiring, or in Conjunction with Selling, Goods
or
Services” (“EITF 96-18”).
Advertising
Advertising
is expensed as incurred. Advertising expenses for the period from May 8,
2007
(Inception) to September 30, 2007 totaled $119,829.
Shipping
costs
Shipping
costs are included in other selling, general and administrative expenses
and
totaled $27,779 for the period from May 8, 2007 (Inception) to September
30,
2007.
Concentrations
of Credit Risk
Financial
instruments that potentially subject the Company to significant concentrations
of credit risk consist primarily of cash and cash equivalents and notes payable.
The Company's investment policy is to invest in low risk, highly liquid
investments. The Company does not believe it is exposed to any significant
credit risk in its cash investment.
The
Company performs on-going credit evaluations of its customer, and, generally,
does not require collateral. The Company maintains reserves for potential
credit
losses and such losses have been within management’s expectations.
Concentration
of suppliers
At
September 30, 2007, approximately 100% of the Company’s raw materials were
purchased primarily from two vendors. Management believes that similar raw
materials would be available from other sources for all raw materials with
the
exception of one.
PURPLE
BEVERAGE COMPANY, INC.
NOTES
TO
FINANCIAL STATEMENTS
SEPTEMBER
30, 2007
|
NOTE
1 -
|
BASIS
OF PRESENTATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING
POLICIES (continued)
|
Recent
Accounting Pronouncements
In
July
2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation
(FIN) No. 48, "Accounting for Uncertainty in Income Taxes-an interpretation
of
FASB Statement No. 109." This interpretation provides guidance for recognizing
and measuring uncertain tax positions, as defined in SFAS No. 109, "Accounting
for Income Taxes." FIN No. 48 prescribes a threshold condition that a tax
position must meet for any of the benefit of an uncertain tax position to
be
recognized in the financial statements. Guidance is also provided regarding
de-recognition, classification, and disclosure of uncertain tax positions.
FIN
No. 48 is effective for fiscal years beginning after December 15, 2006. The
Company does not expect that this interpretation will have a material impact
on
its financial position, results of operations, or cash flows.
In
September 2006, the FASB issued Statement of Financial Accounting Standards
No.
157, “Fair Value Measurements” (“FAS 157”). This Statement defines fair value as
used in numerous accounting pronouncements, establishes a framework for
measuring fair value in generally accepted accounting principles and expands
disclosure related to the use of fair value measures in financial statements.
The Statement is to be effective for the Company’s financial statements issued
in 2008; however, earlier application is encouraged. The Company is currently
evaluating the timing of adoption and the impact that adoption might have
on its
financial position or results of operations.
In
September 2006, the SEC issued Staff Accounting Bulletin No. 108,
Considering
the Effects of Prior Year Misstatements when quantifying Misstatements in
Current Year Financial Statements
(“SAB 108”). SAB 108 requires companies to evaluate the materiality of
identified unadjusted errors on each financial statement and related financial
statement disclosure using both the rollover approach and the iron curtain
approach, as those terms are defined in SAB 108. The rollover approach
quantifies misstatements based on the amount of the error in the current
year
financial statement, whereas the iron curtain approach quantifies misstatements
based on the effects of correcting the misstatement existing in the balance
sheet at the end of the current year, irrespective of the misstatement’s year(s)
of origin. Financial statements would require adjustment when either approach
results in quantifying a misstatement that is material. Correcting prior
year
financial statements for immaterial errors would not require previously filed
reports to be amended. If a Company determines that an adjustment to prior
year
financial statements is required upon adoption of SAB 108 and does not
elect to restate its previous financial statements, then it must recognize
the
cumulative effect of applying SAB 108 in fiscal 2006 beginning balances of
the affected assets and liabilities with a corresponding adjustment to the
fiscal 2006 opening balance in retained earnings. SAB 108 is effective for
interim periods of the first fiscal year ending after November 15, 2006.
The adoption of SAB 108 did not have an impact on the Company’s financial
statements.
PURPLE
BEVERAGE COMPANY, INC.
NOTES
TO
FINANCIAL STATEMENTS
SEPTEMBER
30, 2007
|
NOTE
1 -
|
BASIS
OF PRESENTATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING
POLICIES (continued)
|
Recent
Accounting Pronouncements (continued)
In
December 2006, FASB Staff Position No. EITF 00-19-2,
“Accounting
for Registration Payment Arrangements,”
was
issued. The FSP specifies that the contingent obligation to make future payments
or otherwise transfer consideration under a registration payment arrangement,
whether issued as a separate agreement or included as a provision of a financial
instrument or other agreement, should be separately recognized and measured
in
accordance with SFAS No. 5,
“Accounting
for Contingencies.”
The
Company believes that its current accounting is consistent with the
FSP.
In
February 2007, the FASB issued SFAS No. 159,
“The
Fair Value Option for Financial Assets and Financial Liabilities, Including
an
Amendment of FASB Statement No. 115”
,
under
which entities will now be permitted to measure many financial instruments
and
certain other assets and liabilities at fair value on an
instrument-by-instrument basis. This Statement is effective as of the beginning
of an entity’s first fiscal year that begins after November 15, 2007. Early
adoption is permitted as of the beginning of a fiscal year that begins on
or
before November 15, 2007, provided the entity also elects to apply the
provisions of SFAS 157. The Company is currently assessing the impact, if
any, the adoption of SFAS 159 will have on its financial
statements.
Other
accounting standards that have been issued or proposed by the FASB or other
standards-setting bodies that do not require adoption until a future date
are
not expected to have a material impact on the financial statements upon
adoption.
|
NOTE
2 -
|
GOING
CONCERN CONSIDERATIONS
|
The
accompanying financial statements are prepared assuming the Company will
continue as a going concern. At September 30, 2007, the Company had an
accumulated deficit of $1,091,904, and a working capital deficiency of $415,671.
Additionally, for the period from May 8, 2007 (Inception) to September 30,
2007,
the Company incurred net losses of $1,091,904, and had negative cash flows
from
operations in the amount of $1,018,773. The ability of the Company to continue
as a going concern is dependent upon increasing sales and obtaining additional
capital and financing. During the period ended September 30, 2007, the Company
borrowed $750,000 for working capital purposes and sold common shares for
net
proceeds of $350,000. Management intends to attempt to raise additional funds
by
way of a public or private offering. While the Company believes in the viability
of its strategy to increase sales volume and in its ability to raise additional
funds, there can be no assurances to that effect. The Company's limited
financial resources have prevented the Company from aggressively advertising
its
products and services to achieve consumer recognition.
PURPLE
BEVERAGE COMPANY, INC.
NOTES
TO
FINANCIAL STATEMENTS
SEPTEMBER
30, 2007
At
September 30, 2007, inventories consisted of raw materials and amounted to
$145,941.
|
NOTE
4 -
|
PROPERTY
AND
EQUIPMENT
|
At
September 30, 2007, property and equipment consisted of the
following:
|
|
|
Estimated life
|
|
|
|
|
|
|
|
|
|
|
|
Computer
equipment and office equipment
|
|
|
5
years
|
|
$
|
11,337
|
|
|
|
|
|
|
|
|
|
|
|
Less:
Accumulated depreciation
|
|
|
|
|
|
(1,105
|
)
|
|
|
|
|
|
|
$
|
10,232
|
|
For
the
period from May 8, 2007 (Inception) to September 30, 2007, depreciation expense
amounted to $1,105.
|
NOTE
5 -
|
CONVERTIBLE
NOTES PAYABLE
|
Between
May to July 2007, the Company issued unsecured convertible notes payable
aggregating to $750,000. In connection with the issuance of these notes payable,
the Company issued 562,500 shares of common stock and granted 300,000 warrants
to investors exercisable at a price of $2.00 per share for a period of five
years. The notes payable bear 12% interest per annum and mature on the earlier
of December 29, 2007 or on the date of initial closing of subsequent financing
of equity or debt securities with gross proceeds exceeding $2,500,000. However,
if the Company does not become a public company by December 29, 2007, the
note
holder will receive a 100% return of the principal to be paid by June 30,
2008.
Upon becoming a public company and for a period of six (6) months thereafter,
the Company shall have the right, at its option at any time, or from time
to
time, to convert some or all of these notes payable with a convertible rate
of
$1.00 per share or up to 750,000 shares on a pro rata basis of the Company’s
common stock, par value $0.001 per share. The Company recognized a total
debt
discount of $325,920 in connection with the issuance of these 12% notes
payable.
Amortization
of the debt discount amounted to approximately $170,692 during the period
from
May 8, 2007 (Inception) to September 30, 2007, and is included in interest
expense. Accrued interest on the 12% notes payable amounted to approximately
$25,672 as of September 30, 2007.
At
September 30, 2007, notes payable consists of the following:
|
Convertible
notes payable
|
|
$
|
750,000
|
|
|
Less:
unamortized discount on notes payable
|
|
|
(155,228
|
)
|
|
|
|
|
|
|
|
Notes
payable, net
|
|
$
|
594,772
|
|
PURPLE
BEVERAGE COMPANY, INC.
NOTES
TO
FINANCIAL STATEMENTS
SEPTEMBER
30, 2007
|
NOTE
6 -
|
RELATED
PARTY TRANSACTIONS
|
The
Company is leasing its office space from a company owned by our chief executive
officer for approximately $43,000 during the period from May 8, 2007 (Inception)
to September 30, 2007 . And does not owe any amount to such related party
at
September 30, 2007.
The
Company accounts for income taxes under Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" "SFAS 109". SFAS 109 requires
the recognition of deferred tax assets and liabilities for both the expected
impact of differences between the financial statements and the tax basis
of
assets and liabilities, and for the expected future tax benefit to be derived
from tax losses and tax credit carry forwards. SFAS 109 additionally requires
the establishment of a valuation allowance to reflect the likelihood of
realization of deferred tax assets. The Company has a net operating loss
carry
forward for tax purposes totaling approximately $813,000 at September 30,
2007,
expiring through the year 2027. Internal Revenue Code Section 382 places
a
limitation on the amount of taxable income that can be offset by carry forwards
after a certain ownership shifts.
The
table
below summarizes the differences between the Company’s effective tax rate and
the statutory federal rate as follows for the period ended September 30,
2007:
|
|
|
Period from
May 8, 2007
(Inception) to
September 30,
2007
|
|
|
Tax
benefit computed at “expected” statutory rate
|
|
$
|
(354,000
|
)
|
|
|
|
|
|
|
|
State
income taxes, net of benefit
|
|
|
(41,000
|
)
|
|
|
|
|
|
|
|
Other
permanent difference
|
|
|
4,000
|
|
|
|
|
|
|
|
|
Increase
in valuation allowance
|
|
|
391,000
|
|
|
|
|
|
|
|
|
Net
income tax benefit
|
|
$
|
-
|
|
PURPLE
BEVERAGE COMPANY, INC.
NOTES
TO
FINANCIAL STATEMENTS
SEPTEMBER
30, 2007
|
NOTE
7 -
|
INCOME
TAXES (continued)
|
Deferred
tax assets and liabilities are provided for significant income and expense
items
recognized in different years for tax and financial reporting purposes.
Temporary differences, which give rise to a net deferred tax asset is as
follows:
|
|
|
September 30,
2007
|
|
|
|
|
|
|
|
Tax
benefit of net operating loss carryforward
|
|
$
|
391,000
|
|
|
|
|
|
|
|
|
Valuation
Allowance
|
|
|
(391,000
|
)
|
|
|
|
|
|
|
|
Net
deferred tax asset recorded
|
|
$
|
-
|
|
After
consideration of all the evidence, both positive and negative, management
has
recorded a valuation allowance at September 30, 2007, due to the uncertainty
of
realizing the deferred income tax assets. The valuation allowance was increased
by $391,000.
|
NOTE
8 -
|
STOCKHOLDERS’
DEFICIENCY
|
Common
Stock
As
a
result of the Merger, the Company has retroactively restated the stockholders’
deficiency section of the balance sheet to reflect the reverse
acquisition.
In
May
2007, the Company issued 27,839,016 restricted shares of common stock to
the
founder of the Company. The Company valued these common shares at fair value
amounting to $8,188.
In
May
2007, in connection with agreements, the Company issued in the aggregate
of
1,799,990 restricted shares of common to various employees of the Company
for
services to be provided to the Company. The Company valued these common shares
at fair value on the date of issuance. In connection with the issuance of
these
shares, for the period ended September 30, 2007, the Company recorded stock
based compensation expense of $529.
In
May
2007, in connection with agreements, the Company issued in the aggregate
of
6,212,487 restricted shares of common to various consultants of the Company
for
business advisory services to be provided to the Company. The term of these
agreements ranges from 3 to 36 months. The Company valued these common shares
at
fair value on the date of issuance. In connection with the issuance of these
shares, for the period ended September 30, 2007, the Company recorded stock
based consulting expense of $1,828.
PURPLE
BEVERAGE COMPANY, INC.
NOTES
TO
FINANCIAL STATEMENTS
SEPTEMBER
30, 2007
|
NOTE
8 -
|
STOCKHOLDERS’
DEFICIENCY (continued)
|
On
September 7, 2007, the Company completed a private placement to accredited
investors and received proceeds of $350,000 from the sale of units consisting
in
the aggregate of 700,000 shares of its common stock and warrants to purchase
700,000 shares of common stock. The warrants are exercisable at $2.00 per
share
for a term of five years.
Between
May to July 2007, the Company issued unsecured notes payable aggregating
to
$750,000. In connection with the issuance of these notes payable, the Company
issued 562,500 shares of common stock and granted 300,000 warrants to investors
exercisable at a price of $2.00 per share. The shares were valued at the
then
recent contemporaneous offering price of $0.50 per share (see above) resulting
in a value of $281,250 and was recognized as debt discount to be amortized
over
the term of the 12% notes payable.
Common
Stock Warrants
Between
May to July 2007, the Company granted 300,000 warrants to investors exercisable
at a price of $2.00 per share in connection with the issuance of the 12%
notes
payable. The purchase warrants expire in five years from the date of the
warrant. The Company valued these warrants utilizing the Black-Scholes options
pricing model with the following assumptions: stock price of $0.50 per share,
volatility of 68% (estimated using volatilities of similar companies), expected
term of five years, and a risk free interest rate from 4.6% to 4.95% with
a
resulting value of approximately $0.51 or $44,700. The fair values of such
warrants were recorded as debt discount to be amortized over the term of
the 12%
notes payable.
On
September 7, 2007, in connection with a private placement, the Company granted
700,000 purchase warrants to investors. The warrants are exercisable at $2.00
per common share and expire in five years.
PURPLE
BEVERAGE COMPANY, INC.
NOTES
TO
FINANCIAL STATEMENTS
SEPTEMBER
30, 2007
|
NOTE
8 -
|
STOCKHOLDERS’
DEFICIENCY (CONTINUED)
|
Common
Stock Warrants (continued)
A
summary
of the status of the Company's outstanding stock warrants as of September
30,
2007 and changes during the period then ended is as follows:
|
|
|
|
Period Ended September 30, 2007
|
|
|
|
|
|
Number of
Warrants
|
|
|
Weighted Average
Exercise Price
|
|
|
Balance
at inception
|
|
|
-
|
|
$
|
-
|
|
|
Granted
|
|
|
1,000,000
|
|
|
2.00
|
|
|
Exercised
|
|
|
-
|
|
|
-
|
|
|
Forfeited
|
|
|
-
|
|
|
-
|
|
|
Balance
at end of period
|
|
|
1,000,000
|
|
$
|
2.00
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
exercisable at end of period
|
|
|
1,000,000
|
|
$
|
2.00
|
|
|
Weighted
average fair value of warrants granted during the period
|
|
|
|
|
$
|
0.51
|
|
The
following table summarizes information about stock warrants outstanding at
September 30, 2007:
|
Warrants Outstanding
|
|
Warrants Exercisable
|
|
|
|
Range of
Exercise
Price
|
|
Number
Outstanding at
September 30,
2007
|
|
Weighted
Average
Remaining
Contractual
Life
|
|
Weighted
Average
Exercise
Price
|
|
Number
Exercisable at
September 30,
2007
|
|
Weighted
Average
Exercise
Price
|
|
|
$
|
2.00
|
|
|
1,000,000
|
|
|
4.88
Years
|
|
$
|
2.00
|
|
|
1,000,000
|
|
$
|
2.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,000,000
|
|
|
|
|
$
|
2.00
|
|
|
1,000,000
|
|
$
|
2.00
|
|
|
NOTE
9 -
|
SUBSEQUENT
EVENTS
|
In
October 2007, the Company completed a private placement to accredited investors
and received proceeds of $630,000 from the sale of units consisting in the
aggregate of 1,260,000 shares of its common stock and warrants to purchase
1,260,000 shares of common stock. The Company’s founder contributed 1,260,000
shares owned by him to the Company in connection with this private placement.
The warrants are exercisable at $2.00 per share for a term of five
years.
PURPLE
BEVERAGE COMPANY, INC.
NOTES
TO
FINANCIAL STATEMENTS
SEPTEMBER
30, 2007
|
NOTE
9 -
|
SUBSEQUENT
EVENTS (continued)
|
In
November 2007, the Company agreed to issue 550,712 shares of common stock
for
advertising and promotional services in connection with a three year agreement.
The Company’s founder contributed 183,565 shares owned by him to the Company in
connection with this agreement. The Company valued these common shares at
the
fair market value on the date of grant at $0.50 per share or $275,356 based
on
the recent selling price of the Company’s common stock which has been recognize
as advertising expense.
In
December 2007, the Company amended the terms and provisions in connection
with
convertible notes payable of two debt holders. Under the terms of the amended
convertible note agreement, the principal and accrued interest thereon will
mature on March 31, 2008, and, in connection with such extension of terms,
the
Company issued an aggregate of 100,000 shares to such debt holders. The Company
valued these common shares at the fair market value on the date of grant
at
$0.50 per share or approximately $50,000 based on the recent selling price
of
the Company’s common stock which has been recognize as interest
expense.
For
the
periods ending September 30, 2007 and March 31, 2008, the Company revised
its
accounting treatment relating to the recognition of revenue from a certain
distributor. The Company initially recorded a sale and related accounts
receivable from such distributor. Subsequently, the Company determined
that such
revenue should have not been recorded in accordance with its revenue recognition
criteria. Accordingly, the Company has adjusted its financial statements
as
follows:
1.
Balance Sheet:
a)
Accounts receivable decreased by $78,866 to $0 and total assets decreased
by
$78,866.
b)
Stockholders’ deficiency and accumulated deficit increased $78,866 which
reflects the changes made to the balance sheet and statement of
operations.
2.
Statement of Operations:
a)
For
the period ending September 30, 2007, net sale decreased by $111,343 and
cost of
sales decreased by $96,689 which reflects a decrease in gross profit of
$14,654
due to the reversal of the sale to such distributor.
b)
For
the period ending September 30, 2007, total operating expenses increased
by
$64,212 which reflects an increase in marketing expenses of
$64,212.
PART
I – FINANCIAL INFORMATION
Item
1 – Financial Statements
PURPLE
BEVERAGE COMPANY, INC.
BALANCE
SHEET
|
|
|
June
30, 2008
|
|
|
|
|
Unaudited
|
|
|
|
|
|
|
|
CURRENT
ASSETS:
|
|
|
|
|
|
Cash
|
|
$
|
8,709
|
|
|
Accounts
receivable, net
|
|
|
881,726
|
|
|
Inventories
|
|
|
1,090,548
|
|
|
Prepaid
expenses and other current assets
|
|
|
370,470
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
2,351,453
|
|
|
|
|
|
|
|
|
PROPERTY
AND EQUIPMENT, net
|
|
|
124,795
|
|
|
|
|
|
|
|
|
OTHER
ASSETS
|
|
|
26,848
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
2,503,096
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' DEFICIENCY
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES:
|
|
|
|
|
|
|
|
|
|
|
|
Notes
payable
|
|
|
593,000
|
|
|
Accounts
payable
|
|
|
1,367,190
|
|
|
Accrued
expenses
|
|
|
675,832
|
|
|
Deferred
revenue
|
|
|
576,000
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
3,212,022
|
|
|
|
|
|
|
|
|
STOCKHOLDERS'
DEFICIENCY:
|
|
|
|
|
|
Common
stock, $.001 par value, 412,500,000 shares authorized; 60,661,405
shares
issued and outstanding
|
|
|
60,662
|
|
|
Additional
paid-in capital
|
|
|
23,903,980
|
|
|
Accumulated
deficit
|
|
|
(24,673,568
|
)
|
|
|
|
|
|
|
|
Total
stockholders' deficiency
|
|
|
(708,926
|
)
|
|
|
|
|
|
|
|
Total
liabilities and stockholders' deficiency
|
|
$
|
2,503,096
|
|
See
notes to unaudited financial statements.
PURPLE
BEVERAGE COMPANY, INC.
STATEMENT
OF OPERATIONS
|
|
|
For the three
months ended
|
|
For the nine
months ended
|
|
|
|
|
June 30, 2008
|
|
June 30, 2008
|
|
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
365,494
|
|
$
|
544,869
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
354,099
|
|
|
536,289
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
11,395
|
|
|
8,580
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
Compensation
expense and related taxes
|
|
|
2,843,723
|
|
|
7,223,366
|
|
|
Advertising
and marketing
|
|
|
1,176,077
|
|
|
8,766,355
|
|
|
Professional
and consulting
|
|
|
3,801,663
|
|
|
4,796,015
|
|
|
Other
selling, general and administrative
|
|
|
642,759
|
|
|
1,335,574
|
|
|
|
|
|
|
|
|
|
|
|
Total
operating expenses
|
|
|
8,464,222
|
|
|
22,121,310
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(8,452,827
|
)
|
|
(22,112,730
|
)
|
|
|
|
|
|
|
|
|
|
|
Other
expense:
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
1,149
|
|
|
4,052
|
|
|
Interest
expense
|
|
|
(1,060,450
|
)
|
|
(1,472,987
|
)
|
|
|
|
|
|
|
|
|
|
|
Total
other expense
|
|
|
(1,059,301
|
)
|
|
(1,468,935
|
)
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(9,512,128
|
)
|
$
|
(23,581,665
|
)
|
|
|
|
|
|
|
|
|
|
|
Net
loss per common share - basic and diluted
|
|
$
|
(0.16
|
)
|
$
|
(0.45
|
)
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of shares outstanding - basic and
diluted
|
|
|
59,873,164
|
|
|
52,204,756
|
|
See
notes to unaudited financial statements.
PURPLE
BEVERAGE COMPANY, INC.
STATEMENT
OF CASH FLOWS
|
|
|
For the nine
months ended
|
|
|
|
|
June 30, 2008
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
Net
loss
|
|
$
|
(23,581,665
|
)
|
|
Adjustments
to reconcile net loss to net cash used in
operations:
|
|
|
|
|
|
Depreciation
|
|
|
10,299
|
|
|
Common
stock issued for services
|
|
|
4,422,976
|
|
|
Common
stock issued for interest in connection with notes
payable
|
|
|
1,053,968
|
|
|
Warrants
issued for interest in connection with notes
payable
|
|
|
201,550
|
|
|
Fair
value of options issued for services
|
|
|
10,097,037
|
|
|
Amortization
of debt discount charged to interest expense
|
|
|
155,228
|
|
|
Changes
in assets and liabilities:
|
|
|
|
|
|
Accounts
receivable
|
|
|
(881,726
|
)
|
|
Inventories
|
|
|
(944,607
|
)
|
|
Prepaid
expense and other current assets
|
|
|
(377,497
|
)
|
|
Accounts
payable
|
|
|
1,342,842
|
|
|
Accrued
expenses
|
|
|
650,161
|
|
|
Deferred
revenue
|
|
|
576,000
|
|
|
|
|
|
|
|
|
Total
adjustments
|
|
|
16,306,231
|
|
|
|
|
|
|
|
|
Net
cash used in operating activities
|
|
|
(7,275,434
|
)
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
Purchase
of property and equipment
|
|
|
(124,862
|
)
|
|
|
|
|
|
|
|
Net
cash used in investing activities
|
|
|
(124,862
|
)
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
Proceeds
from notes payable
|
|
|
1,593,000
|
|
|
Principal
payment on notes payable
|
|
|
(1,000,000
|
)
|
|
Payment
in connection with the stock purchase agreement
|
|
|
(60,000
|
)
|
|
Net
proceeds from exercise of warrants
|
|
|
1,167,600
|
|
|
Net
proceeds from sale of common stock
|
|
|
5,638,515
|
|
|
|
|
|
|
|
|
Net
cash provided by financing activities
|
|
|
7,339,115
|
|
|
|
|
|
|
|
|
Net
decrease in cash
|
|
|
(61,181
|
)
|
|
|
|
|
|
|
|
Cash
- beginning of period
|
|
|
69,890
|
|
|
|
|
|
|
|
|
Cash
- end of period
|
|
$
|
8,709
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
Cash
paid for :
|
|
|
|
|
|
Interest
|
|
$
|
740
|
|
|
Income
taxes
|
|
$
|
-
|
|
See
notes to unaudited financial statements.
PURPLE
BEVERAGE COMPANY, INC.
NOTES
TO
UNAUDITED FINANCIAL STATEMENTS
JUNE
30,
2008
NOTE
1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING
POLICIES
Organization
Purple
Beverage Company, Inc. (the “Company”), formerly Red Carpet Entertainment, Inc.
(“Red”), was incorporated in April 2002 under the laws of the State of
Nevada.
On
November 12, 2007, the Company obtained, through a vote of its majority
stockholder, approval for an 8.25-for-1 stock split of its issued and
outstanding common stock. All amounts stated herein have been retroactively
adjusted to reflect this split.
On
December 12, 2007, the Company, Venture Beverage Company, Inc., a Nevada
corporation (“Venture”), and a newly-created, wholly-owned subsidiary of the
Company’s, Purple Acquisition Corp., a Nevada corporation (the “Acquisition
Subsidiary”), entered into an agreement and plan of merger (the “Merger
Agreement”). The transactions contemplated by the Merger Agreement (the
“Merger”) closed on December 12, 2007 (the “Closing”).
In
December 2007, the Company obtained through a consent of the holders of
the
majority of outstanding stock the approval to increase the authorized common
shares from 50,000,000 to 412,500,000 shares of common stock at $0.001
par
value.
Pursuant
to the Merger Agreement, Venture merged with and into the Acquisition
Subsidiary, with Venture surviving. Immediately thereafter, Venture merged
with
and into the Company, with the Company surviving. In connection with the
latter
merger, the Company changed its name to “Purple Beverage Company, Inc.” As a
result of the Merger, the former stockholders of Venture held approximately
68%
of the Company’s outstanding common shares at Closing. Further, as a result of
the Merger, Venture was deemed to be the acquirer for accounting purposes.
Accordingly, the results of operations represent the operations of Venture
through December 12, 2007. The results of operations subsequent to that
date
reflect the operations of the Company. The Company has retroactively restated
the net loss per share and the stockholders’ equity section of the balance sheet
to reflect the reverse acquisition.
The
Company is engaged in the development, marketing, and distribution of a
unique
line of beverage brands and products.
Basis
of presentation
The
accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-QSB and Item 310(b) of Regulation
S-B.
Accordingly, the financial statements do not include all of the information
and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments considered
necessary for a fair presentation have been included and such adjustments
are of
a normal recurring nature. These financial statements should be read in
conjunction with the financial statements for the period ended September
30,
2007 and notes thereto contained in the Registration Statement on Form
S-1/A of
the Company, as filed with the Securities and Exchange Commission (the
“Commission”) on July 30, 2008. Note that the results of operations for the
three and nine months ended June 30, 2008, are not necessarily indicative
of the
results for the full fiscal year ending September 30, 2008.
PURPLE
BEVERAGE COMPANY, INC.
NOTES
TO
UNAUDITED FINANCIAL STATEMENTS
JUNE
30,
2008
NOTE
1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING
POLICIES (continued)
The
following summarize the more significant accounting and reporting policies
and
practices of the Company:
Use
of
Estimates
In
preparing the financial statements, management is required to make estimates
and
assumptions that affect the reported amounts of assets and liabilities
as of the
date of the statements of financial condition and revenues and expenses
for the
period then ended. Actual results may differ significantly from those estimates.
Significant estimates made by management include, but are not limited to,
stock-based compensation, valuation of debt discounts, and the useful life
of
property and equipment.
Cash
and Cash Equivalents
The
Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
The
Company places its cash with a high credit quality financial institution.
Accounts at this institution are insured by the Federal Deposit Insurance
Corporation (“FDIC”) up to $100,000. As of the period ending June 30, 2008, the
Company’s bank balance does not exceed the FDIC insurance limit. To reduce its
risk associated with the failure of such financial institution, the Company
evaluates at least annually the rating of the financial institution in
which it
holds deposits.
Accounts
Receivable
The
Company has a policy of reserving for uncollectible accounts based on its
best
estimate of the amount of probable credit losses in its existing accounts
receivable. The Company periodically reviews its accounts receivable to
determine whether an allowance is necessary based on an analysis of past
due
accounts and other factors that may indicate that the realization of an
account
may be in doubt. Account balances deemed to be uncollectible are written
off
after all means of collection have been exhausted and the potential for
recovery
is considered remote. As of June 30, 2008 the allowance is $39,987.
|
Accounts
receivable
|
|
$
|
921,713
|
|
|
Allowance
for doubtful accounts
|
|
|
(39,987
|
)
|
|
Total
|
|
$
|
881,726
|
|
Inventories
Inventories
are stated at the lower of cost or market utilizing the first-in, first-out
method and consist of raw materials and other direct costs related to the
Company’s products. The Company writes down inventory for estimated obsolescence
or unmarketable inventory based upon assumptions and estimates about future
demand and market conditions. If actual market conditions are less favorable
than those projected by the Company, additional inventory write-downs may
be
required. As of June 30, 2008, the Company estimates an inventory reserve
is not
necessary.
PURPLE
BEVERAGE COMPANY, INC.
NOTES
TO
UNAUDITED FINANCIAL STATEMENTS
JUNE
30,
2008
NOTE
1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING
POLICIES (continued)
Property
and Equipment
Property
and equipment are carried at cost. Depreciation and amortization are provided
using the straight-line method over the estimated economic lives of the
assets.
The cost of repairs and maintenance is expensed as incurred; major replacements
and improvements are capitalized. When assets are retired or disposed of,
the
cost and accumulated depreciation are removed from the accounts, and any
resulting gains or losses are included in income in the year of
disposition.
Impairment
of Long-Lived Assets
In
accordance with the Statement of Financial Accounting Standards (SFAS)
No. 144,
“Accounting for the Impairment or Disposal of Long-Lived Assets,” the Company
periodically reviews its long-lived assets for impairment whenever events
or
changes in circumstances indicate that the carrying amount of the assets
may not
be fully recoverable. The Company recognizes an impairment loss when the
sum of
expected undiscounted future cash flows is less than the carrying amount
of the
asset. The amount of impairment is measured as the difference between the
asset’s estimated fair value and its book value. The Company did not consider
it
necessary to record any impairment charges during the nine months ended
June 30,
2008.
Fair
Value of Financial Instruments
The
carrying amounts reported on the balance sheet for cash, accounts receivable,
inventories, accounts payable, accrued expenses, and notes payable approximate
their fair market value based on the short-term maturity of these
instruments.
Income
Taxes
Under
the
asset and liability method of FASB Statement 109, deferred tax assets and
liabilities are recognized for the future tax consequences attributable
to
differences between the financial statement carrying amounts of existing
assets
and liabilities and their respective tax bases and operating loss and tax
credit
carry-forwards. Deferred tax assets and liabilities are measured using
enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. Deferred
tax
assets are reduced by a valuation allowance when in the Company’s opinion it is
likely that some portion or the entire deferred tax asset will not be
realized. After consideration of all the evidence, both positive and
negative, management has recorded a full valuation allowance due to the
uncertainty of realizing the deferred tax assets. Utilization of the Company’s
net operating loss carry-forwards are limited based on changes in ownership
as
defined in Internal Revenue Code Section 382. Due to ongoing losses and the
establishment of a valuation allowance to offset deferred tax assets, the
Company did not record a tax provision for the period ended June 30,
2008.
PURPLE
BEVERAGE COMPANY, INC.
NOTES
TO
UNAUDITED FINANCIAL STATEMENTS
JUNE
30,
2008
NOTE
1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING
POLICIES (continued)
Stock
Based Compensation
The
Company adopted Statement of Financial Accounting Standards No. 123
(revised 2004),
Share
Based Payment
(“SFAS
No. 123R”). SFAS No. 123R establishes the financial accounting and
reporting standards for stock-based compensation plans. As required by
SFAS
No. 123R, the Company recognized the cost resulting from all stock-based
payment transactions including shares issued under its stock option plans
in the
financial statements. During the three and six months ended June 30, 2008,
the
Company granted stock options to employees and third parties.
Non-Employee
Stock-Based Compensation
The
cost
of stock based compensation awards issued to non-employees for services
are
recorded at either the fair value of the services rendered or the instruments
issued in exchange for such services, whichever is more readily determinable,
using the measurement date guidelines enumerated in Emerging Issues Task
Force
Issue (“EITF”) 96-18, “Accounting for Equity Instruments That Are Issued to
Other Than Employees for Acquiring, or in Conjunction with Selling, Goods
or
Services” (“EITF 96-18”).
Revenue
Recognition
The
Company records revenue when persuasive evidence of an arrangement exists,
services have been rendered or product has been shipped, the sales price
to the
customer is fixed or determinable, and our ability to collect the receivable
is
reasonably assured. The Company does not ship product without receipt of
an
official order from the customer. The customer does not have the right
to return
the product except for matters related to manufacturing defects on our
part. The
Company regularly reviews our policies for sales allowances and, if deemed
appropriate, the Company adjusts those policies based on available, historical
trends; net sales are inclusive of these estimated allowances. The Company
primarily sells its product to distributors and recognizes revenue upon
shipment
to them, as opposed to recognizing revenue upon the resale of the product
to the
ultimate end-customers. In limited cases where the Company retains ownership
of
the product after shipment to the distributor, the Company defers recognition
of
the revenue until such time ownership is transferred to the customer and
all
other revenue recognition criteria have been satisfied.
Advertising
Advertising
is expensed as incurred. Advertising expenses for the three- and nine-month
periods ended June 30, 2008, totaled $898,327 and $1,857,803,
respectively.
PURPLE
BEVERAGE COMPANY, INC.
NOTES
TO
UNAUDITED FINANCIAL STATEMENTS
JUNE
30,
2008
NOTE
1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING
POLICIES (continued)
Earnings
Per Share
Basic
earnings per share are calculated by dividing income available to stockholders
by the weighted-average number of common shares outstanding during each
period.
Diluted earnings per share are computed using the weighted average number
of
common and dilutive common share equivalents outstanding during the period.
Dilutive common share equivalents consist of shares issuable upon the exercise
of stock options and warrants. The outstanding warrants, options and shares
equivalent issuable pursuant to embedded conversion features at June 30,
2008,
are excluded from the loss per share computation for that period due to
their
anti-dilutive effect. The Company’s common stock equivalents at June 30, 2008,
include the following:
|
Options
|
|
|
19,970,112
|
|
|
Warrants
|
|
|
8,304,500
|
|
|
|
|
|
28,274,612
|
|
Concentrations
of Credit Risk
Financial
instruments that potentially subject the Company to significant concentrations
of credit risk consist primarily of cash, cash equivalents, and accounts
receivable. The Company’s investment policy is to invest in low risk, highly
liquid investments. The Company does not believe it is exposed to any
significant credit risk in its cash investment. The Company performs on-going
credit evaluations of its customer and, generally, does not require collateral.
The Company maintains reserves for potential credit losses, and such losses
have
been within management’s expectations.
Concentration
of suppliers
At
June
30, 2008, approximately 100% of the Company’s raw materials were purchased
primarily from three vendors. Management believes as the Company matures
it will
be in a position to utilize other vendors to source its raw
materials.
Concentration
of sales and accounts receivable
For
the
nine months ended June 30, 2008, two customers accounted for 17 and 15
percent
of revenues, respectively. For the three months ended June 30, 2008 three
customers accounted for 19, 16 and 15 percent of revenues,
respectively.
PURPLE
BEVERAGE COMPANY, INC.
NOTES
TO
UNAUDITED FINANCIAL STATEMENTS
JUNE
30,
2008
NOTE
1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING
POLICIES (continued)
Recent
Accounting Pronouncements
In
July
2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation
(FIN) No. 48,
“Accounting
for Uncertainty in Income Taxes-an interpretation of FASB Statement No.
109.”
This
interpretation provides guidance for recognizing and measuring uncertain
tax
positions, as defined in SFAS No. 109, “Accounting for Income Taxes.” FIN No. 48
prescribes a threshold condition that a tax position must meet for any
of the
benefits of an uncertain tax position to be recognized in the financial
statements. Guidance is also provided regarding de-recognition, classification,
and disclosure of uncertain tax positions. FIN No. 48 is effective for
fiscal
years beginning after December 15, 2006. The adoption of this interpretation
did
not have an impact on the Company’s financial position, results of operations,
or cash flows.
In
September 2006, the FASB issued Statement of Financial Accounting Standards
No.
157,
“Fair
Value Measurements”
(“FAS
157”). This Statement defines fair value as used in numerous accounting
pronouncements, establishes a framework for measuring fair value in generally
accepted accounting principles, and expands disclosure related to the use
of
fair value measures in financial statements. The Statement is to be effective
for the Company’s financial statements issued in 2008; however, earlier
application is encouraged. The adoption of this interpretation did not
have an
impact on the Company’s financial position, results of operations, or cash
flows.
In
September 2006, the SEC issued Staff Accounting Bulletin No. 108,
Considering
the Effects of Prior Year Misstatements when quantifying Misstatements
in
Current Year Financial Statements
(“SAB 108”). SAB 108 requires companies to evaluate the materiality of
identified unadjusted errors on each financial statement and related financial
statement disclosures using both the rollover approach and the iron curtain
approach, as those terms are defined in SAB 108. The rollover approach
quantifies misstatements based on the amount of the error in the current
year
financial statement, whereas the iron curtain approach quantifies misstatements
based on the effects of correcting the misstatement existing in the balance
sheet at the end of the current year, irrespective of the misstatement’s year(s)
of origin. Financial statements would require adjustment when either approach
results in quantifying a misstatement that is material. Correcting prior
year
financial statements for immaterial errors would not require previously
filed
reports to be amended. If a Company determines that an adjustment to prior
year
financial statements is required upon adoption of SAB 108 and does not
elect to restate its previous financial statements, then it must recognize
the
cumulative effect of applying SAB 108 in fiscal 2006 beginning balances of
the affected assets and liabilities with a corresponding adjustment to
the
fiscal 2006 opening balance in retained earnings. SAB 108 is effective for
interim periods of the first fiscal year ending after November 15, 2006.
The adoption of SAB 108 did not have an impact on the Company’s financial
statements.
In
December 2006, FASB Staff Position No. EITF 00-19-2,
“Accounting
for Registration Payment Arrangements,”
was
issued. This Staff Position specifies that the contingent obligation to
make
future payments or otherwise transfer consideration under a registration
payment
arrangement, whether issued as a separate agreement or included as a provision
of a financial instrument or other agreement, should be separately recognized
and measured in accordance with SFAS No. 5,
“Accounting
for Contingencies.”
The
Company believes that its current accounting is consistent with this Staff
Position.
PURPLE
BEVERAGE COMPANY, INC.
NOTES
TO
UNAUDITED FINANCIAL STATEMENTS
JUNE
30,
2008
NOTE
1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING
POLICIES (continued)
Recent
Accounting Pronouncements (continued)
In
February 2007, the FASB issued SFAS No. 159,
“The
Fair Value Option for Financial Assets and Financial Liabilities, Including
an
Amendment of FASB Statement No. 115,”
under
which entities will now be permitted to measure many financial instruments
and
certain other assets and liabilities at fair value on an
instrument-by-instrument basis. This Statement is effective as of the beginning
of an entity’s first fiscal year that begins after November 15, 2007. Early
adoption is permitted as of the beginning of a fiscal year that begins
on or
before November 15, 2007, provided the entity also elects to apply the
provisions of SFAS 157. The adoption of this interpretation did not have an
impact on the Company’s financial position, results of operations, or cash
flows.
In
May
2007, the FASB issued FASB Staff Position No. FIN 48-1,
“Definition
of Settlement in FASB Interpretation No. 48
.
”
This
Staff Position provides guidance about how an enterprise should determine
whether a tax position is effectively settled for the purpose of recognizing
previously unrecognized tax benefits. Under this Staff Position, a tax
position
could be effectively settled on completion of examination by a taxing authority
if the entity does not intend to appeal or litigate the result and it is
remote
that the taxing authority would examine or re-examine the tax position.
The
Company does not expect that this interpretation will have a material impact
on
its financial position, results of operations, or cash flows.
In
December 2007, the FASB issued SFAS No. 141(R),
“Business
Combinations,”
which
replaces SFAS No. 141,
“Business
Combinations,”
which,
among other things, establishes principles and requirements for how an
acquirer
entity recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed (including intangibles), and any
noncontrolling interests in the acquired entity. SFAS No. 141(R) applies
prospectively to business combinations for which the acquisition date is
on or
after the beginning of the first annual reporting period beginning on or
after
December 15, 2008. The Company is currently evaluating what impact, if any,
the adoption of SFAS No. 141(R) will have on its financial
statements.
In
December 2007, the FASB issued SFAS No. 160, “
Noncontrolling
Interests in Consolidated Financial Statements, an amendment of ARB
No. 51.”
SFAS
No. 160 amends ARB 51 to establish accounting and reporting standards for
the noncontrolling interest in a subsidiary and for the deconsolidation
of a
subsidiary. It also amends certain of ARB 51’s consolidation procedures for
consistency with the requirements of SFAS No. 141(R). SFAS No. 160 is
effective for fiscal years, and interim periods within those fiscal years,
beginning on or after December 15, 2008. The Company is currently
evaluating what impact the adoption of SFAS No. 160 will have on its
financial statements.
Other
accounting standards that have been issued or proposed by the FASB or other
standards-setting bodies that do not require adoption until a future date
are
not expected to have a material impact on the financial statements upon
adoption.
PURPLE
BEVERAGE COMPANY, INC.
NOTES
TO
UNAUDITED FINANCIAL STATEMENTS
JUNE
30,
2008
NOTE
2 – GOING CONCERN CONSIDERATIONS
The
accompanying financial statements are prepared assuming the Company will
continue as a going concern. At June 30, 2008, the Company had an accumulated
deficit of $24,673,568 and negative working capital of $860,569. Additionally,
for the nine months ended June 30, 2008, the Company incurred net losses
of
23,581,665 and had negative cash flows from operations in the amount of
$7,275,434. The ability of the Company to continue as a going concern is
dependent upon increasing sales and obtaining additional capital and financing.
During the fiscal year ended September 30, 2007, the Company borrowed $750,000
for working capital purposes and sold common shares for net proceeds of
$350,000. The $750,000 of notes payables were converted into common stock
during
the period ended June 30, 2008. During the nine months ended June 30, 2008,
the
Company sold common shares for net proceeds of $3,375,550 and $2,262,965,
and
received net proceeds of $1,167,500 from the exercise of warrants; additionally,
the Company issued notes payable of $1,000,000, $250,000, $250,000 and
$93,000
during the period. Management is continuing attempts to raise additional
capital
via equity, debt and/or hybrid means. While the Company believes in the
viability of its strategy to increase sales volume and in its ability to
raise
additional funds, there can be no assurances to that effect.
NOTE
3 - INVENTORIES
At
June
30, 2008, inventories consisted of the following:
|
Raw
materials
|
|
$
|
243,393
|
|
|
Finished
goods
|
|
|
375,155
|
|
|
Finished
goods – inventory held by distributor
|
|
|
472,000
|
|
|
Total
|
|
$
|
1,090,548
|
|
The
Company billed and shipped product to a certain customer during June 2008.
In
consideration of the Company’s revenue recognition policy; however, revenue was
deferred due to non-assurance of the ability to collect payment. As the
risk of
return due to non payment is high the cost of inventory shipped to the
customer
is represented in finished goods - inventory held by distributor and will
be
recognized proportionately at such time when payment for product is received
or
the related revenue meets all recognition criteria.
NOTE
4 - PROPERTY AND
EQUIPMENT
At
June
30, 2008, property and equipment consisted of the following:
|
|
|
Estimated life
|
|
Amount
|
|
|
Computer
equipment, office equipment, and furniture and fixtures
|
|
|
3-7
years
|
|
$
|
136,199
|
|
|
Less:
Accumulated depreciation
|
|
|
|
|
|
(11,404
|
)
|
|
|
|
|
|
|
$
|
124,795
|
|
For
the
three and nine months ended June 30, 2008, depreciation expense amounted
to
$6,169 and, 10,299 respectively.
PURPLE
BEVERAGE COMPANY, INC.
NOTES
TO
UNAUDITED FINANCIAL STATEMENTS
JUNE
30,
2008
NOTE
5 – NOTES PAYABLE
Between
May and July 2007, the Company issued unsecured term notes payable aggregating
$750,000. The term notes bear 12% interest per annum and were to mature
on the
earlier of December 29, 2007, or on the date of initial closing of subsequent
financing of equity or debt securities with gross proceeds exceeding $2,500,000.
The Company recognized a total debt discount of $325,920 in connection
with the
issuance of these 12% term notes. The remaining discount as of period ending
September 30, 2007 was $155,228 and has since been fully amortized and
expensed
as of the nine months ended June 30, 2008 as an interest expense. In connection
with the issuance of said notes, the Company issued 562,000 shares of common
stock and granted 300,000 warrants to three investors exercisable at a
price of
$2.00 per share for a period of five years.
In
December 2007, the Company amended and restated the terms and provisions
of all
three term notes. Under the terms of two of the amended and restated convertible
term notes, the principal and accrued interest thereon was to mature on
March
31, 2008, and prior to the maturity date, the payees under said notes have
the
right, in aggregate, at any time, or from time to time, to convert some
or all
of the notes payable into the Company’s common stock with a convertible rate of
$1.00 per share or up to 500,000 (prior to the conversion of accrued interest)
shares on a pro rata basis of the Company’s common stock, par value $0.001 per
share; and in connection with such amendment of terms, the Company issued
an
aggregate of 100,000 shares of its common stock to such two debt holders.
The
Company valued these common shares at the fair market value on the date
of
grant, or $0.50 per share or approximately $50,000 based on the recent
selling
price of the Company’s common stock. Such amount has been recognized as interest
expense. Under the terms of the other amended and restated convertible
term
note, the principal and accrued interest thereon was to mature on the earlier
of
December 29, 2007, or on the date of initial closing of subsequent financing
of
equity or debt securities with gross proceeds exceeding $2,500,000; and
from and
after the closing of the Merger (as defined in such amended and restated
convertible term note), for a period of six months thereafter, the Company
has
the right, in aggregate, at any time, or from time to time, to convert
some or
all of the note payable into the Company’s common stock with a convertible rate
of $1.00 per share or up to 250,000 shares on a pro rata basis of the Company’s
common stock, par value $0.001 per share. Additionally, the third debt
holder
waived any default that could have occurred upon the maturity date in December
2007 through March 31, 2008.
On
May
12, 2008, the debt (including accrued and unpaid interest) of each of the
three
debt holders was converted into the Company’s common stock at a ratio of one
share of common stock for each $1.25 owed to each debt holder, resulting
in an
aggregate issuance of 664,504 shares of the Company’s common stock to the three
debt holders.
In
March
2008, the Company issued an unsecured note payable of $1,000,000. The note
payable bears 5% interest per annum and matures on the earlier of April
25,
2008, or within 5 days of closing of subsequent financing of equity or
debt
securities with gross proceeds exceeding $1,000,000. In April 2008, the
Company
repaid the principal amount due under this promissory note amounting to
$1,000,000.
In
June
2008, the Company issued two unsecured notes payable in the amount of $250,000
each to a certain note holder. The notes payable bear 18% interest per
annum and
mature on August 06, 2008 and August 24, 2008, respectively. Additionally,
each
note includes 50,000 shares, 50,000 warrants to purchase shares at $2.00
and
50,000 warrants to purchase shares at $3.50.
On
June
26, 2008, the Company issued an unsecured note payable in the amount of
$93,000
to a certain note holder. The note bears interest of 2.08% for an unspecified
term. The note was repaid in July of 2008.
Accrued
interest on the three notes still outstanding totals $6,513 as of June
30, 2008.
NOTE
6 – DEFERRED REVENUE
The
Company invoiced a certain customer $576,000 for product shipped during
the
quarter; however, the Company will defer the revenue until collection is
made or
such time when the Company can assure the revenue recognition policy is
fully
adhered to. Although persuasive evidence of an arrangement existed, product
had
been shipped and the sales price was determined; the Company could not
reasonably assure collection due to the limited operating history of the
Company, limited history of the business relationship with the customer,
and
significant size of the transaction in relation to others in the Company’s brief
history. Due to the non-assurance of collection, the Company recorded such
amount as deferred revenue.
PURPLE
BEVERAGE COMPANY, INC.
NOTES
TO
UNAUDITED FINANCIAL STATEMENTS
JUNE
30,
2008
NOTE
7 - RELATED PARTY TRANSACTIONS
The
Company leased its office space from a company owned by the Company’s CEO for
approximately $28,000 during the nine months ended June 30, 2008, and does
not
owe any amount to such related party at June 30, 2008. In January 2008,
the
Company entered into a 50-month sublease with a third party.
The
Chief
Financial Officer is the note holder for the $93,000 note bearing interest
at
2.08% annually.
NOTE
8 - STOCKHOLDERS’ EQUITY
Common
Stock
At
the
effective time of the Merger, the stockholders of Venture exchanged their
securities for 35,851,548 shares of the Company’s restricted common stock,
representing approximately 68% of the common stock of the Company at that
time.
The Company had 10,993,125 outstanding shares of common stock immediately
preceding the merger. Additionally, upon the closing of the Merger, two
former
stockholders of Red sold their interest in Red in exchange for $60,000
in cash
and all the historical operating assets of Red pursuant to a stock purchase
agreement entered into December 12, 2007.
In
October 2007, the Company completed a private placement to accredited investors
and received proceeds of $630,000 from the sale of units consisting in
the
aggregate of 1,260,000 shares of its common stock and warrants to purchase
1,260,000 shares of common stock. The Company’s founder contributed 1,260,000
shares owned by him to the Company in connection with this private placement.
The warrants are exercisable at $2.00 per share for a term of five
years.
In
November 2007, the Company issued 550,712 shares of common stock for advertising
and promotional services in connection with a three-year agreement. The
Company’s founder contributed 183,565 shares owned by him to the Company in
connection with this agreement. The Company valued these common shares
at the
fair market value on the date of grant at $.50 per share or $275,356 based
on
the recent selling price of the Company’s common stock, which has been
recognized as advertising expense.
In
December 2007, the Company agreed to issue 100,000 shares of common stock
for
advertising and promotional services in connection with a one year agreement.
The Company valued these common shares at the fair market value on the
date of
grant at $.50 per share or $50,000 based on the recent selling price of
the
Company’s common stock, which has been recognized as advertising
expense.
In
December 2007, the Company completed a private placement to accredited
investors
and received net proceeds of $2,745,550 from the sale of units consisting
in the
aggregate of 6,030,000 shares of its common stock and warrants to purchase
6,030,000 shares of common stock. The warrants are exercisable at $2.00
per
share for a term of five years. Additionally, in connection with these
private
placements, the Company paid commissions to its placement agents of
approximately $225,200 in cash, issued 281,500 shares of common stock,
and
granted 281,500 warrants exercisable at $2.00 per share for a term of five
years, which have been allocated against paid-in-capital.
In
December 2007, the Company amended the terms and provisions in connection
with
notes payable of two debt holders. Under the terms of the amended note
agreements, the principal and accrued interest thereon will mature on March
31,
2008, and, in connection with such extension of terms, the Company issued
an
aggregate of 100,000 shares to such debt holders. The Company valued these
common shares at the fair market value on the date of grant at $.50 per
share or
approximately $50,000 based on the recent selling price of the Company’s common
stock, which has been recognized as interest expense. Further, as part
of the
amendments, the note became convertible at the option of the holders at
a rate
of $1.00 per share.
In
December 2007, the Company obtained the approval of a majority of its
stockholders to increase the authorized common shares from 50,000,000 to
412,500,000 shares of common stock at $0.001 par value.
PURPLE
BEVERAGE COMPANY, INC.
NOTES
TO
UNAUDITED FINANCIAL STATEMENTS
JUNE
30,
2008
NOTE
8 - STOCKHOLDERS’ EQUITY (continued)
Common
Stock (continued)
In
January 2008, the Company issued 150,000 shares of common stock for advertising
and promotional services in connection with a three year endorsement agreement.
The Company valued these common shares at the fair market value on the
date of
grant at $1.55 per share or $232,500, which has been recognized as
advertising expense.
In
January 2008, the Company issued 125,000 shares of common stock for advertising
and promotional services in connection with a one-month endorsement agreement.
Additionally, under this agreement, the Company shall pay $10,000. The
Company
valued these common shares at the fair market value on the date of grant
at
$1.55 per share or $193,750, which has been recognized as advertising
expense.
In
February 2008, the Company issued 100,000 shares of common stock in connection
with a convertible notes payable. The Company valued these common shares
at the
fair market value on the date of grant at $1.56 per share or $156,000 ,
which
has been recognized as interest expense.
In
March
2008, the Company issued 160,000 shares of common stock for advertising
and
promotional services in connection with a one-month endorsement agreement.
Additionally, under this agreement, the Company shall pay $25,000. The
Company
valued these common shares at the fair market value on the date of grant
at
$2.87 per share or $459,200, which has been recognized as advertising
expense.
In
March
2008, the Company completed a private placement to eight accredited investors
for a total subscription receivable of $2,264,601 from the sale of an aggregate
of 1,635,785 shares of its common stock. Additionally, in connection with
this
private placement, the Company paid commission to its placement agents
through
issuance of 250,000 shares of common stock, which have been allocated against
paid-in-capital. In April 2008, the Company collected the subscription
receivable amounting to $2,264,601 in connection with this private
placement.
In
March
2008, in connection with the exercise of stock warrants, the Company issued
934,000 shares of common stock for proceeds of $1,167,500. The Company
offered a
temporary reduction in the exercise price of certain of the warrants that
it had granted as part of its December 2007 private placement. The per-share
exercise price of the warrants was reduced from $2.00 to $1.25 from March
11,
2008, to April 2, 2008. As of the expiration date of the temporary
reduction-in-exercise-price-period, the exercise price of the unexercised
warrants reverted to their original $2.00 per share exercise price. In
connection with the temporary reduction, the exercising warrant holders
were
granted an aggregate of 467,000 common stock purchase warrants on the basis
of
one new warrant for each two original warrants exercised. The terms of
the new
five-year warrants are substantially similar to the terms of the exercised
warrants except that the per-share exercise price of the new warrants is
$3.50.
In
April
2008, in connection with a note payable the Company issued 400,000 shares
to a
certain note holder. The Company valued these common shares at the fair
market
value on the date of grant at $1.56 or $624,000, which has been recognized
as
interest expense.
In
April
2008, the Company issued 100,834 shares of common stock for advertising
and
promotional services in connection with an endorsement agreement. The Company
valued these common shares at the fair market value on the date of grant
at
$2.89 per share or $291,411, which has been recognized as advertising
expense.
In
April
2008, the Company issued 309,166 shares of common stock for consulting
and
advisory services. The Company valued these common shares at the fair market
value on the date of grant at $2.89 per share or $893,490, which has been
recognized as a consulting expense.
In
May
2008, in connection with the conversion of $750,000 in convertible notes
payable
into common stock, the Company issued 664,504 shares to the note holders.
Principal and accrued interest of $829,965 convertible into shares at the
price
of $1.25 per share was converted from debt to equity and credited to paid-in
capital.
In
May
2008, the Company issued 596,296 shares of common stock for consulting
and
advisory services. The Company valued these common shares at the fair market
value on the date of grant at $2.72 per share or $1,621,925, which has been
recognized as a consulting expense.
PURPLE
BEVERAGE COMPANY, INC.
NOTES
TO
UNAUDITED FINANCIAL STATEMENTS
JUNE
30,
2008
NOTE
8 - STOCKHOLDERS’ EQUITY (continued)
Common
Stock (continued)
In
May
2008, the Company issued 150,000 shares of common stock for consulting
and
advisory services. The Company valued these common shares at the fair market
value on the date of grant at $2.71 per share or $406,500, which has been
recognized as a consulting expense.
In
June
2008, in connection with a notes payable the Company issued 50,000 shares
to a
certain note holder. The Company valued these common shares at the fair
market
value on the date of grant at $2.48 or $124,000, which has been recognized
as
interest expense.
In
June
2008, in connection with a notes payable the Company issued 50,000 shares
to a
certain note holder. The Company valued these common shares at the fair
market
value or minimum value as defined by the note payable on the date of grant
at
$2.00 or $100,000, which has been recognized as interest expense.
In
connection with the exercise of the warrants, the Company agreed to register
for
re-sale the exercised shares and 30% of the other shares of common stock
issued
to the exercising warrant holders in connection with the December 2007
private
placement. The Company also agreed to register for re-sale of the 1,635,786
shares of common stock that the Company sold and issued in the private
offering
in March 2008.
Pursuant
to a Registration Rights Agreement between the Company and the exercising
warrant holders, and a separate, substantially similar Registration Rights
Agreement between the Company and the eight issuees in the private offering,
the
Company agreed to file a re-sale registration statement with the Securities
and
Exchange Commission on or before May 2, 2008, and to use its best efforts
to
cause the registration statement to be declared effective on or before
June 30,
2008. The Company filed such registration statement on May 2, 2008.
The
Company agreed to pay to the exercising warrant holders and to the eight
issuees
in the private offering certain liquidated damages as follows: (a) if the
registration statement is not filed timely, then, for each 30-day period
of
delinquency and pro rata for any portion thereof until the registration
statement has been filed, the Company will pay to each exercising warrant
holder
and to each private offering issuee an amount equal to 1.5% of the exercise
price paid by each exercising warrant holder and purchase price paid by
such
issuee, as relevant, and (b) if the required registration statement is
not
declared effective by the Securities and Exchange Commission on a timely
basis,
then, for each 30-day period of delinquency and pro rata for any portion
thereof
until the registration statement has been declared effective, the Company
will
pay to each exercising warrant holder and to each private offering issuee
an
amount equal to 1.5% of the aggregate exercise price paid by each exercising
warrant holder and purchase price paid by such issuee, as relevant. Such
payments shall be made to each such qualifying holder in cash. However,
the
Company need only make one such series of liquidated damages payments for
any
period in which the Company is liable both for a failure to file the
registration statement timely and for a failure for it to have been declared
effective timely. If the registration statement has been declared effective
timely, even if it had not been filed timely, any liquidated damages otherwise
due shall be automatically waived.
Common
Stock Warrants
In
October 2007, in connection with a private placement, the Company granted
1,260,000 purchase warrants to investors. The warrants are exercisable
at $2.00
per common share and expire in five years.
In
December 2007, in connection with a private placement, the Company granted
6,030,000 purchase warrants to investors. The warrants are exercisable
at $2.00
per common share and expire in five years. In connection with these private
placements, the Company paid commissions and granted 281,500 warrants to
its
placement agents. The warrants are exercisable at $2.00 per share for a
term of
five years, which have been allocated against paid-in-capital.
PURPLE
BEVERAGE COMPANY, INC.
NOTES
TO
UNAUDITED FINANCIAL STATEMENTS
JUNE
30,
2008
NOTE
8 - STOCKHOLDERS’ EQUITY (continued)
Common
Stock Warrants (continued)
In
March
2008, the Company offered a temporary reduction in the exercise price
of certain of the warrants that it had granted as part of its December 2007
private placement. The per-share exercise price of the warrants was reduced
from
$2.00 to $1.25 from March 11, 2008, to April 2, 2008. A total of 934,000
warrants were exercised, resulting in $1,167,500 of proceeds. As of the
expiration date of the temporary reduction-in-exercise-price-period, the
exercise price of the unexercised warrants reverted to their original $2.00
per
share exercise price. In connection with the temporary reduction, the exercising
warrant holders were granted an aggregate of 467,000 common stock purchase
warrants on the basis of one new warrant for each two original warrants
exercised. The terms of the new five-year warrants are substantially similar
to
the terms of the exercised warrants except that the per-share exercise
price of
the new warrants is $3.50.
In
June
2008, in connection with two notes payable, the Company issued 200,000
warrants
to a certain debt holder. The terms include aggregate warrants to purchase
100,000 shares of common stock at $2.00 and 100,000 shares at $3.50 and
all
expire in two years.
A
summary
of the status of the Company’s outstanding stock warrants as of June 30, 2008,
and changes during the period then-ended is as follows:
|
|
|
June 30, 2008
|
|
|
|
|
Number of
Warrants
|
|
Weighted Average
Exercise Price
|
|
|
Balance
at beginning period
|
|
|
1,000,000
|
|
$
|
2.00
|
|
|
Granted
|
|
|
8,238,500
|
|
|
2.02
|
|
|
Exercised
|
|
|
(934,000
|
)
|
|
1.25
|
|
|
Forfeited
|
|
|
-
|
|
|
-
|
|
|
Balance
at end of period
|
|
|
8,304,500
|
|
$
|
2.10
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
exercisable at end of period
|
|
|
8,304,500
|
|
$
|
2.10
|
|
|
Weighted
average fair value of warrants granted during the period
|
|
|
|
|
$
|
2.02
|
|
The
following table summarizes information about stock warrants outstanding
at June
30, 2008:
|
Warrants Outstanding
|
|
Warrants Exercisable
|
|
|
Range of
Exercise
Price
|
|
Number
Outstanding at
June 30,
2008
|
|
Weighted
Average
Remaining
Contractual
Life
|
|
Weighted
Average
Exercise
Price
|
|
Number
Exercisable at
June 30,
2008
|
|
Weighted
Average
Exercise
Price
|
|
|
$
|
2.00
|
|
|
7,737,500
|
|
|
4.35
Years
|
|
$
|
2.00
|
|
|
7,737,500
|
|
$
|
2.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.50
|
|
|
567,000
|
|
|
4.26
Years
|
|
|
3.50
|
|
|
567,000
|
|
|
3.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,304,500
|
|
|
|
|
$
|
2.10
|
|
|
8,304,500
|
|
$
|
2.10
|
|
PURPLE
BEVERAGE COMPANY, INC.
NOTES
TO
UNAUDITED FINANCIAL STATEMENTS
JUNE
30,
2008
NOTE
8 - STOCKHOLDERS’ EQUITY (continued)
Stock
Options
In
December 2007, the Company adopted the 2007 Incentive Plan under which
stock
awards or options to acquire shares of the Company's common stock may be
granted
to employees and non-employees of the Company. The Company has authorized
10,000,000 shares of the Company's common stock for grant under the 2007
Plan.
The 2007 Plan is administered by the Board of Directors and permits the
issuance
of options for the purchase of up to the number of available shares outstanding.
Options granted under the 2007 Plan vest in accordance with the terms
established by the Company's stock option committee and the 2007 Plan shall
terminate ten years from its adoption. To date, there remain 180,000 shares
underlying options to grant pursuant to the 2007 Plan.
In
January 2008, the Company granted 1,500,000 stock options for advertising
and
promotional services in connection with a three-year endorsement agreement.
The
options are exercisable at $1.55 per share for a term of six months. The
Company
valued the stock options utilizing the Black-Scholes options pricing model
at $
0.63 per share or $945,000, which has been recognized as advertising
expense.
In
January 2008, the Company granted 500,000 stock options for advertising
and
promotional services in connection with a one-month endorsement agreement.
The
options are exercisable at $1.55 per share for a term of six months. The
Company
valued the stock options utilizing the Black-Scholes options pricing model
at $
0.63 per share or $315,000, which has been recognized as advertising
expense.
In
March
2008, the Company granted 1,414,286 stock options for advertising and
promotional services in connection with a three-year endorsement agreement.
The
options are exercisable at $0.01 per share for a term of three years. The
Company valued the stock options utilizing the Black-Scholes options pricing
model at $ 2.86 per share or $4,044,858, which has been recognized as
advertising expense.
In
March
2008, the Company granted 100,000 stock options for professional services
in
connection with a five-year agreement. The options are exercisable at $1.12
per
share for a term of five years. The Company valued the stock options utilizing
the Black-Scholes options pricing model at $ 2.04 per share. For the nine
months
ended June 30, 2008, total stock-based compensation charged to professional
and
consulting expense for option-based arrangements amounted to $54,400. At
June
30, 2008, there was approximately $149,600 of total unrecognized compensation
expense related to this non-vested option-based compensation arrangement.
This
cost is expected to be recognized over the remaining vesting
period.
During
the nine months ended June 30, 2008, the Company granted an aggregate of
9,990,000 five year stock options to purchase common stock to the Chief
Executive Officer and certain employees and non-employees of the Company
at
exercise prices of $0.50 per share, of which 1,185,000 has been forfeited
due to
terminations. For the nine months ended June 30, 2008, total net stock-based
compensation charged to operations for option-based arrangements amounted
to
$1,917,407. At June 30, 2008, there was approximately $845,234 of total
unrecognized compensation expense related to non-vested option-based
compensation arrangements under the 2007 Plan. These costs are expected
to be
recognized over the remaining vesting periods of each option
grant.
PURPLE
BEVERAGE COMPANY, INC.
NOTES
TO
UNAUDITED FINANCIAL STATEMENTS
JUNE
30,
2008
NOTE
8 - STOCKHOLDERS’ EQUITY (continued)
Stock
Options (continued)
During
the nine months ended June 30, 2008, the Company granted an aggregate of
7,860,826 options, of which 120,000 has been forfeited due to terminations,
with
terms ranging from five to ten year stock options to purchase common stock
to
the Chief Financial Officer and certain employees of the Company at exercise
prices ranging from $0.80 to $3.10 per share. For the nine months ended
June 30,
2008, total stock-based compensation charged to operations for option-based
arrangements amounted to $2,820,372. At June 30, 2008, there was approximately
$13,086,911 of total unrecognized compensation expense related to non-vested
option-based compensation. These costs are expected to be recognized over
the
remaining vesting periods of each option grant.
A
summary
of the status of the Company’s outstanding stock options as of June 30, 2008,
and changes during the period then ended is as follows:
|
|
|
June 30, 2008
|
|
|
|
|
Number of Options
|
|
Weighted Average
Exercise Price
|
|
|
Balance at beginning
of period
|
|
|
-
|
|
$
|
-
|
|
|
Granted
|
|
|
21,275,112
|
|
|
1.18
|
|
|
Exercised
|
|
|
-
|
|
|
-
|
|
|
Forfeited
|
|
|
(1,305,000
|
)
|
|
.72
|
|
|
Balance
at end of period
|
|
|
19,970,112
|
|
$
|
1.14
|
|
|
|
|
|
|
|
|
|
|
|
Options
exercisable at end of period
|
|
|
9,393,895
|
|
$
|
.71
|
|
|
Weighted
average fair value of options granted during the period
|
|
|
|
|
$
|
1.17
|
|
The
following table summarizes information about stock options outstanding
at June
30, 2008:
|
Options Outstanding
|
|
Options Exercisable
|
|
|
Range of
Exercise
Price
|
|
Number
Outstanding at
June 30,
2008
|
|
Weighted
Average
Remaining
Contractual
Life
|
|
Weighted
Average
Exercise
Price
|
|
Number
Exercisable at
June 30,
2008
|
|
Weighted
Average
Exercise
Price
|
|
|
$
|
0.01
|
|
|
1,414,286
|
|
|
2.75
Years
|
|
$
|
0.01
|
|
|
1,414,286
|
|
$
|
0.01
|
|
|
|
0.50
|
|
|
8,715,000
|
|
|
4.45
Years
|
|
|
0.50
|
|
|
5,405,000
|
|
|
0.50
|
|
|
|
0.80
|
|
|
1,600,000
|
|
|
9.73
Years
|
|
|
0.80
|
|
|
-
|
|
|
-
|
|
|
|
1.12
-1.94
|
|
|
4,309,826
|
|
|
4.48
Years
|
|
|
1.53
|
|
|
2,574,609
|
|
|
1.54
|
|
|
|
2.17-2.94
|
|
|
3,260,000
|
|
|
6.53
Years
|
|
|
2.57
|
|
|
-
|
|
|
-
|
|
|
|
3.10
|
|
|
671,000
|
|
|
4.81
Years
|
|
|
3.10
|
|
|
|
|
|
-
|
|
|
|
|
|
|
19,970,112
|
|
|
|
|
$
|
1.14
|
|
|
9,393,895
|
|
$
|
.71
|
|
PURPLE
BEVERAGE COMPANY, INC.
NOTES
TO
UNAUDITED FINANCIAL STATEMENTS
JUNE
30,
2008
NOTE
8 - STOCKHOLDERS’ EQUITY (continued)
Stock
Options (continued)
The
fair
value of stock options granted was estimated at the date of grant using
the
Black-Scholes options pricing model. The Company used the following assumptions
for determining the fair value of options granted under the Black-Scholes
option
pricing model:
|
|
|
Period Ending June 30,
2008
|
|
Expected volatility
|
|
75% - 91%
|
|
Expected term
|
|
0.50 -10 Years
|
|
Risk-free interest rate
|
|
1.93%-3.73%
|
|
Expected dividend yield
|
|
0%
|
NOTE 9 - SUBSEQUENT EVENTS
In July
2008, the Company issued three short-term notes payable to Ted Farnsworth,
Chief
Executive Officer of the Company, totaling $250,000 and, bearing annual
interest
of 2.42%, with unspecified maturity periods. The notes were for $100,000,
$100,000 and $50,000, respectively - one of the $100,000 notes was repaid
in
July 2008.
In
July
2008, the Company issued a note payable in the amount of $1,000,000 to
a certain
note holder. The note bears interest of 11% per annum and matures on October
16,
2008. Additionally, the note includes 200,000 shares of common stock and
warrants to purchase 200,000 shares of common stock at $2.00 per share.
In
July
2008, the Company amended an option agreement related to a certain endorsement
agreement set to expire July 2008. The amendment adjusted the agreement
granting
the holder 1,500,000 options to purchase common stock at $1.00 through
January
2011.
In
August
2008, the Company issued a note payable in the amount of $250,000 to a
certain
note holder. The note bears interest of 8% per annum and matures on September
10, 2008.
From
July
1, 2008 to August 14th 2008 the Company has granted 187,000 additional
options
to certain employees and non-employees. All options are for five years,
all vest
annually over a three year period and all strike prices are determined
based on
the trailing ten day weighted average of the Company’s
stock.
33,733,722
Shares
PURPLE
BEVERAGE COMPANY, INC.
Common
Stock
______________________
PROSPECTUS
______________________
,
2008
PART
II
INFORMATION
NOT REQUIRED IN PROSPECTUS
|
Item
13.
|
Other
Expenses of Issuance and
Distribution.
|
The
following table sets forth the costs and expenses payable by us in connection
with the issuance and distribution of the securities being registered. None
of
the following expenses are payable by the selling stockholders. All of the
amounts shown are estimates, except for the SEC registration fee.
|
SEC
Registration Fee
|
|
$
|
142.52
|
|
|
Accounting
Fees and Expenses
|
|
|
25,000.00
|
|
|
Legal
Fees and Expenses
|
|
|
150,000.00
|
|
|
Printing
Expenses
|
|
|
10,000.00
|
|
|
Miscellaneous
Fees and Expenses
|
|
|
8,623.00
|
|
|
Total
|
|
$
|
193,765.52
|
|
|
Item
14.
|
Indemnification
of Directors and Officers.
|
The
Nevada Revised Statutes provide that a corporation may indemnify its officers
and directors against expenses actually and reasonably incurred in the event
an
officer or director is made a party or threatened to be made a party to an
action (other than an action brought by or in the right of the corporation
as
discussed below) by reason of his or her official position with the corporation
provided the director or officer (1) is not liable for the breach of any
fiduciary duties as a director or officer involving intentional misconduct,
fraud or a knowing violation of the law or (2) acted in good faith and in a
manner he or she reasonably believed to be in the best interests of the
corporation and, with respect to any criminal actions, had no reasonable cause
to believe his or her conduct was unlawful. A corporation may indemnify its
officers and directors against expenses, including amounts paid in settlement,
actually and reasonably incurred in the event an officer or director is made
a
party or threatened to be made a party to an action by or in the right of the
corporation by reason of his or her official position with the corporation,
provided the director or officer (1) is not liable for the breach of any
fiduciary duties as a director or officer involving intentional misconduct,
fraud or a knowing violation of the laws or (2) acted in good faith and in
a
manner he or she reasonably believed to be in the best interests of the
corporation. The Nevada Revised Statutes further provides that a corporation
generally may not indemnify an officer or director if it is determined by a
court that such officer or director is liable to the corporation or responsible
for any amounts paid to the corporation as a settlement, unless a court also
determines that the officer or director is entitled to indemnification in light
of all of the relevant facts and circumstances. The Nevada Revised Statutes
require a corporation to indemnify an officer or director to the extent he
or
she is successful on the merits or otherwise successfully defends the
action.
Our
bylaws provide that we will indemnify our directors and officers to the maximum
extent permitted by Nevada law. We are also permitted to apply for insurance
on
behalf of any director, officer, employee or other agent for liability arising
out of his actions.
|
Item
15.
|
Recent
Sales of Unregistered
Securities.
|
On
December 12, 2007, in connection with our merger with Venture Beverage Company,
we issued 37,581,135 shares of our common stock to the stockholders of Venture
Beverage Company. The issuance was made pursuant to Rule 506 under Regulation
D
promulgated by the SEC. We believe that exemption was available because (i)
no
advertising or general solicitation was employed in offering the securities,
(ii) the offering and sales were made to 52 persons, 40 of whom were accredited
investors and 12 of whom were non-accredited sophisticated investors (all of
whom received applicable disclosure materials) and (iii) transfer was restricted
in accordance with the requirements of the Securities Act of 1933, as amended
(including by legending of certificates representing the
securities).
On
December 12, 2007, we accepted subscriptions for $3,015,000 or 60.3 units,
with
each unit consisting of 100,000 shares of common stock and a callable five-year
warrant to purchase 100,000 shares of common stock at an initial exercise price
$2.00 per share. Each unit was sold for $50,000 and we accepted subscriptions
for partial units. In total, on December 12, 2007, we issued 6,030,000 shares
of
common stock and warrants to purchase up to 6,030,000 shares of common stock.
The issuances were made pursuant to Rule 506 under Regulation D promulgated
by
the SEC. We believe that exemption was available because (i) no advertising
or
general solicitation was employed in offering the securities, (ii) the offering
and sales were made to 31 persons or entities, each of which was an accredited
investor and (iii) transfer was restricted in accordance with the requirements
of the Securities Act of 1933, as amended (including by legending of
certificates representing the securities).
As
compensation for Palladium Capital Advisors, LLC’s role as a placement agent in
connection with the above described unit offering, on December 12, 2007, we
issued Palladium Capital Advisors, LLC a callable five-year warrant to purchase
up to 450,400 shares of common stock at an initial exercise price of $2.00.
In
addition, Palladium Capital Advisors, LLC was entitled to a cash fee in
connection with the above described unit offering equal to ten percent of the
gross proceeds from units placed by Palladium Capital Advisors, LLC and
reimbursement for its non-accountable expenses in an amount equal to three
percent of gross proceeds from the units placed by Palladium Capital Advisors,
LLC. On December 12, 2007, we issued Palladium Capital Advisors, LLC and one
of
its affiliates an aggregate of 281,500 shares of common stock and a five year
callable warrant to purchase up to 281,500 shares of common stock at an initial
exercise price of $2.00 in exchange for Palladium Capital Advisors, LLC
surrendering 5% of the above described cash fee. The issuances were made
pursuant to Rule 506 under Regulation D promulgated by the SEC. We believe
that
exemption was available because (i) no advertising or general solicitation
was
employed in offering the securities, (ii) the offering and sales were made
only
to Palladium Capital Advisors, LLC, which was an accredited investor and (iii)
transfer was restricted in accordance with the requirements of the Securities
Act of 1933, as amended (including by legending of certificates representing
the
securities).
On
January 18, 2008, we issued 127,500 shares of common stock and granted 1,275,000
options to purchase common stock to an accredited individual pursuant to an
endorsement agreement dated as of January 18, 2008, by and among us and Torii
Hunter and (2) issued 22,500 shares of common stock and granted 225,000 options
to purchase common stock to an accredited entity in connection with such
endorsement agreement. The options were exercisable at $1.00 per share for
a
term of six months. In connection with a consulting agreement, dated as of
March
25, 2008, between us and Esquire Sports Marketing, LLC related to such
aforementioned endorsement agreement, on January 18, 2008, we issued an
aggregate of 125,000 shares of common stock to three accredited investors and
granted 500,000 options to purchase common stock to three accredited investors.
The options were exercisable at $1.00 per share and expired on July 10, 2008.
The issuances were made pursuant to Rule 506 under Regulation D promulgated
by
the SEC. We believe that exemption was available because (i) no advertising
or
general solicitation was employed in offering the securities, (ii) the offering
and sales were made solely to accredited investors and (iii) transfer was
restricted in accordance with the requirements of the Securities Act of 1933,
as
amended (including by legending of certificates representing the
securities).
In
connection with an endorsement agreement, dated as of March 25, 2008, by and
among us and Mariano Rivera, on March 25, 2008, we granted to an accredited
individual pursuant to such endorsement agreement a three-year non-qualified
stock option to purchase up to 1,414,286 shares of our common stock at an
exercise price of $0.01. This option vested and became exercisable immediately.
In connection with a consulting agreement, dated January 18, 2008, between
us
and Esquire Sports Marketing, LLC related to such aforementioned endorsement
agreement, on March 25, 2008, we issued an aggregate of 160,000 shares of common
stock to three accredited investors. The issuances were made pursuant to Rule
506 under Regulation D promulgated by the SEC. We believe that exemption was
available because (i) no advertising or general solicitation was employed in
offering the securities, (ii) the offering and sales were made solely to
accredited investors and (iii) transfer was restricted in accordance with the
requirements of the Securities Act of 1933, as amended (including by legending
of certificates representing the securities).
Pursuant
to a consulting agreement dated December 1, 2007 between us and Esquire Sports
Marketing, LLC, on March 3, 2008, we issued 100,000 shares of common stock
to
two accredited entities. The issuances were made pursuant to Rule 506 under
Regulation D promulgated by the SEC. We believe that exemption was available
because (i) no advertising or general solicitation was employed in offering
the
securities, (ii) the offering and sales were made solely to accredited investors
and (iii) transfer was restricted in accordance with the requirements of the
Securities Act of 1933, as amended (including by legending of certificates
representing the securities).
On
March
11, 2008, we offered a temporary reduction in the exercise price of 50% of
the
warrants issued as part of our December 2007 private placement. The per-share
exercise price of the warrants was reduced from $2.00 to $1.25 from March 11
to
April 2, 2008. At the request of the following five warrant holders, we
subsequently eliminated the 50% limit: Alan Horowitz, Daniel Brauser, David
Adelman, Robert Millet, and Steven Friedman. In connection with this exercise
price reduction, 934,000 shares of common stock were issued following the
exercise of warrants, resulting in $1,167,500 of proceeds. As of the expiration
date of the temporary reduction-in-exercise-price-period, the exercise price
of
the unexercised warrants reverted to their original $2.00 per share exercise
price. In connection with the temporary reduction, the exercising warrant
holders were issued callable five-year warrants to purchase an aggregate of
467,000 shares of common stock on the basis of one new warrant for each two
original warrants exercised. The terms of the new five-year warrants are
substantially similar to the terms of the exercised warrants except that the
per-share exercise price of the new warrants is $3.50. The issuances were made
pursuant to Rule 506 under Regulation D promulgated by the SEC. We believe
that
exemption was available because (i) no advertising or general solicitation
was
employed in offering the securities, (ii) the offering and sales were made
solely to accredited investors and (iii) transfer was restricted in accordance
with the requirements of the Securities Act of 1933, as amended (including
by
legending of certificates representing the securities).
On
April
2, 2008, we issued 1,635,786 shares of common stock to eight accredited
investors in exchange for aggregate gross proceeds of $2,275,000. The issuances
were made pursuant to Rule 506 under Regulation D promulgated by the SEC. We
believe that exemption was available because (i) no advertising or general
solicitation was employed in offering the securities, (ii) the offering and
sales were made solely to accredited investors and (iii) transfer was restricted
in accordance with the requirements of the Securities Act of 1933, as amended
(including by legending of certificates representing the
securities).
On
June
6, 2008, we issued 50,000 shares of common stock, a two-year warrant to purchase
50,000 shares of our common stock at an exercise price of $2.00 per share,
and a
two-year warrant to purchase 50,000 shares of our common stock at an exercise
price of $3.50 per share to an accredited investor in exchange for gross
proceeds of $250,000. The issuances were made pursuant to Rule 506 under
Regulation D promulgated by the SEC. We believe that exemption was available
because (i) no advertising or general solicitation was employed in offering
the
securities, (ii) the offering and sales were made solely to accredited investors
and (iii) transfer was restricted in accordance with the requirements of the
Securities Act of 1933, as amended (including by legending of certificates
representing the securities)
On
June
24, 2008, we issued 50,000 shares of common stock, a two-year warrant to
purchase 50,000 shares of our common stock at an exercise price of $2.00 per
share, and a two-year warrant to purchase 50,000 shares of our common stock
at
an exercise price of $3.50 per share to an accredited investor in exchange
for
gross proceeds of $250,000. The issuances were made pursuant to Rule 506 under
Regulation D promulgated by the SEC. We believe that exemption was available
because (i) no advertising or general solicitation was employed in offering
the
securities, (ii) the offering and sales were made solely to accredited investors
and (iii) transfer was restricted in accordance with the requirements of the
Securities Act of 1933, as amended (including by legending of certificates
representing the securities)
On
July
16, 2008, we issued 200,000 shares of common stock and a two-year warrant to
purchase 200,000 shares of our common stock at an exercise price of $2.00 per
share, to an accredited investor in exchange for gross proceeds of $1,000,000.
The issuances were made pursuant to Rule 506 under Regulation D promulgated
by
the SEC. We believe that exemption was available because (i) no advertising
or
general solicitation was employed in offering the securities, (ii) the offering
and sales were made solely to accredited investors and (iii) transfer was
restricted in accordance with the requirements of the Securities Act of 1933,
as
amended (including by legending of certificates representing the
securities).
Pursuant
to a consulting agreement that we entered into on September 15, 2008 with a
consultant, the consultant has received 2,000,000 shares of common stock issued
under our 2007 Incentive Plan and is entitled to receive 2,500,000 shares of
our
common stock in consideration of bridge loans advanced by the consultant, of
which 1,262,522 shares have been issued to the consultant as of the date hereof,
and are being registered for resale by this prospectus. The consultant has
not
received all 2,500,000 shares of common stock as of the date hereof since we
are
precluded by resolutions adopted by our Board of Directors on September 12,
2008
from issuing any shares of capital stock or warrants to any person (including,
in connection with any anti-dilution adjustments), and from issuing to any
consultant or advisor, shares of capital stock unless and until such issuance,
together with all other holdings, shall not cause such person to hold
beneficially in excess of 9.99% of our then issued and outstanding shares of
common stock. The issuances were made pursuant to Rule 506 under Regulation
D
promulgated by the SEC. We believe that exemption was available because (i)
no
advertising or general solicitation was employed in offering the securities,
(ii) the offering and sales were made solely to accredited investors and (iii)
transfer was restricted in accordance with the requirements of the Securities
Act of 1933, as amended (including by legending of certificates representing
the
securities).
|
Exhibit No.
|
|
Description
|
|
2.1
|
|
Agreement
and Plan of Merger by and among Red Carpet Entertainment, Inc., Venture
Beverage Company, and Purple Acquisition Corp., dated December 12,
2007
(Incorporated by reference to Exhibit 2.1 to the Current Report on
Form
8-K/A filed with the Securities and Exchange Commission on December
17,
2007).
|
|
|
|
|
|
3.1
|
|
Composite
Articles of Incorporation of Purple Beverage Company, Inc. (Incorporated
by reference to Exhibit 3.1 to the Registration Statement on Form
S-1 of
Purple Beverage Company, Inc. filed with the Securities and Exchange
Commission on May 2, 2008).
|
|
|
|
|
|
3.2
|
|
By-laws
of Red Carpet Entertainment, Inc. (Incorporated by reference to Exhibit
3.2 to the Registration Statement on Form SB-2 filed with the Securities
and Exchange Commission December 28, 2006).
|
|
|
|
|
|
5.1*
|
|
Opinion
of
.
|
|
|
|
|
|
10.1
|
|
Employment
Agreement, dated as of December 12, 2007, between Purple Beverage
Company,
Inc. and Theodore Farnsworth (Incorporated by reference to Exhibit
10.1 to
the Current Report on Form 8-K/A of Purple Beverage Company, Inc.
filed
with the Securities and Exchange Commission on December 17,
2007).
|
|
|
|
|
|
10.2
|
|
Venture
Beverage Company 2007 Incentive Plan (Incorporated by reference to
Exhibit
10.2 to the Current Report on Form 8-K/A of Purple Beverage Company,
Inc.
filed with the Securities and Exchange Commission on December 17,
2007).
|
|
|
|
|
|
10.3
|
|
Form
of Nonqualified Stock Option Award Agreement under the 2007 Incentive
Plan
(Incorporated by reference to Exhibit 10.3 to the Current Report
on Form
8-K/A of Purple Beverage Company, Inc. filed with the Securities
and
Exchange Commission on December 17, 2007).
|
|
|
|
|
|
10.4
|
|
Form
of Lock-Up Agreement, dated as of December 12, 2007, by and between
the
Company and each of certain stockholders (Incorporated by reference
to
Exhibit 10.4 to the Current Report on Form 8-K/A of Purple Beverage
Company, Inc. filed with the Securities and Exchange Commission on
December 17, 2007).
|
|
|
|
|
|
10.5
|
|
Form
of Subscription Agreement, dated as of May 10, 2007, by and between
Venture Beverage Company and certain stockholders (Incorporated by
reference to Exhibit 10.5 to the Current Report on Form 8-K/A of
Purple
Beverage Company, Inc. filed with the Securities and Exchange Commission
on December 17, 2007).
|
|
10.6
|
|
Form
of Common Stock Purchase Warrant, dated between May 17 and October
24,
2007, issued by Venture Beverage Company to certain stockholders.
(Incorporated by reference to Exhibit 10.6 to the Current Report
on Form
8-K/A of Purple Beverage Company, Inc. filed with the Securities
and
Exchange Commission on December 17, 2007).
|
|
|
|
|
|
10.7
|
|
Form
of Subscription Agreement, dated as of December 12, 2007, by and
between
Purple Beverage Company, Inc. and certain stockholders (Incorporated
by
reference to Exhibit 10.7 to the Current Report on Form 8-K/A of
Purple
Beverage Company, Inc. filed with the Securities and Exchange Commission
on December 17, 2007).
|
|
|
|
|
|
10.8
|
|
Form
of Common Stock Purchase Warrant, dated as of December 12, 2007,
issued by
Purple Beverage Company, Inc. to certain stockholders (Incorporated
by
reference to Exhibit 10.8 to the Current Report on Form 8-K/A of
Purple
Beverage Company, Inc. filed with the Securities and Exchange Commission
on December 17, 2007).
|
|
|
|
|
|
10.9
|
|
Stock
Repurchase Agreement, made and entered into as of December 12, 2007,
by
and between Red Carpet Entertainment, Inc. and Christopher Johnson
and
Lissa Johnson (Incorporated by reference to Exhibit 10.9 to the Current
Report on Form 8-K/A of Purple Beverage Company, Inc. filed with
the
Securities and Exchange Commission on December 17,
2007).
|
|
|
|
|
|
10.10
|
|
Consulting
Agreement, dated December 1, 2007, by and between Purple Beverage
Company,
Inc. and Esquire Sports Marketing, L.L.C. (Incorporated by reference
to
Exhibit 10.10 to the Quarterly Report on Form 10-QSB of Purple Beverage
Company, Inc. filed with the Securities and Exchange Commission on
February 14, 2008).
|
|
|
|
|
|
10.11
|
|
Agreement,
dated January 18, 2008, by and between Purple Beverage Company, Inc.
and
Esquire Sports Marketing, L.L.C. (Incorporated by reference to Exhibit
10.11 to the Quarterly Report on Form 10-QSB of Purple Beverage Company,
Inc. filed with the Securities and Exchange Commission on February
14,
2008).
|
|
|
|
|
|
10.12
|
|
Endorsement
Agreement, entered into as of January 18, 2008 by and among Purple
Beverage Company, Inc. and Torii Hunter (Incorporated by reference
to
Exhibit 10.12 to the Quarterly Report on Form 10-QSB of Purple Beverage
Company, Inc. filed with the Securities and Exchange Commission on
February 14, 2008).
|
|
|
|
|
|
10.13
|
|
Sublease
Agreement, made as of January 22, 2008, by and between Purple Beverage
Company, Inc. and Fisher and Phillips, LLP (Incorporated by reference
to
Exhibit 10.13 to the Quarterly Report on Form 10-QSB of Purple Beverage
Company, Inc. filed with the Securities and Exchange Commission on
February 14, 2008).
|
|
10.14
|
|
Promissory
Note, dated March 11, 2008, issued by Purple Beverage Company, Inc.
to GRQ
Consultants, Inc. in the principal sum of $1,000,000 (Incorporated
by
reference to Exhibit 10.1 to the Current Report on Form 8-K of Purple
Beverage Company, Inc. filed with the Securities and Exchange Commission
on March 17, 2008).
|
|
|
|
|
|
10.15
|
|
Amendment
to Subscription Agreement and to Common Stock Purchase Warrant to
Purchase
Shares of Common Stock of Purple Beverage Company, Inc., dated April
2,
2008, by and between Purple Beverage Company, Inc. and certain persons,
who were parties to the December 12, 2007, Subscription Agreement.
(Incorporated by reference to Exhibit 10.1 to the Current Report
on Form
8-K of Purple Beverage Company, Inc. filed with the Securities and
Exchange Commission on April 4, 2008).
|
|
|
|
|
|
10.16
|
|
Common
Stock Purchase Warrant, dated April 2, 2008, issued by Purple Beverage
Company, Inc. in favor of the exercising warrant holders. (Incorporated
by
reference to Exhibit 10.2 to the Current Report on Form 8-K of Purple
Beverage Company, Inc. filed with the Securities and Exchange Commission
on April 4, 2008).
|
|
|
|
|
|
10.17
|
|
Addendum
to Subscription Agreement, dated April 2, 2008, by and between Purple
Beverage Company, Inc. and the parties thereto (Incorporated by reference
to Exhibit 10.3 to the Current Report on Form 8-K of Purple Beverage
Company, Inc. filed with the Securities and Exchange Commission on
April
4, 2008).
|
|
|
|
|
|
10.18
|
|
Registration
Rights Agreement, dated April 2, 2008, by and between the Company
and the
exercising warrant holders (Incorporated by reference to Exhibit
10.4 to
the Current Report on Form 8-K of Purple Beverage Company, Inc. filed
with
the Securities and Exchange Commission on April 4,
2008).
|
|
|
|
|
|
10.19
|
|
Registration
Rights Agreement, dated April 2, 2008 by and between the Company
and the
parties thereto (Incorporated by reference to Exhibit 10.5 to the
Current
Report on Form 8-K of Purple Beverage Company, Inc. filed with the
Securities and Exchange Commission on April 4, 2008).
|
|
|
|
|
|
10.20
|
|
Agreement,
dated March 25, 2008, by and between Purple Beverage Company, Inc.
and
Esquire Sports Marketing, L.L.C. (Incorporated by reference to Exhibit
10.20 to the Registration Statement on Form S-1 of Purple Beverage
Company, Inc. filed with the Securities and Exchange Commission on
May 2,
2008).
|
|
|
|
|
|
10.21
|
|
Endorsement
Agreement, entered into as of March 25, 2008 by and among Purple
Beverage
Company, Inc. and Mariano Rivera (Incorporated by reference to Exhibit
10.21 to the Registration Statement on Form S-1 of Purple Beverage
Company, Inc. filed with the Securities and Exchange Commission on
May 2,
2008).
|
|
10.22
|
|
Employment
Agreement, dated as of March 19, 2008, by and between Purple Beverage
Company, Inc. and Michael W. Wallace (Incorporated by reference to
Exhibit
10.22 to Pre-Effective Amendment No. 2 to the Registration Statement
on
Form S-1 of Purple Beverage Company, Inc. filed with the Securities
and
Exchange Commission on May 2, 2008).
|
|
|
|
|
|
10.23
|
|
Option
Award Agreement, effective March 25, 2008, representing a grant of
a
nonqualified stock option by Purple Beverage Company, Inc. to Mariano
Rivera (Incorporated by reference to Exhibit 10.23 to the Registration
Statement on Form S-1 of Purple Beverage Company, Inc. filed with
the
Securities and Exchange Commission on May 2, 2008).
|
|
|
|
|
|
10.24
|
|
Endorsement
Agreement, dated November 1, 2007, by and between the Company and
Chaka
Kahn (Incorporated by reference to Exhibit 10.24 to Pre-Effective
Amendment No. 2 to the Registration Statement on Form S-1 of Purple
Beverage Company, Inc. filed with the Securities and Exchange Commission
on July 2, 2008).
|
|
|
|
|
|
10.25
|
|
Purchasing
Agreement between General Nutrition Distribution, LP and Venture
Beverage
Company dated December 12, 2007 (Incorporated by reference Exhibit
10.25
to Pre-Effective Amendment No. 3 to the Registration Statement on
Form S-1
of Purple Beverage Company, Inc. filed with the Securities and Exchange
Commission on July 22, 2008).
|
|
|
|
|
|
10.26
|
|
Distribution
Agreement between Crosset Company and Purple Beverage Company, Inc.
dated
January 24, 2008 (Incorporated by reference to Exhibit 10.26 to
Pre-Effective Amendment No. 3 to the Registration Statement on Form
S-1 of
Purple Beverage Company, Inc. filed with the Securities and Exchange
Commission on July 22, 2008).
|
|
|
|
|
|
10.27
|
|
Distribution
Agreement between Big Geyser, Inc. and Purple Beverage Company dated
February 26, 2008 (Incorporated by reference to Exhibit 10.27 to
Pre-Effective Amendment No. 3 to the Registration Statement on Form
S-1 of
Purple Beverage Company, Inc. filed with the Securities and Exchange
Commission on July 22, 2008).
|
|
|
|
|
|
10.28
|
|
Distribution
Agreement between B & E Juice Co. and Purple Beverage Company, Inc.
dated March 26, 2008 (Incorporated by reference to Exhibit 10.28
to
Pre-Effective Amendment No. 3 to the Registration Statement on Form
S-1 of
Purple Beverage Company, Inc. filed with the Securities and Exchange
Commission on July 22, 2008).
|
|
|
|
|
|
10.29
|
|
$250,000
Promissory Note to Barry Honig, dated September 5, 2008
(Incorporated
by reference to Exhibit 10.1 to the Current Report on Form 8-K of
Purple
Beverage Company, Inc. filed with the Securities and Exchange Commission
on September 9, 2008).
|
|
|
|
|
|
10.30
|
|
Form
of Amendment No. 2 to Subscription Agreement and to Common Stock
Purchase
Warrant to Purchase Shares of Purple Beverage Company, Inc. (Incorporated
by reference to Exhibit 10.4 to the Current Report on Form 8-K of
Purple
Beverage Company, Inc. filed with the Securities and Exchange Commission
on September 4, 2008).
|
|
10.31
|
|
Form
of Warrant Assignment
Agreement
(Incorporated by reference to Exhibit 10.5 to the Current Report
on Form
8-K of Purple Beverage Company, Inc. filed with the Securities and
Exchange Commission on September 4, 2008).
|
|
|
|
|
|
10.32
|
|
$250,000
Promissory Note to Chelsea Development International LTD, dated August
8,
2008 (Incorporated by reference to Exhibit 10.2 to the Current Report
on
Form 8-K of Purple Beverage Company, Inc. filed with the Securities
and
Exchange Commission on September 9, 2008).
|
|
|
|
|
|
10.33
|
|
$250,000
Promissory Note to Chelsea Development International LTD, dated August
27,
2008 (Incorporated by reference to Exhibit 10.3 to the Current Report
on
Form 8-K of Purple Beverage Company, Inc. filed with the Securities
and
Exchange Commission on September 9, 2008).
|
|
|
|
|
|
10.34
|
|
$100,000
Promissory Note to GS Holding LLC, dated August 22, 2008 (Incorporated
by
reference to Exhibit 10.4 to the Current Report on Form 8-K of Purple
Beverage Company, Inc. filed with the Securities and Exchange Commission
on September 9, 2008).
|
|
|
|
|
|
10.35
|
|
Subscription
Agreement between Purple Beverage Company, Inc. and Jay-2 Investments,
LLC, dated July 16, 2008 (Incorporated by reference to Exhibit 10.5
to the
Current Report on Form 8-K of Purple Beverage Company, Inc. filed
with the
Securities and Exchange Commission on September 9,
2008).
|
|
|
|
|
|
10.36
|
|
$1,000,000
Promissory Note to Jay-2 Investments, LLC, dated July 16, 2008
(Incorporated by reference to Exhibit 10.6 to the Current Report
on Form
8-K of Purple Beverage Company, Inc. filed with the Securities and
Exchange Commission on September 9, 2008).
|
|
|
|
|
|
10.37
|
|
Class
A Common Stock Purchase Warrant, dated July 16, 2008 (Incorporated
by
reference to Exhibit 10.7 to the Current Report on Form 8-K of Purple
Beverage Company, Inc. filed with the Securities and Exchange Commission
on September 9, 2008).
|
|
|
|
|
|
10.38
|
|
$45,000
Promissory Note to Michael Wallace, dated August 14, 2008 (Incorporated
by
reference to Exhibit 10.8 to the Current Report on Form 8-K of Purple
Beverage Company, Inc. filed with the Securities and Exchange Commission
on September 9, 2008).
|
|
|
|
|
|
10.39
|
|
Amendment
No. 3 to Subscription Agreement dated December 12, 2007 by and between
the
Company and the holders thereto (Incorporated by reference to Exhibit
10.6
to the Current Report on Form 8-K of Purple Beverage Company, Inc.
filed
with the Securities and Exchange Commission on September 16,
2008).
|
|
10.40
|
|
$500,000
Promissory Note to Barry Honig, dated September 12, 2008 (Incorporated
by
reference to Exhibit 10.7 to the Current Report on Form 8-K of Purple
Beverage Company, Inc. filed with the Securities and Exchange Commission
on September 16, 2008).
|
|
|
|
|
|
10.41
|
|
Consulting
Agreement by and between the Company and Barry Honig, dated September
15,
2008 (Incorporated by reference to Exhibit 10.8 to the Current Report
on
Form 8-K of Purple Beverage Company, Inc. filed with the Securities
and
Exchange Commission on September 16, 2008).
|
|
|
|
|
|
10.42
|
|
Consent
Letter by Theodore Farnsworth, dated September 15, 2008 (Incorporated
by
reference to Exhibit 10.10 to the Current Report on Form 8-K of Purple
Beverage Company, Inc. filed with the Securities and Exchange Commission
on September 16, 2008).
|
|
|
|
|
|
10.43
|
|
Amendment
No.1 to the 2007 Incentive Plan (Incorporated by reference to Exhibit
4.4
to the Registration Statement on Form S-8 filed with the Securities
and
Exchange Commission on September 15, 2008).
|
|
|
|
|
|
10.44
|
|
Subscription
Agreement between Purple Beverage Company, Inc. and Ben Rabinowitz,
dated
June 6, 2008.
|
|
|
|
|
|
10.45
|
|
$250,000
Promissory Note to Ben Rabinowitz, dated June 6, 2008
|
|
|
|
|
|
10.46
|
|
“A”
Warrant to purchase shares of common stock, dated June 6,
2008.
|
|
|
|
|
|
10.47
|
|
“B”
Warrant, to purchase shares of common stock, dated June 6,
2008.
|
|
|
|
|
|
10.48
|
|
Subscription
Agreement between Purple Beverage Company, Inc. and Ben Rabinowitz,
dated
June 24, 2008.
|
|
|
|
|
|
10.49
|
|
$250,000
Promissory Note to Ben Rabinowitz, dated June 24, 2008.
|
|
|
|
|
|
10.50
|
|
“A”
Warrant to purchase shares of common stock, dated June 24,
2008.
|
|
|
|
|
|
10.51
|
|
“B”
Warrant to purchase shares of common stock, dated June 24,
2008.
|
|
|
|
|
|
10.52
|
|
$100,000
Promissory Note to Ben Rabinowitz, dated July 28, 2008.
|
|
|
|
|
|
10.53
|
|
$640,000
Convertible Promissory Note to Barry Honig, dated October 10, 2008
(incorporated
by reference to Exhibit 10.2 to the Current Report on Form 8-K of
Purple
Beverage Company, Inc. filed with the Securities and Exchange Commission
on October 10, 2008).
|
|
|
|
|
|
10.54
|
|
Form
of Final Letter Amendment to Subscription Agreement (Incorporated by
reference to Exhibit 10.1 to the Current Report on Form 8-K of Purple
Beverage Company, Inc. filed with the Securities and Exchange Commission
on October 10, 2008).
|
|
21.1
|
|
List
of Subsidiaries.
|
|
|
|
|
|
23.1
|
|
Consent
of Sherb & Co, LLP.
|
|
|
|
|
|
23.2*
|
|
Consent
of
.
(included in
Exhibit 5.1).
|
*To
be
filed by amendment
The
undersigned registrant hereby undertakes:
1.
To
file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
i.
To
include any prospectus required by section 10(a)(3) of the Securities Act of
1933;
ii.
To
reflect in the prospectus any facts or events arising after the effective date
of the registration statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement. Notwithstanding
the
foregoing, any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) (§230.424(b) of this chapter) if, in the
aggregate, the changes in volume and price represent no more than 20% change
in
the maximum aggregate offering price set forth in the “Calculation of
Registration Fee” table in the effective registration statement.
iii.
To
include any material information with respect to the plan of distribution not
previously disclosed in the registration statement or any material change to
such information in the registration statement.
2.
That,
for the purpose of determining any liability under the Securities Act of 1933,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
3.
To
remove from registration by means of a post-effective amendment any of the
securities being registered which remain unsold at the termination of the
offering.
4.
That,
for the purpose of determining liability under the Securities Act of 1933 to
any
purchaser, each prospectus filed pursuant to Rule 424(b) as part of a
registration statement relating to an offering, other than registration
statements relying on Rule 430B or other than prospectuses filed in reliance
on
Rule 430A, shall be deemed to be part of and included in the registration
statement as of the date it is first used after effectiveness. Provided,
however, that no statement made in a registration statement or prospectus that
is part of the registration statement or made in a document incorporated or
deemed incorporated by reference into the registration statement or prospectus
that is part of the registration statement will, as to a purchaser with a time
of contract of sale prior to such first use, supersede or modify any statement
that was made in the registration statement or prospectus that was part of
the
registration statement or made in any such document immediately prior to such
date of first use.
5.
That,
for the purpose of determining liability of the registrant under the Securities
Act of 1933 to any purchaser in the initial distribution of the securities
the
undersigned registrant undertakes that in a primary offering of securities
of
the undersigned registrant pursuant to this registration statement, regardless
of the underwriting method used to sell the securities to the purchaser, if
the
securities are offered or sold to such purchaser by means of any of the
following communications, the undersigned registrant will be a seller to the
purchaser and will be considered to offer or sell such securities to such
purchaser:
i.
Any
preliminary prospectus or prospectus of the undersigned registrant relating
to
the offering required to be filed pursuant to Rule 424 (§230.424 of this
chapter);
ii.
Any
free writing prospectus relating to the offering prepared by or on behalf of
the
undersigned registrant or used or referred to by the undersigned
registrant;
iii.
The
portion of any other free writing prospectus relating to the offering containing
material information about the undersigned registrant or its securities provided
by or on behalf of the undersigned registrant; and
iv.
Any
other
communication that is an offer in the offering made by the undersigned
registrant to the purchaser.
6.
Insofar as indemnification for liabilities arising under the Securities Act
of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication
of
such issue.
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Ft. Lauderdale, State
of
Florida, on October 10, 2008.
|
|
PURPLE
BEVERAGE COMPANY, INC.
|
|
|
|
|
|
|
By:
|
/s/
Theodore Farnsworth
|
|
|
|
Name:
Theodore Farnsworth
|
|
|
Title:
Chief Executive Officer
|
In
accordance with the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
|
/s/
Theodore Farnsworth
|
|
|
|
|
|
Theodore
Farnsworth
|
|
Chief
Executive Officer, President, Secretary and Director (Principal Executive
Officer and Principal Financial and Accounting Officer)
|
|
October
10, 2008
|
|
Exhibit No.
|
|
Description
|
|
2.1
|
|
Agreement
and Plan of Merger by and among Red Carpet Entertainment, Inc., Venture
Beverage Company, and Purple Acquisition Corp., dated December 12,
2007
(Incorporated by reference to Exhibit 2.1 to the Current Report on
Form
8-K/A filed with the Securities and Exchange Commission on December
17,
2007).
|
|
|
|
|
|
3.1
|
|
Composite
Articles of Incorporation of Purple Beverage Company, Inc. (Incorporated
by reference to Exhibit 3.1 to the Registration Statement on Form
S-1 of
Purple Beverage Company, Inc. filed with the Securities and Exchange
Commission on May 2, 2008).
|
|
|
|
|
|
3.2
|
|
By-laws
of Red Carpet Entertainment, Inc. (Incorporated by reference to Exhibit
3.2 to the Registration Statement on Form SB-2 filed with the Securities
and Exchange Commission December 28, 2006).
|
|
|
|
|
|
5.1*
|
|
Opinion
of
.
|
|
|
|
|
|
10.1
|
|
Employment
Agreement, dated as of December 12, 2007, between Purple Beverage
Company,
Inc. and Theodore Farnsworth (Incorporated by reference to Exhibit
10.1 to
the Current Report on Form 8-K/A of Purple Beverage Company, Inc.
filed
with the Securities and Exchange Commission on December 17,
2007).
|
|
|
|
|
|
10.2
|
|
Venture
Beverage Company 2007 Incentive Plan (Incorporated by reference to
Exhibit
10.2 to the Current Report on Form 8-K/A of Purple Beverage Company,
Inc.
filed with the Securities and Exchange Commission on December 17,
2007).
|
|
|
|
|
|
10.3
|
|
Form
of Nonqualified Stock Option Award Agreement under the 2007 Incentive
Plan
(Incorporated by reference to Exhibit 10.3 to the Current Report
on Form
8-K/A of Purple Beverage Company, Inc. filed with the Securities
and
Exchange Commission on December 17, 2007).
|
|
|
|
|
|
10.4
|
|
Form
of Lock-Up Agreement, dated as of December 12, 2007, by and between
the
Company and each of certain stockholders (Incorporated by reference
to
Exhibit 10.4 to the Current Report on Form 8-K/A of Purple Beverage
Company, Inc. filed with the Securities and Exchange Commission on
December 17, 2007).
|
|
|
|
|
|
10.5
|
|
Form
of Subscription Agreement, dated as of May 10, 2007, by and between
Venture Beverage Company and certain stockholders (Incorporated by
reference to Exhibit 10.5 to the Current Report on Form 8-K/A of
Purple
Beverage Company, Inc. filed with the Securities and Exchange Commission
on December 17, 2007).
|
|
10.6
|
|
Form
of Common Stock Purchase Warrant, dated between May 17 and October
24,
2007, issued by Venture Beverage Company to certain stockholders.
(Incorporated by reference to Exhibit 10.6 to the Current Report
on Form
8-K/A of Purple Beverage Company, Inc. filed with the Securities
and
Exchange Commission on December 17, 2007).
|
|
|
|
|
|
10.7
|
|
Form
of Subscription Agreement, dated as of December 12, 2007, by and
between
Purple Beverage Company, Inc. and certain stockholders (Incorporated
by
reference to Exhibit 10.7 to the Current Report on Form 8-K/A of
Purple
Beverage Company, Inc. filed with the Securities and Exchange Commission
on December 17, 2007).
|
|
|
|
|
|
10.8
|
|
Form
of Common Stock Purchase Warrant, dated as of December 12, 2007,
issued by
Purple Beverage Company, Inc. to certain stockholders (Incorporated
by
reference to Exhibit 10.8 to the Current Report on Form 8-K/A of
Purple
Beverage Company, Inc. filed with the Securities and Exchange Commission
on December 17, 2007).
|
|
|
|
|
|
10.9
|
|
Stock
Repurchase Agreement, made and entered into as of December 12, 2007,
by
and between Red Carpet Entertainment, Inc. and Christopher Johnson
and
Lissa Johnson (Incorporated by reference to Exhibit 10.9 to the Current
Report on Form 8-K/A of Purple Beverage Company, Inc. filed with
the
Securities and Exchange Commission on December 17,
2007).
|
|
|
|
|
|
10.10
|
|
Consulting
Agreement, dated December 1, 2007, by and between Purple Beverage
Company,
Inc. and Esquire Sports Marketing, L.L.C. (Incorporated by reference
to
Exhibit 10.10 to the Quarterly Report on Form 10-QSB of Purple Beverage
Company, Inc. filed with the Securities and Exchange Commission on
February 14, 2008).
|
|
|
|
|
|
10.11
|
|
Agreement,
dated January 18, 2008, by and between Purple Beverage Company, Inc.
and
Esquire Sports Marketing, L.L.C. (Incorporated by reference to Exhibit
10.11 to the Quarterly Report on Form 10-QSB of Purple Beverage Company,
Inc. filed with the Securities and Exchange Commission on February
14,
2008).
|
|
|
|
|
|
10.12
|
|
Endorsement
Agreement, entered into as of January 18, 2008 by and among Purple
Beverage Company, Inc. and Torii Hunter (Incorporated by reference
to
Exhibit 10.12 to the Quarterly Report on Form 10-QSB of Purple Beverage
Company, Inc. filed with the Securities and Exchange Commission on
February 14, 2008).
|
|
|
|
|
|
10.13
|
|
Sublease
Agreement, made as of January 22, 2008, by and between Purple Beverage
Company, Inc. and Fisher and Phillips, LLP (Incorporated by reference
to
Exhibit 10.13 to the Quarterly Report on Form 10-QSB of Purple Beverage
Company, Inc. filed with the Securities and Exchange Commission on
February 14, 2008).
|
|
10.14
|
|
Promissory
Note, dated March 11, 2008, issued by Purple Beverage Company, Inc.
to GRQ
Consultants, Inc. in the principal sum of $1,000,000 (Incorporated
by
reference to Exhibit 10.1 to the Current Report on Form 8-K of Purple
Beverage Company, Inc. filed with the Securities and Exchange Commission
on March 17, 2008).
|
|
|
|
|
|
10.15
|
|
Amendment
to Subscription Agreement and to Common Stock Purchase Warrant to
Purchase
Shares of Common Stock of Purple Beverage Company, Inc., dated April
2,
2008, by and between Purple Beverage Company, Inc. and certain persons,
who were parties to the December 12, 2007, Subscription Agreement.
(Incorporated by reference to Exhibit 10.1 to the Current Report
on Form
8-K of Purple Beverage Company, Inc. filed with the Securities and
Exchange Commission on April 4, 2008).
|
|
|
|
|
|
10.16
|
|
Common
Stock Purchase Warrant, dated April 2, 2008, issued by Purple Beverage
Company, Inc. in favor of the exercising warrant holders. (Incorporated
by
reference to Exhibit 10.2 to the Current Report on Form 8-K of Purple
Beverage Company, Inc. filed with the Securities and Exchange Commission
on April 4, 2008).
|
|
|
|
|
|
10.17
|
|
Addendum
to Subscription Agreement, dated April 2, 2008, by and between Purple
Beverage Company, Inc. and the parties thereto (Incorporated by reference
to Exhibit 10.3 to the Current Report on Form 8-K of Purple Beverage
Company, Inc. filed with the Securities and Exchange Commission on
April
4, 2008).
|
|
|
|
|
|
10.18
|
|
Registration
Rights Agreement, dated April 2, 2008, by and between the Company
and the
exercising warrant holders (Incorporated by reference to Exhibit
10.4 to
the Current Report on Form 8-K of Purple Beverage Company, Inc. filed
with
the Securities and Exchange Commission on April 4,
2008).
|
|
|
|
|
|
10.19
|
|
Registration
Rights Agreement, dated April 2, 2008 by and between the Company
and the
parties thereto (Incorporated by reference to Exhibit 10.5 to the
Current
Report on Form 8-K of Purple Beverage Company, Inc. filed with the
Securities and Exchange Commission on April 4, 2008).
|
|
|
|
|
|
10.20
|
|
Agreement,
dated March 25, 2008, by and between Purple Beverage Company, Inc.
and
Esquire Sports Marketing, L.L.C. (Incorporated by reference to Exhibit
10.20 to the Registration Statement on Form S-1 of Purple Beverage
Company, Inc. filed with the Securities and Exchange Commission on
May 2,
2008).
|
|
|
|
|
|
10.21
|
|
Endorsement
Agreement, entered into as of March 25, 2008 by and among Purple
Beverage
Company, Inc. and Mariano Rivera (Incorporated by reference to Exhibit
10.21 to the Registration Statement on Form S-1 of Purple Beverage
Company, Inc. filed with the Securities and Exchange Commission on
May 2,
2008).
|
|
10.22
|
|
Employment
Agreement, dated as of March 19, 2008, by and between Purple Beverage
Company, Inc. and Michael W. Wallace (Incorporated by reference to
Exhibit
10.22 to Pre-Effective Amendment No. 2 to the Registration Statement
on
Form S-1 of Purple Beverage Company, Inc. filed with the Securities
and
Exchange Commission on May 2, 2008).
|
|
|
|
|
|
10.23
|
|
Option
Award Agreement, effective March 25, 2008, representing a grant of
a
nonqualified stock option by Purple Beverage Company, Inc. to Mariano
Rivera (Incorporated by reference to Exhibit 10.23 to the Registration
Statement on Form S-1 of Purple Beverage Company, Inc. filed with
the
Securities and Exchange Commission on May 2, 2008).
|
|
|
|
|
|
10.24
|
|
Endorsement
Agreement, dated November 1, 2007, by and between the Company and
Chaka
Kahn (Incorporated by reference to Exhibit 10.24 to Pre-Effective
Amendment No. 2 to the Registration Statement on Form S-1 of Purple
Beverage Company, Inc. filed with the Securities and Exchange Commission
on July 2, 2008).
|
|
|
|
|
|
10.25
|
|
Purchasing
Agreement between General Nutrition Distribution, LP and Venture
Beverage
Company dated December 12, 2007 (Incorporated by reference Exhibit
10.25
to Pre-Effective Amendment No. 3 to the Registration Statement on
Form S-1
of Purple Beverage Company, Inc. filed with the Securities and Exchange
Commission on July 22, 2008).
|
|
|
|
|
|
10.26
|
|
Distribution
Agreement between Crosset Company and Purple Beverage Company, Inc.
dated
January 24, 2008 (Incorporated by reference to Exhibit 10.26 to
Pre-Effective Amendment No. 3 to the Registration Statement on Form
S-1 of
Purple Beverage Company, Inc. filed with the Securities and Exchange
Commission on July 22, 2008).
|
|
|
|
|
|
10.27
|
|
Distribution
Agreement between Big Geyser, Inc. and Purple Beverage Company dated
February 26, 2008 (Incorporated by reference to Exhibit 10.27 to
Pre-Effective Amendment No. 3 to the Registration Statement on Form
S-1 of
Purple Beverage Company, Inc. filed with the Securities and Exchange
Commission on July 22, 2008).
|
|
|
|
|
|
10.28
|
|
Distribution
Agreement between B & E Juice Co. and Purple Beverage Company, Inc.
dated March 26, 2008 (Incorporated by reference to Exhibit 10.28
to
Pre-Effective Amendment No. 3 to the Registration Statement on Form
S-1 of
Purple Beverage Company, Inc. filed with the Securities and Exchange
Commission on July 22, 2008).
|
|
|
|
|
|
10.29
|
|
$250,000
Promissory Note to Barry Honig, dated September 5, 2008 (Incorporated
by
reference to Exhibit 10.1 to the Current Report on Form 8-K of Purple
Beverage Company, Inc. filed with the Securities and Exchange Commission
on September 9, 2008).
|
|
10.30
|
|
Form
of Amendment No. 2 to Subscription Agreement and to Common Stock
Purchase
Warrant to Purchase Shares of Purple Beverage Company, Inc. (Incorporated
by reference to Exhibit 10.4 to the Current Report on Form 8-K of
Purple
Beverage Company, Inc. filed with the Securities and Exchange Commission
on September 4, 2008).
|
|
|
|
|
|
10.31
|
|
Form
of Warrant Assignment Agreement (Incorporated by reference to Exhibit
10.5
to the Current Report on Form 8-K of Purple Beverage Company, Inc.
filed
with the Securities and Exchange Commission on September 4,
2008).
|
|
|
|
|
|
10.32
|
|
$250,000
Promissory Note to Chelsea Development International LTD, dated August
8,
2008 (Incorporated by reference to Exhibit 10.2 to the Current Report
on
Form 8-K of Purple Beverage Company, Inc. filed with the Securities
and
Exchange Commission on September 9, 2008).
|
|
|
|
|
|
10.33
|
|
$250,000
Promissory Note to Chelsea Development International LTD, dated August
27,
2008 (Incorporated by reference to Exhibit 10.3 to the Current Report
on
Form 8-K of Purple Beverage Company, Inc. filed with the Securities
and
Exchange Commission on September 9, 2008).
|
|
|
|
|
|
10.34
|
|
$100,000
Promissory Note to GS Holding LLC, dated August 22, 2008 (Incorporated
by
reference to Exhibit 10.4 to the Current Report on Form 8-K of Purple
Beverage Company, Inc. filed with the Securities and Exchange Commission
on September 9, 2008).
|
|
|
|
|
|
10.35
|
|
Subscription
Agreement between Purple Beverage Company, Inc. and Jay-2 Investments,
LLC, dated July 16, 2008 (Incorporated by reference to Exhibit 10.5
to the
Current Report on Form 8-K of Purple Beverage Company, Inc. filed
with the
Securities and Exchange Commission on September 9,
2008).
|
|
|
|
|
|
10.36
|
|
$1,000,000
Promissory Note to Jay-2 Investments, LLC, dated July 16, 2008
(Incorporated by reference to Exhibit 10.6 to the Current Report
on Form
8-K of Purple Beverage Company, Inc. filed with the Securities and
Exchange Commission on September 9, 2008).
|
|
|
|
|
|
10.37
|
|
Class
A Common Stock Purchase Warrant, dated July 16, 2008 (Incorporated
by
reference to Exhibit 10.7 to the Current Report on Form 8-K of Purple
Beverage Company, Inc. filed with the Securities and Exchange Commission
on September 9, 2008).
|
|
|
|
|
|
10.38
|
|
$45,000
Promissory Note to Michael Wallace, dated August 14, 2008 (Incorporated
by
reference to Exhibit 10.8 to the Current Report on Form 8-K of Purple
Beverage Company, Inc. filed with the Securities and Exchange Commission
on September 9, 2008).
|
|
|
|
|
|
10.39
|
|
Amendment
No. 3 to Subscription Agreement dated December 12, 2007 by and between
the
Company and the holders thereto (Incorporated by reference to Exhibit
10.6
to the Current Report on Form 8-K of Purple Beverage Company, Inc.
filed
with the Securities and Exchange Commission on September 16,
2008).
|
|
10.40
|
|
$500,000
Promissory Note to Barry Honig, dated September 12, 2008 (Incorporated
by
reference to Exhibit 10.7 to the Current Report on Form 8-K of Purple
Beverage Company, Inc. filed with the Securities and Exchange Commission
on September 16, 2008).
|
|
|
|
|
|
10.41
|
|
Consulting
Agreement by and between the Company and Barry Honig, dated September
15,
2008 (Incorporated by reference to Exhibit 10.8 to the Current Report
on
Form 8-K of Purple Beverage Company, Inc. filed with the Securities
and
Exchange Commission on September 16, 2008).
|
|
|
|
|
|
10.42
|
|
Consent
Letter by Theodore Farnsworth, dated September 15, 2008 (Incorporated
by
reference to Exhibit 10.10 to the Current Report on Form 8-K of Purple
Beverage Company, Inc. filed with the Securities and Exchange Commission
on September 16, 2008).
|
|
|
|
|
|
10.43
|
|
Amendment
No.1 to the 2007 Incentive Plan (Incorporated by reference to Exhibit
4.4
to the Registration Statement on Form S-8 filed with the Securities
and
Exchange Commission on September 15, 2008).
|
|
|
|
|
|
10.44
|
|
Subscription
Agreement between Purple Beverage Company, Inc. and Ben Rabinowitz,
dated
June 6, 2008.
|
|
|
|
|
|
10.45
|
|
$250,000
Promissory Note to Ben Rabinowitz, dated June 6, 2008
|
|
|
|
|
|
10.46
|
|
“A”
Warrant to purchase shares of common stock, dated June 6,
2008.
|
|
|
|
|
|
10.47
|
|
“B”
Warrant, to purchase shares of common stock, dated June 6,
2008.
|
|
|
|
|
|
10.48
|
|
Subscription
Agreement between Purple Beverage Company, Inc. and Ben Rabinowitz,
dated
June 24, 2008.
|
|
|
|
|
|
10.49
|
|
$250,000
Promissory Note to Ben Rabinowitz, dated June 24, 2008.
|
|
|
|
|
|
10.50
|
|
“A”
Warrant to purchase shares of common stock, dated June 24,
2008.
|
|
|
|
|
|
10.51
|
|
“B”
Warrant to purchase shares of common stock, dated June 24,
2008.
|
|
|
|
|
|
10.52
|
|
$100,000
Promissory Note to Ben Rabinowitz, dated July 28, 2008.
|
|
|
|
|
|
10.53
|
|
$640,000
Convertible Promissory Note to Barry Honig, dated October 10, 2008
(incorporated by reference to Exhibit 10.2 to the Current Report
on Form
8-K of Purple Beverage Company, Inc. filed with the Securities and
Exchange Commission on October 10, 2008).
|
|
|
|
|
|
10.54
|
|
Form
of Final Letter Amendment to Subscription Agreement (Incorporated by
reference to Exhibit 10.1 to the Current Report on Form 8-K of Purple
Beverage Company, Inc. filed with the Securities and Exchange Commission
on October 10, 2008).
|
|
21.1
|
|
List
of Subsidiaries.
|
|
|
|
|
|
23.1
|
|
Consent
of Sherb & Co, LLP.
|
|
|
|
|
|
23.2*
|
|
Consent
of
.
(included in
Exhibit 5.1).
|
*To
be
filed by amendment
Purple Beverage (CE) (USOTC:PPBV)
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