UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
| o | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended June 30, 2009
| o | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT |
For the transition period from __________ to __________
333-123176
(Commission file number)
Marani Brands, Inc.
(Exact name of small business issuer as specified in its charter)
| Nevada | 20-2008579 |
| (State or other jurisdiction | (IRS Employer |
| of incorporation or organization) | Identification No.) |
13152 Raymer Street, Suite 1A
North Hollywood, CA 91605
(Address of principal executive offices)
(818) 503-5200
(Issuer's telephone number)
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $.001
(Title of class)
Check whether the issuer is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act: o
Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes o No
Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-K contained herein, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o | Accelerated filer o |
Non-accelerated filer o | Smaller reporting company x |
| (Do not check if a smaller reporting company) |
Indicate by check mark whether the issuer is a shell company as defined in Rule 12b-2 of the Exchange Act. o Yes x No
The issuer had revenues of $402,373 for the fiscal year ended June 30, 2009.
The aggregate market value of the voting stock held by non-affiliates of the issuer on October 9, 2009 was $14,712,143, based on the price at which the common stock was sold on that date.
As of October 9, 2009, the issuer had 183,901,796 shares of common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: See Exhibits
FORWARD-LOOKING STATEMENTS
Statements that are not historical facts, including statements about our prospects and strategies and our expectations about growth contained in this report, are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements represent our present expectations or beliefs concerning future events. We caution that such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among other things, the uncertainty as to our future profitability; the accuracy of our performance projections; and our ability to obtain financing on acceptable terms to finance our operations until profitability.
TABLE OF CONTENTS
| PAGE | ||
| PART I | ||
| Item 1. | 4 | |
| Item 2. | 6 | |
| Item 3. | 7 | |
| Item 4. | 7 | |
| PART II | ||
| Item 5. | 7 | |
| Item 6. | 10 | |
| Item 7. | 14 | |
| Item 8. | 14 | |
| Item 8A. (T) | 15 | |
| Item 8B. | 15 | |
| PART III | ||
| Item 9. | 16 | |
| Item 10. | 17 | |
| Item 11. | 17 | |
| Item 12. | 19 | |
| Item 13 | 20 | |
| Item 14. | 20 | |
| 21 | ||
| F-1 | ||
PART I
Item 1. Description of Business
Formation and Merger
The Company was incorporated in Nevada on May 30, 2001, under the name Elli Tsab, Inc., which was subsequently changed to Patient Data Corporation, and thereafter to Fit for Business, Inc. On March 10, 2008, the Company changed its name from Fit for Business, Inc. to Marani Brands, Inc. On March 31, 2008, our common stock underwent a 1-for-250 reverse stock split, and commenced trading on the Over the Counter Bulletin Board under the new symbol “MRIB”. The only business of the Company on March 31, 2008 was that of its wholly owned subsidiary, Fit For Business (Australia) Pty Limited.
On March 11, 2008, the Company formed FFBI Merger Sub Corp., a California corporation, as its wholly-owned subsidiary. FFBI Merger Sub Corp. was formed by the Company for purpose of effectuating a merger transaction by and among the Company and FFBI Merger Sub Corp., on the one hand, and a California corporation known as Margrit Enterprises International, Inc. “(MEI”), on the other hand.
MEI was incorporated in December 2001 and, since its inception, has been an ongoing business engaged in the in the importation and sale of alcoholic beverage products, primarily Marani® Vodka, its flagship product.
On April 4, 2008, the Company, FFBI Merger Sub Corp. and MEI executed, and on April 7, 2008 the parties closed, a three party Merger Agreement, which the parties implemented follows:
| Merger of FFBI Merger Sub Corp. and MEI |
| ● | By virtue of this statutory merger, the separate corporate existence of FFBI Merger Sub Corp. ceased, with MEI remaining as the surviving corporation. |
| ● | The shares of FFBI Merger Sub Corp. held by the Company pre merger were converted into the shares of MEI and, post merger, the conversion shares remain outstanding and continue to be held by the Company as shares of MEI |
| ● | Since MEI was a company with an ongoing business, and since FFBI Merger Sub Corp. had no business operations and ceased to exist as a separate corporate entity, this merger transaction constituted a “forward merger” |
Merger MEI and Marani Brands, Inc.
| ● | By virtue of this “subsidiary merger,” both companies continue to have a separate existence, with MEI becoming a wholly owned subsidiary of the Company. |
| ● | Each share of MEI held by its stockholders pre merger was automatically exchanged for that number of shares of the Company, determined by dividing 100,0000,000 by the 10,000,000 issued and outstanding shares of MEI existing before either merger, effecting a 10 for 1 exchange ratio |
| ● | On April 7, 2008, the Company issued 100,000,000 shares of its common stock to the pre merger stockholders of MEI, and the 10,0000,000 shares of MEI held by MEI’s stockholders pre merger were cancelled |
| ● | The Company thereby holds 100% of the shares of MEI by virtue of (i) the cancellation of the MEI shares held pre subsidiary merger by MEI stockholders that were exchanged for 100,000,000 of the Company’s shares and (ii) the MEI shares that were converted from FFBI Merger Sub Corp. shares held by the Company pre forward merger, which remain outstanding and continue to be held by the Company, as the total issued and outstanding shares of MEI, post merger |
| ● | Since MEI operated an ongoing business and since the Company had pre merger business operations that were not pursued by the Company post merger, this subsidiary merger transaction constituted a “reverse merger” |
The acquisition of MEI by the Company was completed by the merger of the Company’s wholly-owned subsidiary, FFBI Merger Sub Corp. with and into MEI, with MEI remaining as the surviving entity and wholly-owned subsidiary of the Company. The net effect of these transactions was a reverse merger of the Company with MEI. MEI subsequently changed its name to Marani Spirits, Inc., and continues to be the operational arm of the Company.
On March 31, 2008, in anticipation of the merger transaction, the Company amended its Articles of Incorporation to increase its authorized shares of common stock to 300,000,000. On April 7, 2008, in connection with the merger, we issued an aggregate of 43,138,825 shares of our common stock as compensation for direct offering services.
On April 7, 2008, after management decided that the business of FFB Australia could not be effectively managed from the United States, and was no longer related to the Company’s core business and, simultaneous with the merger transaction, the Company exercised its option to sell FFB Australia to former Chief Executive Officer, Mark Poulsen. Mr. Poulsen complied with his obligations under the Subsidiary Acquisition Option Agreement and acquired all of the Company’s interest in FFB Australia on or about May 15, 2008.
Our Business and Products
Prior to the Company’s acquisition of MEI, our only business was that of its wholly-owned subsidiary, Fit for Business (Australia) Pty Limited, which is engaged in the development of overall wellness programs for the workplace in Australia.
Subsequent to the merger transaction with MEI, the Company’s primary business is the business of MEI in the distribution of wine and spirit products manufactured in Armenia. In the future the Company may add alcohol beverage products manufactured in other countries
The Company’s signature product is Marani Vodka, a premium vodka which is manufactured exclusively for us in Armenia. Marani Vodka is made from winter wheat harvested in Armenia, distilled three times, aged in oak barrels lined with honey and skimmed dried milk, then filtered twenty-five times. Bottling of the product occurs at the Eraskh distillery in Armenia. Marani Vodka was awarded the gold medal in the International Spirit Competition, held in San Francisco, California, in both 2004 and 2007, and the 5 Diamond Award by the American Academy of Hospitality and Sciences in March 2008 and 2009.
In addition to the Company’s premium vodka, in the future we intend to distribute the following products:
| · | Various premium brandy products manufactured by Eraskh. |
| · | A line of sweet dessert wines manufactured by Eraskh. |
To compete in the highly competitive market for premium alcoholic beverages, Marani Brand’s marketing and business plan is focused on maintaining and expanding its channels of distribution and enhancing brand recognition for Marani Brand’s premium vodka product through its recent rebranding, advertising, promotional and distributor relations efforts. Some of these efforts include:
| · | Major redesign and rebranding of Marani Vodka, including a new bottle |
| · | Major redesign of the company’s web presence |
| · | Primary production and preparation for the upcoming launch of a new advertising campaign, scheduled for early 2010 |
| · | An effort to trademark the Marani name worldwide |
These efforts have incurred significant expense, but management believes that they are necessary to the continued growth of the Company.
Sources and Availability of Products and supplies
The Company purchases all of its products from a single supplier, Eraskh Winery, Ltd., under an Exclusive Distribution Agreement with Eraskh, an Armenian manufacturer of wine and other spirits. Marani Brands have been granted exclusive rights for defined territories, including the United States, Mexico and the Caribbean, with a right of first refusal for any other territories where Eraskh desires to promote and sell its products. The Exclusive Distribution Agreement, which was renewed this year, will expire in 2012 but is subject to automatic five (5) year renewals. Upon termination or non-renewal of the Exclusive Distribution Agreement, the Agreement provides for compensation from Eraskh equal to ten percent (10%) of the gross sales of Eraskh’s products in the defined territories, in U.S. dollars, for period of seven (7) years subsequent to such termination or non-renewal. While the Company has entered into a Letter of Intent to acquire Eraskh, there can be no assurance that we will enter into a definitive agreement to acquire the distillery as contemplated or that the distillery will be acquired.
The new bottles for Marani Vodka are currently being manufactured in France by Saver Glass Company and China by Universal Group Co., Ltd. and shipped to Armenia to be filled at Eraskh. Other suppliers of bottles are available to the Company at competitive market rates, should we need additional quantities or should our arrangement with Universal Group Co., Ltd. no longer be available.
Distribution and Dependence on Limited Customers
The Company product is being distributed by Southern Wine & Spirits of America, Inc. ("SWS"), in Southern California, in conjuction with PLCB Pennsylvania and Nevada. SWS is one of the largest alcoholic beverage distributor in the United States. Through Southern, the Company’s Marani Vodka We have entered into new arrangements with other QV Distributors in Arizona and Wein-Baur in Illinois in order to maximize its coverage in the United States. The Company has identified appropriate distributor of Marani Vodka in India and we have begun shipping effective June 2009. The Company currently sells its products principally to wholesalers for resale to retail outlets including grocery stores, package liquor stores, chain and boutique hotels, bars and restaurants. In the future, in addition to selling our products to wholesalers, we may sell our products directly to major retailers and chains. Our results of operations and financial condition are dependent on the performance of our major wholesalers, retailers or chains and our inability to collect accounts receivable from a limited number of them. We monitor performance and collections to determine the need, if any, to seek other customers for existing levels of product production.
Competition and Trends
The Company is in a highly competitive industry with the need continually to monitor factors such as: the dollar amount and unit volume of our sales as affected by our ability to maintain or increase prices; changes in geographic or product mix; and changes in alcoholic beverage consumption or the decision of wholesalers, retailers or consumers to purchase competitive products. Wholesaler, retailer and consumer purchasing decisions are influenced by, among other things, the perceived absolute or relative overall value of our products, including their quality or pricing, compared to competitive products. Unit volume and dollar sales can be affected by pricing, purchasing, financing, operational, advertising or promotional decisions made by wholesalers, state and provincial agencies, and retailers which can affect their supply of, or consumer demand for, our products.
In spirits, the major global competitors are Diageo, Pernod Ricard, Bacardi and Brown-Forman, each of which has many brands in many market segments, including vodka, which give them the ability to leverage their marketing relationship. In addition, the Company faces competition from local and regional companies in the United States and world-wide. Nearly all of the Company’s significant competitors have greater market presence, marketing capabilities as well as greater financial, technological and personnel resources than the Company.
As outlined above, the Company has engaged in a systematic marketing plan in order to expand our distribution channels and brand recognition. These efforts include significant advertising and distributor relations initiatives anticipated to begin during the next quarter.
The beverage alcohol distribution industry is being affected by the trend toward consolidation in the wholesale and retail distribution channels, particularly in Europe and the U.S. Our revenues, share of sales and volume growth is dependent partially upon our continuing adaptation to this changing environment. In addition, wholesalers and retailers of our products offer products of other companies that compete directly with our products for retail shelf space and consumer purchases.
Since 1995, there have been modest increases in consumption of beverage alcohol in most geographic markets. A change in consumption in one or more of our product categories could occur in the future due to a variety of factors, including:
| · | A general decline in economic conditions; |
| · | Increased concern about the health consequences of consuming beverage alcohol products and about drinking and driving; |
| · | A general decline in the consumption of beverage alcohol products in on-premise establishments; |
| · | A trend toward a healthier diet including lighter, lower calorie beverages such as diet soft drinks, juices, energy and vitamin drinks and water products; |
| · | The increased activity of anti-alcohol groups; and |
| · | Increased federal, state or foreign excise or other taxes on alcoholic beverages. |
Taxes and Governmental Regulation
The U.S. and certain other countries in which the Company operates impose excise and other taxes on beverage alcohol products in varying amounts that are subject to change. In addition, federal, state, local and foreign governmental agencies extensively regulate the alcoholic beverage industry concerning such matters as licensing, trade and pricing practices, permitted and required labeling, advertising and relations with wholesalers and retailers. Certain federal, state and foreign regulations also require warning labels and disclosures. Management believes the Company is in compliance with all applicable regulatory requirements for our products where we current have sales.
Trademarks
The Company’s presence in the marketplace depends on our ability to protect our current brand and future brands and products, to the extent developed, and to defend our intellectual property rights. We have registered the trademark Marani® in the United States for distilled spirits and brandy and we have filed trademark applications seeking to protect the Marani trademark in certain countries outside the United States. We are aware that a third-party that markets and sells wine products has trademarked the Marani name in numerous countries outside of the United States and has registered the name Marani in a number of countries. We are in the process of negotiating an agreement with that third party which would, if entered into, allow to each company to use the Marani trademark in connection with its respective products on a world-wide basis.
Employees
The Company currently employs nine full time employees at our North Hollywood location; four employees are in management positions, including sales with one in an administrative staff position, three employees in sales and one performing warehouse and shipping duties.
Item 2. Description of Property
The Company leases 2100 sq ft of corporate office space in North Hollywood, California. This lease is currently on a month-to-month basis at a monthly rental of $1,800 per month.
Item 3. Legal Proceedings
Our former subsidiary, Fit For Business (Australia) Pty. Ltd. is plaintiff in legal proceedings against one of our licensees, L.R. Global Marketing Pty. Ltd, for outstanding licensing fees owed in the amount of $443,263. The subsidiary was recently sold, as detailed in Item 1 above, and to the knowledge of management, Marani Brands has no further interests or liabilities stemming from this proceeding as of the time of this filing.
Other than this claim, neither our parent company nor our subsidiary, or any of their properties, is a party to any pending legal proceeding. We are not aware of any contemplated proceeding by a governmental authority. Also, we do not believe that any director, officer, or affiliate, any owner of record or beneficially of more than five per cent (5%) of the outstanding common stock, or security holder, is a party to any proceeding in which he or she is a part adverse to us or has a material interest adverse to us.
Item 4. Submission of Matters to Vote of Securities Holders
None.
PART II
Item 5. Market for Common Stock and Related Stockholder Matters
Market Price for Common Stock
Our common stock is traded on the OTC Electronic Bulletin Board (ticker symbol MRIB.OB). At October 9, 2009, we had approximately fifty holders of record holders of our common stock.
The following quarterly quotations for common stock transactions on the OTC Bulletin Board reflect inter-dealer prices, without retail mark-up, markdown or commissions and may not represent actual transactions.
| QUARTER | HIGH BID PRICE | LOW BID PRICE | ||||||||
| 2006 -2007 | ||||||||||
| (start date November 29, 2006) | ||||||||||
| Second Quarter (ended 12-31-06) | $ | 0.04 | $ | 0.02 | ||||||
| Third Quarter (ended 3-31-07) | $ | 0.70 | $ | 0.02 | ||||||
| Fourth Quarter (ended 6-30-07) | $ | 0.06 | $ | 0.02 | ||||||
| $ | 0.07 | $ | 0.01 | |||||||
| 2007-2008 | ||||||||||
| First Quarter (ended 9-30-07) | $ | 0.05 | $ | 0.01 | ||||||
| Second Quarter (ended 12-31-07) | $ | 0.07 | $ | 0.01 | ||||||
| Third Quarter (ended 3-31-08)* | $ | 4.00 | $ | 0.01 | ||||||
| Fourth Quarter (ended 6-30-08) | $ | 6.00 | $ | 0.65 | ||||||
| *adjusted for reverse stock split | ||||||||||
| 2008-2009 | ||||||||||
| First Quarter (ended 9-30-08) | $ | 1.80 | $ | 0.65 | ||||||
| Second Quarter (ended 12-31-08) | $ | 2.25 | $ | 0.51 | ||||||
| Third Quarter(ended 3-31-09) | $ | 1.80 | $ | 0.55 | ||||||
| Fourth Quarter (ended 6-30-09) | $ | 1.00 | $ | 0.07 | ||||||
The Company has not paid dividends on our common stock and do not presently anticipate paying dividends. Management currently intends to retain future earnings, if any, to finance working capital and to expand our operations.
The holders of common stock are entitled to receive, pro rata, such dividends and other distributions as and when declared by our board of directors out of the assets and funds legally available therefore. The Company do not expect to pay dividends to holders of our common stock in the foreseeable future.
Recent Sales of Unregistered Securities
During the year ended June 30, 2009, the Company issued 11,658,044 shares of our common stock, as set forth below. The issuances were exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, and each of the investors or service providers was either accredited or sophisticated and familiar with our operations.
| ● | 200,000 shares to private investors for cash totaling $20,000; |
| ● | 6,420,000 shares to non-affiliated parties for services totaling $1,304,100; |
| ● | 5,038,044 shares to Officers for services totaling $2,085,652. |
Equity Compensation Plan Information
The equity compensation reported in this section has been issued pursuant to our 2008 Stock Option Plan as well as individual compensation contracts and arrangements with employees, directors, consultants, advisors, vendors, suppliers, lenders and service providers. The equity is reported on an aggregate basis as of June 30, 2009. Our security holders have not approved any compensation plan, contracts or arrangements underlying the equity reported.
| Compensation Plan Category | Number of securities to be issued upon exercise of options, warrants and rights (a) | Weighted average price of outstanding options, warrants and rights | Number of securities remaining for future issuance under equity compensation plans (b) | |||||||||
| Equity compensation plans approved by security holders | 0 | 0 | 0 | |||||||||
| Equity compensation plans not approved by security holders (b) | 29,620,000 | $ | 0.32 | 20,000,000 | ||||||||
| Total | 29,620,000 | $ | 0.32 | 20,000,000 | ||||||||
(a) Warrants Issued Pursuant to Individual Agreements.
Includes warrants for 29,620,000 shares of common stock at a weighted average price of $0.32 per share, issued to investors in connection with private financings.
(b) Options to be Issued Pursuant to our 2008 Stock of Plan
On May 21, 2008, our Board of Directors adopted our 2008 Stock Option Plan, which is designed to provide an incentive to employees, including directors and officers who are employees, and to consultants and directors who are not our employees, and to offer an additional inducement in obtaining the services of such persons. The Plan provides for the grant of qualified Incentive Stock Options (”ISO”) within the meaning of Section 422 of the Internal Revenue Code and Non-Qualified Stock Options (“NQSO”). As of June 30, 2009, warrants for 10,100,000 shares had been exercised been issued pursuant to this Plan in 2008.
We have reserved 20,000,000 million shares of common stock for equity awards granted under the Plan. The Plan shall be administered by the Board of Directors or a committee of the Board of Directors (the “Plan Administrator”) consisting of not less than two directors, all of whom shall be a “non-employee director,” within the meaning of Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended, that shall have the authority to determine the employees, officers, consultants and directors who shall be granted equity awards; the type of equity awards to be granted; the times when an equity awards shall be granted; the number of shares of our common stock to be subject to each equity awards; and other terms and conditions of the equity awards, including whether to restrict the sale or other disposition of an equity awards and, if so, to determine whether such contingencies and restrictions have been met and whether and under what conditions to waive any such contingency or restriction.
Eligibility
Our officers, directors, employees, and other persons that provide consulting services to us and our subsidiaries are eligible to participate in the Plan.
Award of Incentive Stock Options
The Plan Administrator may grant Incentive Stock Options to eligible participants, as the Plan Administrator may determine, in its sole discretion. The Plan Administrator may not grant options to any employee during any calendar year under the Plan for the aggregate fair market value (determined at the time the option is granted) of the underlying shares of common stock that may be exercised for the first time in a particular calendar in excess of $100,000. Exercise prices for such options granted shall be at least the fair market value of a share of our common stock on the grant date of the options, with a term not to exceed 10 years; provided, that exercise price of any options granted to a person that owns more than 10% of the combined voting power of all our classes of stock shall be at least 110% of the fair market value of a share of common stock on the grant date, with a term not to exceed five years.
Amendment of Plan
The Board of Directors, without further approval of the our stockholders, may amend the Plan from time to time in such respects as it may deem advisable, including, without limitation, in order that ISOs granted meet the requirements for “incentive stock options” under the Code or any change in applicable law, regulations, rulings or interpretations of any governmental agency or regulatory body. No amendment shall be effective without the requisite prior or subsequent stockholder approval which would, with certain exceptions, increase the maximum number of shares of our common stock for which equity awards can be granted under the Plan, change the eligibility requirements to receive equity awards, or make any change for which applicable law, regulation, ruling or interpretation by the applicable governmental agency or regulatory authority requires stockholder approval. No termination, suspension or amendment of the Plan shall adversely affect the rights of any equity awards holder under an equity awards without his prior consent.
Termination
No awards may be granted under the Plan after the tenth anniversary of the adoption of the Plan. The Board of Directors may suspend or terminate the Plan at any time. No termination of the Plan will affect a recipient’s rights under outstanding awards without the recipient’s consent.
Federal Income Tax Aspects of the Plan
The following is a brief summary of the federal income tax aspects of awards that may be made under the Plan based on existing U.S. federal income tax laws. This summary provides only the basic tax rules and does not describe a number of special tax rules, including the alternative minimum tax and various elections that may be applicable under certain circumstances. It also does not reflect provisions of the income tax laws of any municipality, state or foreign country in which a holder may reside, nor does it reflect the tax consequences of a holder’s death. The tax consequences of awards under the Plan depend upon the type of award and if the award is to an executive officer, whether the award qualifies as performance-based compensation under Section 162(m) of the Code.
Incentive Stock Options
The recipient of an incentive stock option generally will not be taxed upon grant of the option. Federal income taxes are generally imposed only when the shares of stock from exercised incentive stock options are disposed of, by sale or otherwise. The amount by which the fair market value of the stock on the date of exercise exceeds the exercise price is, however, included in determining the option recipient’s liability for the alternative minimum tax. If the incentive stock option recipient does not sell or dispose of the stock until more than one year after the receipt of the stock and two years after the option was granted, then, upon sale or disposition of the stock, the difference between the exercise price and the market value of the stock as of the date of exercise will be treated as a capital gain, and not ordinary income. If a recipient fails to hold the stock for the minimum required time, at the time of the disposition of the stock, the recipient will recognize ordinary income in the year of disposition generally in an amount equal to any excess of the market value of the common stock on the date of exercise (or, if less, the amount realized or disposition of the shares) over the exercise price paid for the shares. Any further gain (or loss) realized by the recipient generally will be taxed as short-term or long-term gain (or loss) depending on the holding period. We will generally be entitled to a tax deduction at the same time and in the same amount as ordinary income is recognized by the option recipient.
Nonqualified Stock Options
The recipient of stock options not qualifying as incentive stock options generally will not be taxed upon the grant of the option. Federal income taxes are generally due from a recipient of nonqualified stock options when the stock options are exercised. The difference between the exercise price of the option and the fair market value of the stock purchased on such date is taxed as ordinary income. Thereafter, the tax basis for the acquired stock is equal to the amount paid for the stock plus the amount of ordinary income recognized by the recipient. We will generally be entitled to a tax deduction at the same time and in the same amount as ordinary income is recognized by the option recipient by reason of the exercise of the option.
Section 162(m)
Section 162(m) of the Code would render non-deductible to us certain compensation in excess of $1,000,000 received in any year by certain executive officers unless such excess is “performance-based compensation” or is otherwise exempt from Section 162(m), such as under the transition rule described above. Assuming stockholder approval, grants of options and stock appreciation rights, and grants of restricted shares and stock units conditioned on attainment of one or more performance goals set forth in the Plan, may qualify as performance-based compensation and be exempt from Section 162(m).
Section 409A
Any deferrals made under the Plan, including awards granted under the Plan that are considered to be deferred compensation, must satisfy the requirements of Section 409A of the Code to avoid adverse tax consequences to participating employees. These requirements include limitations on election timing, acceleration of payments, and distributions. We intend to structure any deferrals and awards under the Plan to meet the applicable tax law requirements.
Stockholder Approval
The Plan shall be subject to approval by our stockholders within 12 months before or after the date the Plan is adopted. The Board or Committee may grant ISOs under the Plan prior to approval of the Plan by the stockholders, but until such approval is obtained, no such Incentive Stock Options shall be exercisable. In the event that stockholder approval of the Plan is not obtained within the twelve (12) month period provided above, all Incentive Stock Options previously granted under the Plan shall be exercisable as non Qualified Stock Options.
Item 6. Management's Discussion and Analysis
Statement of Going Concern
As of June 30, 2009, we had an accumulated deficit of $24,389,258 and incurred a net loss for the year ended June 30, 2009 of $6,714,843. Our current business plan requires additional funding beyond our anticipated cash flows from operations. These and other factors raise substantial doubt about the Company's ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent upon our ability to raise additional capital and achieve profitable operations
Forward-Looking Statements
The following discussion and analysis provides information which management believes is relevant to an assessment and understanding of our results of operations and financial condition. The discussion should be read in conjunction with our financial statements and notes thereto appearing in this prospectus. The following discussion and analysis contains forward-looking statements, which involve risks and uncertainties. Our actual results may differ significantly from the results, expectations and plans discussed in these forward-looking statements.
Overview
Our current business is the distribution of wine and spirit products manufactured in Armenia. In the future we may add alcohol beverage products manufactured in other countries.
Our signature product is Marani Vodka, a premium vodka which is manufactured exclusively for us in Armenia. Marani Vodka is made from winter wheat harvested in Armenia, distilled three times, aged in oak barrels lined with honey and skimmed dried milk, then filtered twenty-five times. Bottling of the product occurs at the Eraskh distillery in Armenia. Our vodka was awarded the gold medal in the International Spirit Competition, held in San Francisco, California, in both 2004 and 2007, the 5 Diamond Award by the American Academy of Hospitality and Sciences in March 2008, and 2009 was officially launched in August 2006.
At this time, the management believes for the foreseeable future, all of the Company’s products will come from a single supplier, Erashk Winery, Ltd. The Company has an Exclusive Distribution Agreement with Erashk Winery Ltd., an Armenian manufacturer of wine and other spirits, to purchase, inventory, promote, and resell any of its products world-wide. The agreement was renewed on May 3, 2007, and continues until November 26, 2012 and is subject to automatic five (5) year renewals.
The Company is a client of Southern Wine & Spirits of America, Inc. ("SWS"), the largest alcoholic beverage distributor in the United States. Through the Southwest in Southern California and Nevada and in conjunction with PLCB in Pennsylvania. The Company has established additional distributors such as QV Distributors in Arizona and Wein-Baur in Illinois. With expanding our distributor list we can serve our consumers in quick and effective way.
The Company intends to, and is currently in negotiations with, other distributors to reach arrangements to maximize distribution of its products in the United States. The Company also identified appropriate distributors of Marani Vodka in India, which the company made its first shipment in June 2009.
Critical Accounting Policies
Our financial statements are prepared in accordance with accounting principles generally accepted in the United States of America ("US GAAP"). In connection with the preparation of the financial statements, we are required to make assumptions and estimates about future events, and apply judgments that affect the reported amounts of assets, liabilities, revenues, expenses and the related disclosure. We base our assumptions, estimates and judgments on historical experience, current trends and other factors that management believes to be relevant at the time the financial statements are prepared. On a regular basis, management reviews our accounting policies, assumptions, estimates and judgments to ensure that our financial statements are presented fairly and in accordance with U.S. GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material.
Our significant accounting policies are discussed in Note 3 of the notes to financial statements. Certain critical policies are presented below.
Stock Based Compensation
In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 123(R), Share-Based Payment. This pronouncement amends SFAS No. 123, Accounting for Stock-Based Compensation, and supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees. SFAS No. 123(R) requires that companies account for awards of equity instruments issued to employees under the fair value method of accounting and recognize such amounts in their statements of operations. Under SFAS No. 123(R), we are required to measure compensation cost for all stock-based awards at fair value on the date of grant and recognize compensation expense in our consolidated statements of operations over the service period that the awards are expected to vest.
The Company accounts for stock-based compensation issued to non-employees and consultants in accordance with the provisions of SFAS 123(R) and the Emerging Issues Task Force consensus in Issue No. 96-18 ("EITF 96-18"), "Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring or in Conjunction with Selling, Goods or Services". Common stock issued to non-employees in exchange for services is accounted for based on the fair value of the services received.
Fair Value of Financial Instruments
Statement of Financial Accounting Standard No. 107, Disclosures about Fair Value of Financial Instruments, requires that the Company disclose estimated fair values of financial instruments. The carrying amounts reported in the statements of financial position for current assets and current liabilities qualifying as financial instruments are a reasonable estimate of fair value.
Results of Operations for the Year Ended June 30, 2009 Compared to Year ended June 30 2008
Revenues
| 2009 | 2008 | $ Change | % Change | |||||||||||||
| Revenues | $ | 402,373 | $ | 168,058 | $ | 234,315 | 139 | % | ||||||||
On April 4, 2008, we entered into an Agreement and Plan of Merger by and among the Company, FFBI Merger Sub Corp., a California corporation and wholly-owned subsidiary which we formed for purposes of the Merger and MEI, by which (I) FFBI merged with and into MEI, and (ii) we merged with MEI (a reverse merger) with MEI, with MEI continuing to exist as our wholly owned subsidiary (see Note 4 to our financial footnotes for a complete description of this merger transaction). Subsequently, MEI, changed its name to Marani Spirits, Inc. Prior to the merger, our only business was that of our wholly-owned subsidiary, Fit for Business (Australia) Pty Limited, which is engaged in the development of overall wellness programs for the workplace in Australia. Subsequent to the merger, we exercised our option to sell this subsidiary to our former Chief Executive Officer, Mark Paulsen, who acquired all our interest in, Fit for Business (Australia) Pty Limited on or about May 15, 2008. Subsequent to the merger transaction with MEI, the Company’s primary business is the business of MEI in the distribution of wine and spirit products manufactured in Armenia.
The revenues for our 2008 fiscal year were partially based on our current business in the distribution of wine and spirit products manufactured in Armenia. The increase in our revenues reflects the development of that core business, resulting from a major rebranding of the Marani Vodka product and a new advertising campaign.
We plan to increase our revenues during fiscal 2010 by developing and augmenting our internal sales force, securing additional distributors, expanding our product offering, increasing our volume per outlet and driving further penetration of our products into our current customer base.
Cost of Sales
| 2009 | % of Revenues | 2008 | % of Revenues | $ Change | % Change | |||||||||||||||||||
| Product costs | $ | 177,030 | 29 | % | $ | 48,809 | 29 | % | 128,221 | 263 | % | |||||||||||||
The increase in cost of sales and cost of sales as a percentage of revenues are the result of our post merger business of the branding, marketing and distribution of wine and spirit products manufactured in Armenia.
Operating Expenses
| 2009 | % of Revenues | 2008 | % of Revenues | $ Change | % Change | |||||||||||||||||||
| Marketing and Advertising | $ | 975,935 | 242 | % | $ | 812,704 | 483 | % | $ | 163,231 | 20 | % | ||||||||||||
| General and administrative | $ | 2,232,803 | 555 | % | $ | 2,624,566 | 1,562 | % | $ | 391,763 | 15 | % | ||||||||||||
| Stock Based Compensation | $ | 3,389,752 | 842 | % | $ | 222,689 | 132 | % | $ | 3,167,063 | 1,422 | % | ||||||||||||
| Total | $ | 6,598,490 | 1,640 | % | $ | 3,659,959 | 2,178 | % | $ | 2,938,531 | 803 | % | ||||||||||||
Marketing and Advertising
The increase in marketing and advertising expenses is the result of the change in our core business after the April 2008 merger transaction. As a percentage of revenues, the high cost of marketing and expenses reflects our aggressive efforts to increase market share for our products in the United States from a small sales base. We expect marketing and advertising expenses to increase as we continue to build the company infrastructure. We anticipate, however, that the expense as a percentage of revenue will be reduced due to revenue growth.
General and Administrative
Our general and administrative expenses have decreased as a result of operational efficiencies and the absence of accrued expenses and legal fees associated with the April 2008 merger transaction. Total general and administrative expenses are expected to increase, however, as we continue to build the company infrastructure. As such, management expects that our general and administrative expenses as a percentage of revenue will be reduced due to revenue growth, cost cutting efforts and the refinement of business operations.
Stock Based Compensation
The increase in stock based compensation is the result of our necessity to pay for services rendered to us with equity owing to cash flow constraints. As revenues increase, we expect that the necessity for stock based compensation will decrease.
Other Income (Expense)
| 2009 | 2008 | $ Change | % Change | |||||||||||||
| Derivative Income (Expense) | (246,501 | ) | 104,135 | $ | 350,632 | 366 | % | |||||||||
| Interest Expense | $ | (119,618 | ) | $ | (161,132 | ) | $ | 41,514 | 25.77 | % | ||||||
| Interest Income | 29,933 | 10,471 | $ | 19,462 | 185 | % | ||||||||||
The increase in interest expense is primarily the result of our obligations under a long term SBA loan having a balance due at June 30, 2009 of $125,680, having an interest rate of 8.25%, and our accrual of interest on a short term note in the amount $80,495 having an interest rate of 15%.
Net Loss
We reported a net loss in 2009 of $6,714,843 compared with a net loss of $15,366,813 in 2008. Our reduced net loss in 2009 was primarily due to the $11,779,577 that we booked as direct offering expenses in 2008. This was offset by a significant increase in operating expenses in developing our administrative and operating infrastructure, developing new and existing sales. As a result, our current revenue volume has not been sufficient to recover all of our operating expenses. We anticipate that our operating expenses as a percentage of our sales will decrease in future periods as our revenues increase and our costs stabilize.
Loss per Common Share Applicable to Common Stockholders
Our basic loss per common share applicable to common stockholders in 2009 was $(0.04) compared with a basic loss per common share applicable to common stockholders in 2008 of $(0.12). Because we experienced net losses in 2009 and 2009, all potential common share issuances resulting from the exercise of options and warrants would have an antidilutive impact on earnings per share; therefore, diluted loss per common share equals basic loss per common share for both years.
The weighted average common shares outstanding increased from 130,290,491 for the year ended 2008 to 172,655,116 for the year ended June 30, 2009. The increase is attributed primarily to the issuance of (i) common stock issued to officers for services and (ii) common stock issued to non-affiliates for services.
Liquidity and Capital Resources
Working Capital Needs and Major Cash Expenditures
Our footnotes contain an explanatory paragraph that indicates that we have continuing losses from operations, and our working capital is insufficient to meet our planned business objectives. This report also states that, because of these losses, there is substantial doubt about our ability to continue as a going concern. This report and the existence of these recurring losses from operations may make it more difficult for us to raise additional debt or equity financing needed to run our business, and are not viewed favorably by analysts or investors. Furthermore, if we are unable to raise a significant amount of proceeds from private placements, public offerings or other financings, this may cause our cessation of business resulting in investors losing the value of their investment in us.
A major factor in the Company’s net losses, as set forth above, was the recent investments by the Company in expanded operations and a marketing campaign relating to its primary product, Marani Vodka. Management believes that these expenses are necessary to expand the business of the Company.
We currently have monthly working capital needs of approximately $175,385.25,000. This amount is expected to increase in fiscal 2010, primarily due to the following factors:
• continued expansion of our administrative and operational infrastructure in connection with anticipated increase in our business activities, and |
• continued expansion of our marketing and sales programs. |
External Sources of Liquidity:
During the year ended June 30, 2009, we received proceeds of $250,000 from loan transactions and $20,000 from the sale of our common stock for cash. In addition, we issued shares of our common stock valued at
• $2,085,652 for services performed by Officers, and
• $1,304,100 for services performed by others.
The balance of our cash and cash equivalents as of June 30, 2009 was $1,116,460.
To date, we have relied on funding from investors, our officers and directors, and our limited sales to fund operations. To date, we have generated less than a half million dollars in revenue during our fiscal year ending June 30, 2009, and have extremely limited cash liquidity and capital resources. Our future capital requirements will depend on many factors, including our ability to market our products successfully, cash flow from operations, and our ability to obtain financing in the capital markets. Our business plan requires additional funding beyond our anticipated cash flow from operations. Consequently, although we currently have no specific plans or arrangements for financing, we intend to raise funds through private placements, public offerings or other financings. Any equity financings would result in dilution to our then-existing stockholders. Sources of debt financing may result in higher interest expense and may expose the Company to liquidity problems. Any financing, if available, may be on unfavorable terms. If adequate funds are not obtained, we may be required to reduce or curtail operations. We anticipate that our existing capital resources will be adequate to satisfy our operating expenses and capital requirements for approximately 6 months. However, this estimate of expenses and capital requirements may prove to be inaccurate.
Information about Our Cash Flows
| Cash provided by (used in): | 2009 | 2008 | $ Change | % Change | ||||||||||||
| Operating activities | $ | (2,548,623 | ) | $ | (4,790,236 | ) | $ | 2,241,613 | 47 | % | ||||||
| Financing activities | $ | 1,204,420 | $ | 7,217,617 | $ | 6,013,197 | 83 | % | ||||||||
Cash provided by or used in our operating, investing and financing activities is the result of the change in our core business after the April 2008 merger transaction. The net increase in cash used in operating activities of $2,241,613 is due primarily to the increase in our net loss in 2009, In addition, the net loss was attributable to a change in core business, and increased spending for marketing and operations by the Company, as set forth above. In addition, cash used by our operating activities increased as a result of changes in stock based compensation during 2009 by $3,389,752, compared to $222,689 for the same period in 2008. Changes in accounts payable contributed to an increase in cash used by operating activities of $371,925 in 2009, as compared to contributing to an increase of $59,645 for 2008. Cash flows generated by our operating activities were inadequate to cover our cash disbursement needs for the year ended June 30, 2008, and we had to rely on private placement financing to cover operating expenses.
Net cash provided by our financing activities for the year ended June 30, 2009 was $1,204,420. Net cash provided by financing activities for the same period in 2008 was $7,217,617, for a net increase of $6,013,197 or 83%. The decrease in 2009 is attributed to proceeds received from the sale of our common stock of $7,814,000 in 2008 as compared to $20,000 in 2009.
Off Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Effects of Inflation
We believe that inflation has not had any material effect on our net sales and results of operations.
Item 7. Financial Statements
The consolidated financial statements for the years ended June 30, 2009 and 2008 are contained on Pages F-1 to F-16 that follow.
Item 8. Changes in and Disagreements with Accountants and Accounting Financial Disclosures
None
Item 8A(T). Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”), as of June 30, 2009. Disclosure controls and procedures are those controls and procedures designed to provide reasonable assurance that the information required to be disclosed in our Exchange Act filings is (1) recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission’s rules and forms, and (2) accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of June 30, 2009, our disclosure controls and procedures were effective.
Management’s Annual Report on Internal Control over Financial Reporting
Management, including our Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a – 15(f). Management conducted an assessment as of June30, 2008 of the effectiveness of our internal control over financial reporting based on the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on that evaluation, management concluded that our internal control over financial reporting was effective as of June 30, 2009, based on criteria in Internal Control – Integrated Framework issued by the COSO.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements should they occur. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the control procedure may deteriorate.
This Annual Report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only management’s report in this Annual Report.
Changes in internal controls
There were changes (including corrective actions with regard to significant deficiencies or material weaknesses) in our internal controls over financial reporting that occurred during period ending June 30, 2009 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. During this period, we developed, as routine, procedures for more expedient and effective reporting cycles, and the closing of our accounting periods, to allow sufficient time for our internal analysis thereof and the review or audit by our independent auditors. In addition, on September 1, 2009, the Company hired a part time Controller, who will assume full time duties effective October 15, 2009. The Controller will be responsible for managing the day to day accounting operations and will assume the responsibility for reviewing all accounting systems for efficiency and accuracy.
Item 8B. Other Information
None
PART III
Item 9. Directors, Executive Officers, Promoters, Control Persons and Corporate Governance; Compliance with Section 16(a) of the Exchange Act
The directors, executive officers and significant employees as of June 30, 2009, are as follows. Our directors are elected at each annual meeting and serve until their successors are elected.
| Name | Age | Position with Company | Year Appointed | |||
| Ara Zartarian | 40 | Chief Executive Officer, Chief Operating Officer and Director | 2008 | |||
| Ani Kevorkian | 45 | Chief Financial Officer and Director | 2008 | |||
Margrit Eyraud | 47 | Chief Executive Officer and Director | 2008; 2009 |
The experience and background of our directors, executive officers and significant employees follows:
Margrit Eyraud served as our Chairman of the Board, President, and Chief Executive Officer. She commenced her employment as the Chief Executive Officer of MEI since its formation in 2001. Previously, she was an Assistant Controller at Superba, Inc. (1996 to 2002), Controller at Rampage Closing and Vice President of Credit at Authentic Fitness Warnaco, Inc. (1992 to 1996), and Chief Financial Officer at Aheam Machine Distribution (1989 to 1992). Ms. Eyraud earned Bachelors in Business Administration at the University of LaVerne. Ms. Eyraud resigned as our chief Executive Officer and President, effective October 1, 2008. Subsequently, Ms. Eyraud resumed her position as Chief Executive Officer, effective August 1, 2009.
As of June 30, 2009, Ara Zartarian served as our Chief Executive Officer, President, Chief Operating Officer, and Secretary. He has been an officer and director of MEI since its formation in 2001. Previously, he was a partner in the collections firm of Zartarian & Ginocchio Collections. Mr. Zartarian earned his Bachelors degree from Loyola Marymount University (Los Angeles) and his Juris Doctorate from Western State University College of Law. Currently, Mr. Zartarian serves as our Chief Operating Officer and Director.
Ani Kevorkian serves as our Executive Vice President, Chief Financial Officer, and Treasurer. She has been an officer and director of MEI since its formation in 2001. Previously, she was an Assistant Director at the International Institute for Municipal Clerks (1994 to 2002) and an Operations Manager at the Michelin Tire Company (1988 to 1993). Ms. Kevorkian earned her Bachelor in Business Management from the University of Phoenix.
Significant Employees
We have not identified any employee who is not an executive who is expected to make a significant contribution to the business.
Family Relationships
All three of our executive officers named above are siblings.
Legal Proceedings
We are not involved in any legal proceedings. To the knowledge of management, no federal, state or local governmental agency is presently contemplating any proceeding against the Company.
None of our directors, executive officers or nominees for such office have been involved in any legal proceedings related to bankruptcy of an entity where they held such positions; nor charged or convicted in any criminal proceedings; nor subject to any order, judgment, or decree permanently or temporarily enjoining, barring, suspending or otherwise limiting their involvement in any type of business, securities or banking activities; nor found in any manner whatsoever to have violated a federal or state securities or commodities law.
None of our officers or directors has:
| ● | had any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer at the time of the bankruptcy or within two years prior to that time; |
| ● | been convicted in a criminal proceeding or is subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); |
| ● | been subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; or |
| ● | been found by a court of competent jurisdiction (in a civil action), the Securities and Exchange Commission to have violated a federal or state securities or commodities law, where the judgment has not been reversed, suspended or vacated. |
| ● | Material Changes to Nomination Procedures |
We have not adopted procedures by which security holders may recommend nominees to our Board of Directors.
Audit Committee and Audit Committee Financial Expert
We do not have a separately constituted standing audit committee or a committee performing similar functions. Our entire Board of Directors acts as our audit committee.
We do not have an audit committee financial expert serving on our audit committee. We are a small company with limited revenues for the year ended June 30, 2008. In these circumstances, we have had difficulty attracting a qualified director that could serve as our audit committee financial expert.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires our directors and executive officers and persons who beneficially own more than ten percent of a registered class of our equity securities to file with the SEC initial reports of ownership and reports of change in ownership of common stock and other equity securities of our Company. Officers, directors and greater than ten percent stockholders are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file. To our knowledge, the following persons have failed to file, on a timely basis, the identified reports required by Section 16(a) of the Exchange Act during our fiscal year ended June 30, 2008:
J.B. Black Sea Fund Holstrasse 602 Zurich, Switzerland, CH-8010 | Beneficial Owner of more than ten percent of our common stock registered under Section 12 of the Exchange Act | Filed 13G Form February 2009 |
Item 10. Executive Compensation
Summary Compensation Table
The following table sets forth the compensation earned during the last fiscal year by our top three highest paid executive officers:
| Name | Principal Position | Year Ended | *Salary$ | **All Other Compensation | Total | |||||||||||||
| Margrit Eyraud (1) | CEO | 6-30-2009 | 180,000 | 12,144 | 192,144 | |||||||||||||
| Ani Kevorkian | CFO | 6-30-2009 | 177,000 | 12,144 | 189,144 | |||||||||||||
| Ara Zartarian (2) | CEO/COO | 6-30-2009 | 178,000 | 16,008 | 194,008 | |||||||||||||
| (1) | Margrit Eyraud served as the Company’s CEO from April 2008 to October 1, 2008, and, as of August 1, 2009, currently serves as the Company’s CEO. |
| (2) | Ara Zartarian served as the Company’s CEO from October 1, 2008 to August 1, 2009. |
* Salary reported on an annualized basis.
| ** | Includes, on an annualized basis, a monthly allowance for (i) automobile: $650.00 for each officer listed in this table, (ii) medical insurance: $362 each for Margrit Eyraud and Ani Kevorkian, and (iii) medical insurance: $684 for Ara Zartarian. |
Outstanding Equity Awards
Pursuant to Margrit Eyraud’s October 1, 2008 severance agreement, the Company granted Ms. Eyraud ten year options to purchase 5,000,000 shares of the Company’s common stock at $0.25 per share, all of which are vested. See Note 11 to our financial statements.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth the beneficial ownership of our company’s common stock, and the relationship of each owner to the Company, as of June 30, 2009 as to:
· each person known to beneficially own more than 5% of our issued and outstanding common stock
· each of our directors
· each executive officer
· all directors and officers as a group
The following conditions apply to all of the following tables:
· except as otherwise noted, the named beneficial owners have direct ownership of the stock and have sole voting and investment power with respect to the shares shown |
· the class listed as "common" includes the shares of common stock underlying the Company’s issued convertible preferred stock, options and warrants |
Beneficial Owners
| Title of Class | Name and Address of Beneficial Owner (1) | Amount and Nature of Beneficial Ownership | Percent of Class | |||||||
| Common | Margrit Eyraud c/o 13152 Raymer Street, Suite 1A North Hollywood, CA 91605 Officer and Director | 40,333,330 | (2) | 21.35 | % (5) | |||||
| Common | J.B. Black Sea Fund Holstrasse 602 Zurich, Switzerland, CH-8010 Investor | 28,000,000 | (3) | 14 | %(6) | |||||
| Common | Ani Kevorkian c/o 13152 Raymer Street, Suite 1A North Hollywood, CA 91605 Officer and Director | 18,203,340 | (2) | 9.89 | % (5) | |||||
| Common | Ara Zartarian c/o 13152 Raymer Street, Suite 1A North Hollywood, CA 91605 Officer and Director | 10,843,330 | (2) | 5.89 | % (5) | |||||
| Common (4) | RBC Dexia Investor Services Bank S.A. Luxembourg c/o Bank Julius Baer & Co. Ltd Hohlstrasse 602, Zurich, Switzerland, CH-8010 Investor | 9,400,000 | (4) | 5.1 | % (5) | |||||
| (1) | Beneficial Ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Shares of common stock subject to options or warrants currently exercisable or convertible, or exercisable or convertible within 60 days of June 30, 2009 are deemed outstanding for computing the percentage of the person holding such option or warrant but are not deemed outstanding for computing the percentage of any other person. |
| (2) | Includes Common Stock shares issued in connection with merger April 2008. |
| (3) | 28,000,000 shares consists of (i) 14,000,000 shares of common stock, (ii) 4,600,000 shares of common stock issuable upon the exercise of warrants, at an exercise price of $0.35 per share, and (iii) 9,400,000 shares of common stock issuable upon the exercise of warrants, at an exercise price of $0.50 per share |
| (4) | 9,400,000 shares of common issued upon the exercise of warrants |
| (5) | Percentage calculated based on 188,901,796 shares of common stock consisting of 183,901,796 issued and outstanding shares plus 5,000,000 shares issuable upon the exercise of options |
| (6) | Percentage calculated based on 197,901,796 shares of common stock consisting of 183,901,796 shares issued and outstanding, plus 14,000,000 shares issuable upon the exercise of warrants. See footnote (3) above. |
Management Owners
| Title of Class | Name and Address of Management Owner | Amount and Nature of Ownership (1) | Percent of Class (3) | |||||||
| Common | Margrit Eyraud c/o 13152 Raymer Street, Suite 1A North Hollywood, CA 91605 | 40,333,330 | (2) | 21.35 | % | |||||
| Common | Ani Kevorkian c/o 13152 Raymer Street, Suite 1A North Hollywood, CA 91605 | 18,203,340 | (3) | 9.89 | % | |||||
| Common | Ara Zartarian c/o 13152 Raymer Street, Suite 1A North Hollywood, CA 91605 | 10,843,330 | (3) | 5.89 | % | |||||
| Total | 69,380,000 | 36.72 | % | |||||||
| (1) | Beneficial Ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Shares of common stock subject to options or warrants currently exercisable or convertible, or exercisable or convertible within 60 days of June 30, 2009 are deemed outstanding for computing the percentage of the person holding such option or warrant but are not deemed outstanding for computing the percentage of any other person. |
| (2) | Percentage calculated based on 188,901,796 shares of common stock consisting of 183,901,796 issued and outstanding shares plus 5,000,000 shares issuable upon the exercise of options |
| (3) | Percentage calculated from base of 183,901,796 shares of common stock issued and outstanding. |
There currently are no arrangements that may result in a change of ownership or control.
Item 12. Certain Relationships and Related Transactions, Director Independence
Certain Relationships and Related Party Transactions
We did not engage in any business relationship or activities with employees, officers, directors or affiliates during our fiscal year ended June 30, 2009, other that with respect to their employment positions and duties performed on our behalf; nor, to the best of our knowledge do any our employees, officers, directors or affiliates have an interest in any person, entity or third party with which we conduct business activities.
Director Independence
Our board has positions for three (3) directors that are elected annual meetings of our shareholders. Our Board of Directors does not meet appropriate standards of independence. In determining independence, the board will consider the definition of “independent director” in the listing standards of the Nasdaq Stock Market. Under this definition, none of our current directors is considered independent.
Item 13. Exhibits
Exhibit Number | DESCRIPTION | |
| 2.1 | Agreement and Plan of Merger dated April 4, 2008, filed with the SEC on April 14, 2008 in our Form 8-K, incorporated herein by reference. | |
| 3.1 | Articles of Incorporation of Elli Tsab, Inc. filed July 31, 2001, filed with the SEC on April 14, 2008 in our Form 8-K, incorporated herein by reference. | |
| 3.2 | Certificate of Amendment of Articles of Incorporation filed April 15, 2004, changing name to Patient Data Corporation, filed with the SEC on April 14, 2008 in our Form 8-K, incorporated herein by reference. | |
| 3.3 | Certificate of Amendment of Articles of Incorporation filed January 13, 2005, changing name to Fit for Business International, Inc. , filed with the SEC on April 14, 2008 in our Form 8-K, incorporated herein by reference. | |
| 3.4 | Certificate of Amendment of Articles of Incorporation filed March 10, 2008, changing name to Marani Brands, Inc. and effectuating reverse stock split , filed with the SEC on April 14, 2008 in our Form 8-K, incorporated herein by reference. | |
| 3.5 | By-Laws filed on August 1, 2005 with Amendment No. 3 to Form SB-2 registration statement, incorporated herein by reference. | |
| 4.1 | Form of Warrant Agreement for Investors, filed with the SEC on April 14, 2008 in our Form 8-K, incorporated herein by reference. | |
| 10.1 | Employment Agreement for Margrit Eyraud, filed with the SEC on April 14, 2008 as an exhibit to Form 8-K, incorporated herein by reference. | |
| 10.2 | Employment Agreement for Ara Zartarian, filed with the SEC on April 14, 2008 as an exhibit to Form 8-K, incorporated herein by reference. | |
| 10.3 | Employment Agreement for Ani Kevorkian, filed with the SEC on April 14, 2008 as an exhibit to Form 8-K, incorporated herein by reference. | |
| 10.4 | 2008 Stock Option Plan filed with the SEC on May 21, 2008 as an exhibit to Form S-8, incorporated herein by reference. | |
| 10.5 | Exclusive Distribution Agreement with Eraskh Winery Ltd., dated November 27, 2002, filed with the SEC on April 14, 2008 as an exhibit to Form 8-K, incorporated herein by reference. | |
| 10.6 | Amendment to Exclusive Distribution Agreement with Eraskh Winery Ltd., dated November 13, 2007, filed herewith. | |
| 10.7 | Letter of Intent to Purchase Eraskh Winery Ltd., dated December 15, 2007, filed herewith. | |
| 10.8 | Employment Agreement for Margrit Eyraud, filed with the SEC on August 10, 2009 as an exhibit to Form 8-K, incorporated herein by reference. | |
| 23.1 | ||
| 31.1 | ||
| 31.2 | ||
| 32.1 | ||
| 32.2 | ||
| 99.1 | Current Report on Form 8-K, re: Management Changes, as filed with the SEC on August 10, 2009, incorporated herein by reference |
Item 14. Principal Accountant Fees and Services
Audit Fees and Audit Related Fees
The aggregate fees billed for each of the last two fiscal years for professional services rendered by the principal accountant for the audit of our annual financial statements and review of financial statements included in our Form 10-KSB and Form 10-K were $ 73,865, respectively, for the years ended June 30, 2009 and 2008.
Audit Committee Pre-Approval Policies
Our Board of directors, functioning as our audit committee, makes reasonable inquiry as to the independence of our principal auditors based upon the considerations set forth in Rule 2-01 of Regulation S-X, including the examination of representation letters furnished by the principal accountant. The audit committee has not approved any services beyond those required for the audit of our annual financial statements, review of financial statements included in our Forms 10-K and preparation of corporate tax returns.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, there unto duly authorized.
MARANI BRANDS, INC.
Date: October 13, 2009
By: /s/ Margrit Eyraud
Margrit Eyraud
Chief Executive Officer, President
Director
By: /s/ Ani Kevorkian
Ani Kevorkian
Chief Financial Officer
Principal Accounting Officer
Director
By: /s/ Ara Zartarian
Ara Zartarian
Chief Operating Officer, Executive-Vice President
Director
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
THE BOARD OF MARANI BRANDS, INC.
We have audited the accompanying consolidated balance sheet of Marani Brands, Inc. and Subsidiaries as of June 30, 2009 and 2008, and the related consolidated statements of operations, stockholders equity and cash flows for the periods then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our 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 our 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 purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining on a test basis, evidence supporting the amounts 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 consolidated financial position of Marani Brands, Inc. and Subsidiaries at June 30, 2009 and 2008, and the results of its’ consolidated operations and its’ consolidated stockholders equity and consolidated cash flows for the periods then ended in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company's viability is dependent upon its ability to obtain future financing and the success of its future operations. These factors raise substantial doubt as to the Company's ability to continue as a going concern. Management's plan in regard to these matters is described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Gruber & Company, LLC Saint Louis, Missouri
October 12, 2009
| Marani Brands, Inc. and Subsidiaries | ||||||||
| Consolidated Balance Sheets | ||||||||
| June 30, | ||||||||
| 2009 | 2008 | |||||||
| Assets | ||||||||
| Current Assets | ||||||||
| Cash & Equivalents | $ | 1,116,460 | $ | 2,460,663 | ||||
| Accounts Receivable | 138,541 | 29,661 | ||||||
| Inventory | 170,518 | 77,307 | ||||||
| Prepaid Expenses & Other Current Assets | 30,130 | - | ||||||
| Total Current Assets | 1,455,649 | 2,567,631 | ||||||
| Property & Equipment, Net | - | 5,510 | ||||||
| Deposits | 10,255 | 35,255 | ||||||
| Total Assets | $ | 1,465,904 | $ | 2,608,396 | ||||
| Liabilities & Stockholders' Equity (Deficit) | ||||||||
| Current Liabilities | ||||||||
| Accounts Payable | $ | 632,819 | $ | 260,894 | ||||
| Accrued Expenses | 453,816 | 94,063 | ||||||
| Line of Credit | 999,556 | - | ||||||
| Notes Payable | 330,495 | 80,495 | ||||||
| Derivative Liability | 246,501 | - | ||||||
| Total Current Liabilities | 2,663,187 | 435,452 | ||||||
| Non-Current Liabilities | ||||||||
| Notes Payable | 124,680 | 249,816 | ||||||
| Total Non-Current Liabilities | 124,680 | 249,816 | ||||||
| Total Liabilities | $ | 2,787,867 | $ | 685,268 | ||||
| Commitments & Contingencies | - | - | ||||||
| Stockholders' Equity (Deficit) | ||||||||
| Common Stock, $0.001 par value, 300,000,000 shares | ||||||||
| authorized; 181,401,796 and 169,743,752 shares issued and outstanding, respectively | 181,402 | 169,744 | ||||||
| Additional Paid-in Capital | 22,825,893 | 19,427,799 | ||||||
| Stock Subscriptions Payable | 60,000 | - | ||||||
| Accumulated Deficit | (24,389,258 | ) | (17,674,415 | ) | ||||
| Total Stockholders' Equity (Deficit) | (1,321,963 | ) | 1,923,128 | |||||
| Total Liabilities & Stockholders' Equity (Deficit) | $ | 1,465,904 | $ | 2,608,396 | ||||
| The accompanying notes are an integral part of these financial statements | ||||||||
| Marani Brands, Inc. and Subsidiaries | ||||||||||
| Consolidated Statements of Operations | ||||||||||
| For the Twelve Months Ended | ||||||||||
| June 30, | ||||||||||
| 2009 | 2008 | |||||||||
| Sales | $ | 402,373 | $ | 168,058 | ||||||
| Cost of Sales | 177,030 | 48,809 | ||||||||
| Gross Profit | 225,343 | 119,249 | ||||||||
| Operating Expenses | ||||||||||
| Marketing and Sales Promotion | 975,935 | 812,704 | ||||||||
| General & Administrative | 5,622,555 | 2,847,255 | ||||||||
| Total Operating Expenses | 6,598,490 | 3,659,959 | ||||||||
| Operating Income (Loss) | $ | (6,373,147 | ) | $ | (3,540,710 | ) | ||||
| Other Income (Expense) | ||||||||||
| Direct Offering Costs | - | (11,779,577 | ) | |||||||
| Interest Income | 29,933 | 10,471 | ||||||||
| Interest Expense | (119,618 | ) | (161,132 | ) | ||||||
| Loss on Disposal of Fixed Assets | (5,510 | ) | - | |||||||
| Derivative Expense | (246,501 | ) | 104,135 | |||||||
| Total Other Income (Expense) | (341,696 | ) | (11,826,103 | ) | ||||||
| Net Income (Loss) Before Income Taxes | $ | (6,714,843 | ) | $ | (15,366,813 | ) | ||||
| Provision for Income Taxes | - | - | ||||||||
| Net Income (Loss) | $ | (6,714,843 | ) | $ | (15,366,813 | ) | ||||
| Net Income per Share | ||||||||||
| Basic | $ | (0.04 | ) | $ | (0.12 | ) | ||||
| Diluted | $ | (0.04 | ) | $ | (0.12 | ) | ||||
| Number of Shares Used in Per Share Calculations | ||||||||||
| Basic | 172,655,116 | 130,290,491 | ||||||||
| Diluted | 172,655,116 | 130,290,491 | ||||||||
| The accompanying notes are an integral part of these financial statements | ||||||||||
| Marani Brands, Inc. and Subsidiaries | ||||||||||||||||||||||||
| Consolidated Statements of Stockholders' Equity (Deficit) | ||||||||||||||||||||||||
| Common Stock | ||||||||||||||||||||||||
| Number of Shares | Par Value ($0.001) Amount | Additional Paid-In-Capital | Stock Subscriptions Payable | Accumulated Deficit | Total Stockholders' Equity (Deficit) | |||||||||||||||||||
| Balance at June 30, 2007 | 71,520,000 | $ | 71,520 | $ | 840,680 | $ | - | $ | (1,793,878 | ) | $ | (881,678 | ) | |||||||||||
| Common Stock Issued to Investors for Cash | 41,179,121 | 41,179 | 7,772,821 | - | - | 7,814,000 | ||||||||||||||||||
| Common Stock Issued to Officers for Services | 11,686,670 | 11,687 | 128,553 | - | - | 140,240 | ||||||||||||||||||
| Common Stock Issued for Services | 1,281,797 | 1,282 | 81,167 | - | - | 82,449 | ||||||||||||||||||
| Recapitalization for Reverse Merger-FFBI Shares | 937,339 | 937 | (937 | ) | - | - | - | |||||||||||||||||
| Common Stock Issued for Direct Offering Costs | 43,138,825 | 43,139 | 10,605,515 | - | - | 10,648,654 | ||||||||||||||||||
| Negative Equity of FFBI charged to Retained Earnings | - | - | - | - | (513,724 | ) | (513,724 | ) | ||||||||||||||||
| Net Loss | - | - | - | - | (15,366,813 | ) | (15,366,813 | ) | ||||||||||||||||
| Balance at June 30, 2008 | 169,743,752 | $ | 169,744 | $ | 19,427,799 | $ | - | $ | 17,674,415 | ) | $ | 1,923,128 | ||||||||||||
| Common Stock Issued to Investors for Cash | 200,000 | 200 | 19,800 | - | - | 20,000 | ||||||||||||||||||
| Common Stock Issued to Officers for Services | 5,038,044 | 5,038 | 2,080,614 | - | - | 2,085,652 | ||||||||||||||||||
| Common Stock Issued for Services | 6,420,000 | 6,420 | 1,297,680 | - | - | 1,304,100 | ||||||||||||||||||
| Cash Received for Stock Subscriptions | - | - | - | 60,000 | - | 60,000 | ||||||||||||||||||
| Net Loss | - | - | - | - | (6,714,843 | ) | (6,714,843 | ) | ||||||||||||||||
| Balance at June 30, 2009 | 181,401,796 | $ | 181,402 | $ | 22,825,893 | $ | 60,000 | $ | (24,389,258 | ) | $ | (1,321,963 | ) | |||||||||||
| The accompanying notes are an integral part of these financial statements | ||||||||||||||||||||||||
| Marani Brands, Inc. and Subsidiaries | ||||||||
| Consolidated Statements of Cash Flows | ||||||||
| For the Year Ended June 30, | ||||||||
| 2009 | 2008 | |||||||
| Cash Flows from Operating Activities | ||||||||
| Net Income (Loss) | $ | (6,714,843 | ) | $ | (15,366,813 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Stock Based Compensation | 3,389,752 | 222,689 | ||||||
| Derivative Expense | 246,501 | (104,135 | ) | |||||
| Common Stock Issued for Direct Offering Costs | - | 10,648,654 | ||||||
| Loss on Disposal of Fixed Assets | 5,510 | - | ||||||
| Depreciation & Amortization | - | 1,459 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts Receivable | (108,880 | ) | (13,400 | ) | ||||
| Inventory | (93,211 | ) | 711 | |||||
| Prepaid Expenses & Other Current Assets | (30,130 | ) | - | |||||
| Deposits | 25,000 | (25,000 | ) | |||||
| Accounts Payable | 371,925 | 59,645 | ||||||
| Accrued Expenses | 359,753 | (214,046 | ) | |||||
| Net Cash Used in Operating Activities | (2,548,623 | ) | (4,790,236 | ) | ||||
| Cash Flows from Investing Activities | ||||||||
| Property and Equipment | - | (2,329 | ) | |||||
| Net Cash Used in Investing Activities | - | (2,329 | ) | |||||
| Cash Flows from Financing Activities | ||||||||
| Notes Payable | 124,864 | (327,739 | ) | |||||
| Line of Credit | 999,556 | - | ||||||
| Notes Payable Related Parties | - | (268,644 | ) | |||||
| Cash Received for Stock Subscriptions | 60,000 | - | ||||||
| Common Stock Issued for Cash | 20,000 | 7,814,000 | ||||||
| Net Cash Provided by Financing Activities | 1,204,420 | 7,217,617 | ||||||
| Net Increase (Decrease) in Cash | (1,344,203 | ) | 2,425,052 | |||||
| Cash Beginning of Period | 2,460,663 | 35,611 | ||||||
| Cash End of Year | $ | 1,116,460 | $ | 2,460,663 | ||||
| Supplemental Disclosure of Cash Flow Information: | ||||||||
| Cash Paid during the period for interest | $ | 65,680 | $ | 161,132 | ||||
| Cash Paid during the period for income taxes | 800 | 800 | ||||||
| The accompanying notes are an integral part of these financial statements | ||||||||
Marani Brands Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 – Organization, Business & Operations
History
The Company was incorporated in Nevada on May 30, 2001, under the name Elli Tsab, Inc., which was subsequently changed to Patient Data Corporation, and thereafter to Fit for Business, Inc. On March 10, 2008, the Company changed its name from Fit for Business, Inc. to Marani Brands, Inc. On March 31, 2008, the common stock underwent a 1-for-250 reverse stock split, and commenced trading on the Over the Counter Bulletin Board under the new symbol “MRIB”.
Merger (see Note 4)
On March 11, 2008, the Company formed FFBI Merger Sub Corp., a California corporation, as its wholly-owned subsidiary. FFBI Merger Sub Corp. was formed by the Company for purpose of effectuating a merger transaction by and among the Company and FFBI Merger Sub Corp., on the one hand, and a California corporation known as Margrit Enterprises International, Inc. “(MEI”), on the other hand.
On April 4, 2008, the Company, FFBI Merger Sub Corp. and MEI executed, and on April 7, 2008 the parties closed, a three party Merger Agreement.
The acquisition of MEI by the Company was completed by the merger of the Company’s wholly-owned subsidiary, FFBI Merger Sub Corp. with and into MEI, with MEI remaining as the surviving entity and wholly-owned subsidiary of the Company. The net effect of these transactions is a reverse merger of the Company with MEI. MEI subsequently changed its name to Marani Spirits, Inc., and continues to be the operational arm of the Company.
Business and Products
Prior to the Company’s acquisition of MEI, our only business was that of its wholly-owned subsidiary, Fit for Business (Australia) Pty Limited, which is engaged in the development of overall wellness programs for the workplace in Australia.
Subsequent to the merger transaction with MEI, the Company’s primary business is the distribution of wine and spirit products manufactured in Armenia. In the future the Company may add alcohol beverage products manufactured in other countries.
Reverse Stock Split
Effective March 31, 2008, the Company’s common stock underwent a 1-for-250 reverse stock split. The Company retained the current par value of $0.001 per share for all shares of common stock. All references in the financial statements to the number of shares outstanding, per share amounts, and stock options data of the Company’s common stock have been restated to reflect the effect of the reverse stock split for all periods presented.
Note 2 - Going Concern and Management's Plans
The accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles which contemplate continuation of the Company as a going concern. However, as of June 30, 2009, the Company has an accumulated deficit of $24,389,258 and incurred a net loss for the year ended June 30, 2009 of $6,714,843. The Company’s current business plan requires additional funding beyond its anticipated cash flows from operations. These and other factors raise substantial doubt about the Company's ability to continue as a going concern.
The ability of the Company to continue as a going concern is dependent upon its ability to raise additional capital and achieve profitable operations. The accompanying consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
Note 3 - Summary of Significant Accounting Policies
Recapitalization
The capital structure of the consolidated enterprise is that of MEI due to reverse recapitalization accounting. The financial statements presented are a continuation of MEI, the accounting acquirer, and not FFBI, the accounting acquiree. The recapitalization and capital structure is now different than that appearing in historical financial statements for FFBI.
Marani Brands Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Marani Brands, Inc. and its wholly subsidiaries Marani Spirits, Inc. and Great Hawk, Inc. (collectively the “Company”). All significant inter-company accounts and transactions have been eliminated in consolidation.
Cash and cash equivalents
The Company considers all liquid investments with a maturity of three months or less from the date of purchase that are readily convertible into cash to be cash equivalents.
Inventories
Inventories are stated at the lower of cost or market. Cost is computed on a weighted-average basis, which approximates the first-in, first-out method; market is based upon estimated replacement costs. Costs included in inventory primarily include finished spirit products and packaging.
Use of estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Property & equipment
Property and equipment are recorded at cost. Depreciation is computed using the straight-line method over useful lives of 3 to 10 years. The cost of assets sold or retired and the related amounts of accumulated depreciation are removed from the accounts in the year of disposal. Any resulting gain or loss is reflected in current operations. Assets held under capital leases are recorded at the lesser of the present value of the future minimum lease payments or the fair value of the leased property. Expenditures for maintenance and repairs are charged to operations as incurred.
Impairment of long-lived assets
Effective January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"), which addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," and the accounting and reporting provisions of APB Opinion No. 30, "Reporting the Results of Operations for a Disposal of a Segment of a Business." The Company periodically evaluates the carrying value of long-lived assets to be held and used in accordance with SFAS 144. SFAS 144 requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amounts. In that event, a loss is recognized based on the amount by which the carrying amount exceeds the fair market value of the long-lived assets. Loss on long-lived assets to be disposed of is determined in a similar manner, except that fair market values are reduced for the cost of disposal.
Basic and Diluted Net Income per Share
Basic earnings per share is calculated using the weighted-average number of common shares outstanding during the period without consideration of the dilutive effect of stock warrants and convertible notes. Diluted earnings per share is calculated using the weighted-average number of common shares outstanding during the period after consideration of the dilutive effect of stock warrants and convertible notes.
Due to the reverse recapitalization transaction, for purposes of computing earnings per share:
| · | For the year ended June 30, 2008, the number of shares outstanding from July 1, 2007 to April 4, 2008 (the period from the beginning of the fiscal year to the date of the recapitalization) was 100,000,000 shares (the number of shares issued by the shell company to the operating entity). From April 5, 2008 to June 30, 2008 (the period from the date of the recapitalization to the end of the most recent fiscal year) the number of shares used in the calculation of earnings per share were the actual weighted number of shares of the combined entity outstanding during that period. |
Marani Brands Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock-based compensation
In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 123(R), Share-Based Payment. This pronouncement amends SFAS No. 123, Accounting for Stock-Based Compensation, and supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees. SFAS No. 123(R) requires that companies account for awards of equity instruments issued to employees under the fair value method of accounting and recognize such amounts in their statements of operations. Under SFAS No. 123(R), we are required to measure compensation cost for all stock-based awards at fair value on the date of grant and recognize compensation expense in our consolidated statements of operations over the service period that the awards are expected to vest.
The Company accounts for stock-based compensation issued to non-employees and consultants in accordance with the provisions of SFAS 123(R) and the Emerging Issues Task Force consensus in Issue No. 96-18 ("EITF 96-18"), "Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring or in Conjunction with Selling, Goods or Services". Common stock issued to non-employees in exchange for services is accounted for based on the fair value of the services received.
Fair value of financial instruments
Statement of Financial Accounting Standard No. 107, Disclosures about Fair Value of Financial Instruments, requires that the Company disclose estimated fair values of financial instruments. The carrying amounts reported in the statements of financial position for current assets and current liabilities qualifying as financial instruments are a reasonable estimate of fair value.
Revenue recognition
Sales of products and related costs of products sold are recognized when (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred, (iii) the price is fixed or determinable and (iv) collectability is reasonably assured. These terms are typically met upon shipment of finished spirit products to the customer.
Shipping and Handling
In accordance with Emerging Issues Task Force (EITF) Issue No. 00-10, Accounting for Shipping and Handling Fees and Costs, we include shipping fees billed to customers in net revenues and do not bill customers for handling. Amounts incurred by us for freight are included in cost of goods sold.
Allowance for doubtful accounts
We provide an allowance for estimated uncollectible accounts receivable balances based on historical experience and the aging of the related accounts receivable. At June 30, 2009 and 2008, allowance for estimated uncollectible accounts receivable was $35,431 and $0, respectively.
Advertising
The Company expenses advertising costs as incurred. Advertising costs for the year ended June 30, 2009 and 2008 $166,489 was $180,071, respectively.
Income Taxes
The Company accounts for income taxes using the liability method as required by Statement of Financial Accounting Standards ("FASB") No. 109, Accounting for Income Taxes ("SFAS 109"). Under this method, deferred tax assets and liabilities are determined based on differences between their financial reporting and tax basis of assets and liabilities. The Company was not required to provide for a provision for income taxes for the periods ended June 30, 2009 and 2008, as a result of net operating losses incurred during the periods. As of June 30, 2009, the Company has available approximately $24,400,000 of net operating losses ("NOL") available for income tax purposes that may be carried forward to offset future taxable income, if any. These carryforwards expire in various years through 2026. At June 30, 2009, the Company has a deferred tax asset of approximately $9,700,000 relating to the Company's net operating losses. The Company's deferred tax asset has been fully reserved by a valuation allowance since realization of its benefit is uncertain. The Company's ability to utilize its NOL carryforwards may be subject to an annual limitation in future periods pursuant to Section 382 of the Internal Revenue Code of 1986, as amended. In addition, other limitations may be imposed by the Code by virtue of the merger outlined in Note 4.
Marani Brands Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The provision for income taxes using the federal and state tax rates as compared to the Company's effective tax rate is summarized as follows:
| June 30, | ||||||||
| 2009 | 2008 | |||||||
| Statutory Federal Tax (Benefit) Rate | -34.00 | % | -34.00 | % | ||||
| Statutory State Tax (Benefit) Rate | -5.83 | % | -5.83 | % | ||||
| Effective Tax (Benefit) Rate | -39.83 | % | -39.83 | % | ||||
| Valuation Allowance | 39.83 | % | 39.83 | % | ||||
| Effective Income Tax | 0.00 | % | 0.00 | % | ||||
Significant components of the Company's deferred tax assets at June 30, 2009 and 2008, are as follows:
| June 30, | ||||||||
| 2009 | 2008 | |||||||
| Net Operating Loss Carryforward | $ | 9,714,241 | $ | 7,039,719 | ||||
| Valuation Allowance | (9,714,241 | ) | (7,039,719 | ) | ||||
| Net Deferred Tax Asset | $ | - | $ | - | ||||
Research and development costs
Expenditures for research & development are expensed as incurred. Such costs are required to be expensed until the point that technological feasibility is established. The Company incurred no research and development costs for the years ended June 30, 2009 and 2008.
Reclassifications
Certain items in the prior year financial statements have been reclassified for comparative purposes to conform to the presentation in the current period’s presentation. These reclassifications have no effect on the previously reported income (loss).
Recently Issued Accounting Pronouncements
In May 2009, the FASB issued SFAS No. 165, Subsequent Events (“SFAS No. 165”). SFAS No. 165 was issued in order to establish principles and requirements for reviewing and reporting subsequent events and requires disclosure of the date through which subsequent events are evaluated and whether the date corresponds with the time at which the financial statements were available for issue (as defined) or were issued. SFAS No. 165 is effective for interim reporting periods ending after June 15, 2009. The adoption of SFAS No. 165 did not impact our results of operations, cash flows or financial positions. We have evaluated events and transactions that occurred after June 30, 2009 through October 12, 2009, the date we issued these financial statements. See Note 12 for the subsequent events.
In May 2008, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 162, The Hierarchy of Generally Accepted Accounting Principles. SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles that are presented in conformity with generally accepted accounting principles in the United States. SFAS No. 162 is effective 60 days following the Securities and Exchange Commission’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles. The Company does not believe SFAS No. 162 will have a material impact on its financial statements.
Marani Brands Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In March 2008, the FASB issued SFAS No. 161, Disclosure about Derivative Instruments and Hedging Activities, an amendment of previously issued FASB Statement No. 133. SFAS No. 161 changes the disclosure requirements for derivative instruments and hedging activities. Entities are required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS No. 133 and its related interpretations and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows. SFAS No. 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The Company does not expect the adoption of SFAS No. 159 to have a material impact on its financial condition or results of operations.
In December 2007, the FASB issued SFAS No. 141(R), Business Combinations. SFAS No. 141(R) retains the fundamental requirements in SFAS No. 141, Business Combinations, that the acquisition method of accounting be used for all business combinations and for an acquirer to be identified for each business combination. SFAS No. 141(R) requires an acquirer to recognize the assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree at the acquisition date, measured at their fair values as of that date, with limited exceptions specified in SFAS No. 141(R). In addition, SFAS No. 141(R) requires acquisition costs and restructuring costs that the acquirer expected but was not obligated to incur to be recognized separately from the business combination, therefore, expensed instead of part of the purchase price allocation. SFAS No. 141(R) will be applied 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. Early adoption is prohibited. The Company expects to apply SFAS No. 141(R) to any business combinations with an acquisition date on or after January 1, 2009.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements, an amendment to ARB No. 51. SFAS No. 160 changes the accounting and reporting for minority interests, which will be recharacterized as noncontrolling interests and classified as a component of equity. SFAS No. 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Early adoption is prohibited. The Company is currently evaluating the impact SFAS No. 160 may have on its financial statements.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities. SFAS No. 159 permits an entity to irrevocably elect fair value on a contract-by-contract basis as the initial and subsequent measurement attribute for many financial assets and liabilities and certain other items including insurance contracts. Entities electing the fair value option would be required to recognize changes in fair value in earnings and to expense upfront cost and fees associated with the item for which the fair value option is elected. SFAS No. 159 is effective for fiscal years beginning 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 No. 157, Fair Value Measurements. The Company does not expect the adoption of SFAS No. 159 to have a material impact on its financial condition or results of operations.
Note 4 – Merger
On March 11, 2008, the Company formed FFBI Merger Sub Corp., a California corporation, as its wholly-owned subsidiary. FFBI Merger Sub Corp. was formed by the Company for purpose of effectuating a merger transaction by and among the Company and FFBI Merger Sub Corp., on the one hand, and a California corporation known as Margrit Enterprises International, Inc. “(MEI”), on the other hand.
On April 4, 2008, the Company, FFBI Merger Sub Corp. and MEI executed, and on April 7, 2008 the parties closed, a three party Merger Agreement, which the parties implemented follows:
Merger of FFBI Merger Sub Corp. and MEI
| · | By virtue of this statutory merger, the separate corporate existence of FFBI Merger Sub Corp. ceased, with MEI remaining as the surviving corporation. |
| · | The shares of FFBI Merger Sub Corp. held by the Company pre merger were converted into the shares of MEI and, post merger, the MEI conversion shares remain outstanding and continue to be held by the Company as shares of MEI |
| · | Since MEI was a company with an ongoing business, and since FFBI Merger Sub Corp. had no business operations and ceased to exist as a separate corporate entity, this merger transaction constituted a “forward merger” |
Marani Brands Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Reverse Merger MEI and Marani Brands, Inc. (the Company)
| · | Contemporaneous with the MEI – FFBI Merger Sub merger described above, MEI merged with the Company in a reverse merger. In this reverse merger, each share of MEI common stock held by its stockholders was automatically exchanged for shares of the Company, determined by a 10 for 1 exchange ratio |
| · | The Company issued 100,000,000 shares of its common stock to the stockholders of MEI in the exchange transaction set for the above, and the 10,000,000 shares of MEI then held by the Company as a result of the exchange transaction were cancelled. |
| · | The Company thereby holds 100% of the shares of MEI by virtue of the Company’s ownership of the MEI shares that it obtained as part of the merger of FFBI Merger Sub Corp. and MEI, which shares now represent all of the issued and outstanding shares of MEI. |
| · | On April 7, 2008, the Company sold its entire interest in its subsidiary, Fit For Business (Australia) Pty Limited ("FFB Australia"), to its former Chief Executive Officer. |
| · | Since MEI operated an ongoing business and since the Company had pre merger business operations that were not pursued by the Company post merger, this merger transaction constituted a “reverse merger”. |
| · | By virtue of this “reverse merger,” both MEI and the Company continue to have a separate existence, with MEI becoming a wholly owned subsidiary of the Company. |
Under the Merger Agreement, as additional consideration for the merger transactions, the Company issued, at Closing, the following: (i) 42,594,616 shares of the Company’s common stock to Purrell Partners, LLC, or its assigns (the "Purrell Group") and (ii) a Warrant to purchase 10,000,000 shares of the Company’s common stock at an exercise price of $0.10 per share to the Purrell Group.
Following the Closing, the Company, in a private placement to investors, issued an aggregate of 15,120,000 shares of common stock, along with warrants to purchase an additional 15,120,000 shares of common stock at $0.35 per share.
On April 7, 2008, the Company exercised its option under the Subsidiary Acquisition Option Agreement, that was entered into in connection with the December 31, 2007 Stock Purchase Agreement, to sell its entire interest in its subsidiary, Fit For Business (Australia) Pty Limited ("FFB Australia"), to its former Chief Executive Officer, Mark Poulsen. Under the terms of this Agreement, if Mr. Poulsen complied with certain information and document requirements then no later than May 15, 2008, Mr. Poulsen will receive the Company’s entire interest in FFB Australia in exchange for Mr. Poulsen forfeiting his right to 250,000 shares of the Company’s common stock that he was otherwise entitled to receive in the event of a restructuring transaction and merger occurring prior to February 2009. Pursuant to the exercise of the Company’s options, FFB Australia was sold to Mr. Poulsen. As the FFB Australia subsidiary was not operational and had no tangible assets or liabilities at the time this agreement was exercised, and the exchange was for the forfeiture of Mr. Poulsen's right to receive 250,000 common shares, it was determined that no gain on this nonmonetary exchange should be recorded.
Recapitalization
The capital structure of the consolidated enterprise is that of MEI due to reverse recapitalization accounting. The financial statements presented are a continuation of MEI, the accounting acquirer, and not FFBI, the accounting acquiree. The recapitalization and capital structure is now different than that appearing in historical financial statements for FFBI.
Note 5 - Inventories
At June 30, 2009 and 2008, inventories are comprised of bottles/cases of Marani Vodka, and other various spirits, available for resale totaled $170,518 and $77,307, respectively.
Marani Brands Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6 – Accrued Expenses
At June 30, 2009 and 2008, accrued expenses consist of the following:
| June 30, | ||||||||
| 2009 | 2008 | |||||||
| Accrued Payroll and Taxes | $ | 116,854 | $ | 31,266 | ||||
| Credit Cards | 38,260 | 22,797 | ||||||
| Accrued Severance | 262,000 | - | ||||||
| Accrued Interest & Other | 36,702 | 40,000 | ||||||
| Total Accounts Payable and Accrued Expenses | $ | 453,816 | $ | 94,063 | ||||
Note 7 – Line of Credit
In October 2008, the Company obtained a $1,000,000 credit line from Citibank collateralized by the cash in the Company’s money market account. At June 30, 2009 the balance due on this credit line was $999,556.
Note 8 – Notes Payable
The Company is obligated to a bank for an SBA loan. Terms indicate that the balance of $124,680 is due and payable in full September 2010. Interest is accrued and paid monthly at 8.25%. This note is classified as long term.
In 2006, the Company received a $80,495 short term loan from Searchlight Financial carrying a 10% interest rate. The parties are in negotiation to settle this amount and accrued interest totaling $28,140 for the issuance of Marani S-8 shares.
In February 2009, the Company received a $200,000 loan from an investor payable based upon the Company receiving financing of $1,000,000 or in the event that the Company breaches one of the default provisions. This note carries an 8% annual interest with both principle and accrued interest payable at maturity. Accrued interest totaling $8,164 is included in Accrued Expenses at June 30, 2009.
In June 2009, the Company received a $50,000 loan from an investor payable based upon the Company receiving financing of $1,000,000 or in the event that the Company breaches one of the default provisions. This note carries an 8% annual interest with both principle and accrued interest payable at maturity. Accrued interest totaling $397 is included in Accrued Expenses at June 30, 2009.
Marani Brands Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 9 – Warrants and Derivative Liability
During the period ended June 30, 2008, the company issued warrants to pre-merger bridge note holders and consultants. The following is a summary of share purchase warrants for the year ended June 30, 2009 and 2008:
| Number of Warrants | Weighted Average Exercise Price | |||||||
| Outstanding June 30, 2007 | - | $ | - | |||||
| Granted | 39,720,000 | $ | 0.32 | |||||
| Forfeited | - | $ | - | |||||
| Exercised | (10,100,000 | ) | $ | 0.35 | ||||
| Outstanding June 30, 2008 | 29,620,000 | $ | 0.32 | |||||
| Granted | - | $ | - | |||||
| Forfeited | - | $ | - | |||||
| Exercised | - | $ | - | |||||
| Outstanding June 30, 2009 | 29,620,000 | $ | 0.32 | |||||
| Expiry | Number of Warrants | Exercise Price | ||||||
| September 30, 2010 | 10,000,000 | $ | 0.10 | |||||
| November 11, 2010 | 4,700,000 | $ | 0.35 | |||||
| November 29, 2010 | 160,000 | $ | 0.35 | |||||
| April 2, 2011 | 520,000 | $ | 0.35 | |||||
| April 15, 2011 | 250,000 | $ | 1.00 | |||||
| May 1, 2011 | 2,375,000 | $ | 0.25 | |||||
| June 1, 2011 | 10,000,000 | $ | 0.50 | |||||
| June 4, 2011 | 100,000 | $ | 1.00 | |||||
| June 11, 2011 | 1,515,000 | $ | 0.35 | |||||
| Total | 29,620,000 | $ | 0.32 | |||||
The fair value of the share purchase warrants as of June 30, 2009 and 2008 was $246,501 and $0, respectively. which was determined using the Black-Scholes option value model with the following assumptions:
| June 30, | ||||||||
| 2009 | 2008 | |||||||
| Expected Dividend Yield | 0.00 | % | 0.00 | % | ||||
| Risk Free Interest Rate | 3.00 | % | 2.75 | % | ||||
| Expected Volatility | 60.00 | % | 60.00 | % | ||||
| Expected Life (in years average) | 1.70 | 2.70 | ||||||
Note 10 - Stockholders’ Equity
Common Stock
Effective March 31, 2008, the Company’s common stock underwent a 1-for-250 reverse stock split. All references in the financial statements to the number of shares outstanding, per share amounts, and stock options data of the Company’s common stock have been restated to reflect the effect of the stock split for all periods presented.
Marani Brands Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Following the reverse stock split, the Company has authorized the issuance of up to 300,000,000 shares of Common Stock, at $0.001 par value. As of June 30, 2009, the Company had 181,401,796 shares of Common Stock issued and outstanding.
During the year ended June 30, 2009, the Company issued a total of 11,658,044 common shares of which 200,000 shares were issued for cash totaling $20,000; 5,038,044 shares were issued to Officers for services totaling $2,085,652; and 6,420,000 shares were issued for to non-affiliated parties for services totaling $1,304,100. In addition, on June 17, 2009, the Company received $60,000 under a stock purchase agreement under which a total of 461,539 shares are to be issued to an accredited investor.
During the year ended June 30, 2008, the Company issued a total of 98,223,752 shares of which 41,179,121 shares were issued for cash totaling $7,814,000; 11,686,670 shares were issued to Officers for services totaling $140,240; 1,281,797 shares were issued for to non-affiliated parties for services totaling $82,449; 937,339 shares were issued to Marani shareholders in the reverse merger; and 43,138,825 shares for direct offering costs totaling $10,648,654.
Direct Offering Costs
The Company defers as other assets the direct incremental costs of raising capital until such time as the offering is completed. At the time of the completion of the offering, the costs are charged against the capital raised. Should the offering be terminated, deferred offering costs are charged to operations during the period in which the offering is terminated. As of June 30, 2008, the Company had incurred ($1,130,923) in cash direct offering costs and issued 43,138,825 shares for direct offering costs totaling ($10,648,654). These costs were associated with follow on financing agreements with Continental Advisors and Purrell Partners detailed in Note 13. These shares were valued at market value.
Note 11– Commitments & Contingencies
Leases
The Company leases 2,100 square feet at its corporate office space in North Hollywood, California. This lease is currently on a month-to-month basis at a monthly rental of $1,800 per month.
Agreements
On November 1, 2007, the Company entered into a consulting agreement with Purell Partners, LLC. to provide various strategic and other services. This agreement provides for the payment of a monthly retainer of $20,000 per month; the payment of commissions upon the completion of financing transactions and mergers and acquisitions, and revenue sharing with respect to sales of product introduced by Purell Partners. This consulting agreement has a term ending on October 31, 2010 subject to earlier termination as provided for therein. For the periods ended June 30, 2009 and 2008, the Company paid $109,506 and $140,000, respectively to Purell Partners, LLC under this agreement.
On October 12, 2007, the Company entered into a consulting agreement with Continental Advisors, SA. to provide placement agent services in connection with a contemplated $10,000,000 financing through private placements. This agreement provides for the payment of commissions and provides warrant coverage upon the Company completing the private placements with investors introduced by Continental Advisors. For the periods ended June 30, 2009 and 2008, the Company paid $0 and $1,130,923 to Continental Advisors, SA under this agreement.
Severance Agreement
On October 1, 2008, Margit Eyraud notified the Company of her intent to resign as Chief Executive Officer and President of the Company, effective October 1, 2008, while remaining Chairman of the Board of Directors. Ms. Eyraud served as Chief Executive Officer and President of the Company under an Employment Agreement, the term of which expires December 31, 2010. Contemporaneous with her resignation as reported above, the Company and Ms. Eyraud have agreed to an early expiration of the Employment Agreement, and have agreed to a severance package in connection with that early expiration. Under the terms of the severance package Ms. Eyraud shall receive a cash payment of four hundred five thousand dollars ($405,000), payable by the Company as follows:
| · | One hundred fifty thousand dollars ($150,000) on October 1, 2008; |
| · | Seventy five thousand dollars ($75,000) on January 30, 2009; |
| · | Seventy five thousand dollars ($75,000) on March 31, 2009; and |
| · | One hundred five thousand dollars ($105,000) on June 30, 2009 |
Marani Brands Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In addition:
| · | The Company shall pay all unreimbursed business expenses, upon submission by Ms. Eyraud; |
| · | Continuation of Ms. Eyraud’s health and life insurance coverage until December 31, 2010 at levels in place as of September 15, 2008; |
| · | The ten year stock options to purchase 5,000,000 shares of the Company’s common stock at $0.25 per share, granted to Ms. Eyraud pursuant to the Employment Agreement, are deemed fully vested immediately; |
| · | The existing Lock-up agreement governing the shares of the Company’s common stock beneficially owned by Ms. Eyraud shall continue pursuant to its terms, subject to revision, waiver or modification consistent with any revision, waiver or modification of other similar Lock-up agreements existing between the Company and third parties, including its management and affiliates; |
| · | The Company shall obtain releases of any guarantees Ms. Eyraud has executed to the favor of the Company; and |
| · | All indemnification agreements running in favor of Ms. Eyraud shall be maintained for a period of six (6) years, commencing October 2, 2008, and the Company shall assume the indemnification of Ms. Eyraud with respect to the activities of its wholly owned subsidiary, Marani Spirits, Inc., for a like period. |
See Note 12 for subsequent Employment Agreement.
Note 12 - Subsequent Events
Employment Agreement
In connection with the reappointment of Ms. Eyraud as CEO and President (see Note 11 for previous severance agreement), Ms. Eyraud and the Company entered into an Employment Agreement dated as of August 1, 2009. The Employment Agreement provides for a four-year employment term and an initial base salary of $180,000 per annum, subject to upward adjustment annually based on the consumer price index. Under the Employment Agreement, the Board of Directors of the Company is to consider and propose to Ms. Eyraud a bonus compensation arrangement which will provide for an incentive bonus payable to Ms. Eyraud based upon the attainment by the Company of mutually agreeable criteria.
Under the Employment Agreement, the Company granted to Ms. Eyraud options to purchase 3,000,000 shares of common stock of the Company at a price equal to the closing price of the Company’s common stock on August 3, 2009. The options are to be issued pursuant to a stock option plan to be adopted by the Board of Directors and approved by the shareholders of the Company and shall by subject to such other terms as provided in the plan. The options vest as to 25% of the underlying shares of common stock on the first anniversary date of the option grant and ratably each quarter thereafter during the next three years of the term. The options become fully vested and exercisable upon the Company’s termination of Ms. Eyraud’s employment under the Employment Agreement Without Cause, the termination of such employment by Ms. Eyraud For Good Reason, or the Company’s termination of Ms. Eyraud’s employment due to death or Disability (as each term is defined in the Employment Agreement, a copy of which is included in this Current Report as Exhibit 10.1 and incorporated herein by this reference). The options shall have a term of 10 years and may be exercised to the extent vested, (i) by Ms. Eyraud at any time during such 10-year period, if Ms. Eyraud’s employment is terminated Without Cause or For Good Reason or due to Disability or if the employment term expires and Ms. Eyraud does not continue to be employed by the Company, (ii) by Ms. Eyraud’s personal representative within one (1) year following the date of Ms. Eyraud’s death, if Ms. Eyraud’s employment with the Company is terminated due to Ms. Eyraud’s death, and (iii) by Ms. Eyraud, if Ms. Eyraud’s employment terminates for any other reason (other than the expiration of the employment term) by Ms. Eyraud, within ninety (90) days following Ms. Eyraud’s termination of employment.
Equity Issuance
Subsequent to June 30, 2009, the Company issued 2,500,000 common shares to an investor for cash totaling $50,000. The issuances were exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, and each of the investors was either accredited or sophisticated and familiar with the Company's operations.
Warrant and Share Cancellation-Purell
Purell and Margrit International Enterprises, Inc., which is now called Marani Spirits, Inc., are parties to a Consulting Agreement dated November 1, 2007 (the "Consulting Agreement"). Warrants (10,000,000) were issued in consideration of services, purportedly performed by Purell under the Consulting Agreement and related to the merger of a subsidiary of the Company in and to MEl, pursuant to which MEl became a wholly-owned subsidiary of the Company and the Shares were issued in anticipation of Purell assisting the Company with receiving approximately $10,000,000 of equity financing. However, no equity financing was arranged by Purell for the Company. Therefore the warrants were not validly issued since the Company did not receive adequate consideration for the issuance of those warrants.
Marani Brands Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In addition, it has come to the Company's attention that Purell is not a registered broker-dealer and therefore was not legally permitted to provide certain of the services set forth in a Consulting Agreement. In particular, since Purell was not a registered broker-dealer, the various agreements between Purell and the Company (including the Consulting Agreement) relating to Purell raising financing for the Company are voidable. The Company has requested its transfer agent to cancel the 21,297,309 common shares (issued May 30, 2009 valued at $.25) and 10,000,000 (issued October 1, 2007 at $.10) warrants issued to Purell pursuant to this agreement.
Warrant Cancellation-Continental Advisors
Continental Advisors (CA) acted as the placement agent for a private placement of Convertible Debentures issued by Margrit Enterprises International, Inc. pursuant to a Letter Agreement effective as of October 12, 2007. Pursuant to a merger which occurred a number of months after the day of the placement, a subsidiary of the Company merged with and into MEl and MEl became a wholly-owned subsidiary of the Company. As part of the Merger, the Warrants became exercisable into shares of the Company's Common Stock.
It has come to the Company's attention that CA was not fully licensed and authorized under applicable European securities regulations to serve as the placement agent in the Placement and therefore was not entitled to receive compensation for serving in that capacity. CA did not disclose those facts to the Company in the Letter Agreement. CA misrepresented to the Company, CA's authority to serve as the placement agent for the Placement. The Warrants were issued as compensation for CA's purported services in the Placement. Therefore, the Warrants should not have been issued to CA. The Company has requested its transfer agent to cancel the 3,890,000 warrants issued (2,375,000 issued on May 1, 2008 at $.25 and 1,515,000 at issued on June 4, 2008 at $.35) pursuant to this agreement.
Secured Note Payable
On July 28, 2009, the Company obtained a short term loan in the principal amount of $200,000 from an individual lender. The loan is secured by all the Company's unsecured assets. The loan term matures on November 24, 2009, and the principal amount of the loan accrues simple interest at the rate of eight (8%) percent per annum. Interest is payable monthly in arrears and principal is payable in three monthly installments of five thousand ($5,000) dollars with a final payment of one hundred eighty five thousand ($185,000) dollars at maturity.