- -------------------------------------------------------------------------------
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY OR TRANSITIONAL REPORT
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2002
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
Commission File Number 0-20549
BRAVO! FOODS INTERNATIONAL CORP.
(Exact name of registrant as specified in its amended charter)
formerly
China Premium Food Corporation
Delaware 62-1681831
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11300 US Highway 1, North Palm Beach, Florida 33408 USA
(Address of principal executive offices)
(561) 625-1411
Registrant's telephone number
-----------------------------------------------------------------------
(Former name, former address and former fiscal year
if changed since last report)
Check whether the issuer
(1) filed all reports required to be filed by Section 13 or 15 (d)
of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such
reports), and
(2) has been subject to such filing requirements for the past 90
days. Yes [X] No[ ]
The number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date is as follows:
Date Class Shares Outstanding
5/10/02 Common Stock 16,853,105
BRAVO! FOODS INTERNATIONAL CORP.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial statements F-1
Consolidated balance sheets as of F-1
March 31, 2002 (unaudited) and December 31, 2001
Consolidated statements of operations F-3
(unaudited) for the three and ended
March 31, 2002 and 2001
Consolidated statements of cash flows F-4
(unaudited) for the three months ended
March 31, 2002 and 2001
Notes to consolidated financial statements (unaudited) F-5
Item 2. Management's Discussion and Analysis of Financial 9
Condition and Results of Operations
PART II - OTHER INFORMATION
Item 2. Changes In Securities and Use of Proceeds 16
Item 6. Exhibits and reports on Form 8-K 20
SIGNATURES 20
BRAVO! FOODS INTERNATIONAL, CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, March 31,
2001 2002
------------ ---------
Assets
<s> <c> <c>
Current assets:
Cash and cash equivalents $ 232,040 $ 21,908
Accounts receivable 152,682 192,573
Other receivable 17,178 16,634
Advance to vendor 20,998 20,998
Inventories 91,403 90,799
Deferred interest 521 -
Prepaid expenses 23,585 30,782
-----------------------------
Total current assets 538,407 373,694
Furniture and equipment, net 123,099 112,438
License rights, net of accumulated amortization of $661,291 and $692,779 433,709 352,222
Deposits 10,000 10,000
-----------------------------
Total assets $ 1,105,215 $ 848,354
=============================
Liabilities and Shareholders' Equity
Current liabilities:
Notes payable $ 350,000 $ 100,000
Note payable to International Paper 187,743 187,743
Current portion of note payable to Warner Brothers 473,750 315,853
Accounts payable 780,492 809,631
Accrued liabilities 575,019 477,613
-----------------------------
Total current liabilities 2,367,004 1,890,840
Dividends payable 280,370 270,207
-----------------------------
Long-term liabilities 280,370 270,207
-----------------------------
Total liabilities 2,647,374 2,161,047
-----------------------------
F-1
BRAVO! FOODS INTERNATIONAL, CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, March 31,
2001 2002
------------ ---------
Commitments and contingencies
<s> <c> <c>
Shareholders' Equity (Note 2):
Series B convertible, 9% cumulative, and redeemable preferred stock,
stated value $1.00 per share, 1,260,000 shares authorized, 107,440 and
107,440 shares issued and outstanding, redeemable at $107,440 107,440 107,440
Series D convertible, 6% cumulative and redeemable preferred stock,
stated value $10.00 per share, 87,500 and 58,750 shares issued and
outstanding 853,432 573,017
Series F convertible and redeemable preferred stock, stated value $10.00
per share, 174,999 and 174,999 shares issued and outstanding 1,616,302 1,616,302
Series G convertible, 8% cumulative and redeemable preferred stock,
stated value $10.00 per share, 93,335 and 90,060 shares issued and
outstanding 829,704 800,591
Series H convertible and redeemable preferred stock, stated value $10.00
per share, 105,500 and 175,500 shares issued and outstanding 465,200 939,686
Common stock, par value $0.001 per share, 20,000,000 shares authorized,
14,681,008 and 16,121,909 shares issued and outstanding 14,681 16,122
Additional paid-in capital 16,028,979 16,853,105
Accumulated deficit (21,457,425) (22,218,956)
Translation adjustment (472) -
-----------------------------
Total shareholders' equity (1,542,159) (1,312,693)
-----------------------------
Total liabilities and shareholders' equity $ 1,105,215 $ 848,354
=============================
See accompanying notes to consolidated financial statements.
F-2
BRAVO! FOODS INTERNATIONAL, CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended March 31,
-----------------------------
2001 2002
---- ----
(Unaudited) (Unaudited)
<s> <c> <c>
Revenue $ 172,091 $ 248,221
Cost of revenue 123,096 4,483
-----------------------------
Gross profit 48,995 243,738
Selling expenses 76,242 10,286
General and administrative expense 1,229,254 707,567
-----------------------------
Loss from operations (1,256,501) (474,115)
Other income (expense)
Interest expense, net (14,552) (9,737)
Other expenses - (1,368)
-----------------------------
Loss before income taxes (1,271,053) (485,220)
Income tax provision - -
Net loss (1,271,053) (485,220)
Dividends accrued for Series B preferred stock (2,417) (2,417)
Dividends paid and accrued for Series D preferred stock (16,538) (10,202)
Dividends accrued for Series G preferred stock (20,000) (16,321)
Dividends accrued for Series H preferred stock - (247,371)
-----------------------------
Net loss applicable to common shareholders $ (1,310,008) $ (761,531)
=============================
Weighted average number of common shares outstanding 13,195,414 15,570,010
=============================
Basic and diluted loss per share $ (0.10) $ (0.05)
=============================
See accompanying notes to consolidated financial statements.
F-3
BRAVO! FOODS INTERNATIONAL, CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31,
----------------------------
2001 2002
---- ----
(Unaudited) (Unaudited)
<s> <c> <c>
Cash flows from operating activities:
Net loss $(1,272,053) $(485,220)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 95,086 92,148
Stock issuance in exchange for services 75,000 -
Options issued for compensation - 4,051
Amortization of deferred interest 14,250 521
Increase (decrease) from changes in:
Prepaid expenses (605) (7,197)
Accounts Receivable (67,186) (39,891)
Other receivable 9,466 544
Note Receivable 716,000 -
Advance to vendors (32,232) -
Inventories 83,217 604
Other deferred charges (642) -
Accounts payable and accrued expenses 252,207 (68,267)
--------------------------
Net cash used in operating activities (127,492) (502,707)
--------------------------
Cash flows from investing activities:
Purchase of equipment (2,239) -
--------------------------
Net cash used in investing activities (2,239) -
--------------------------
Cash flows from financing activities:
Proceeds of Series H preferred stock - 700,000
Proceed from stock subscription 250,000 -
Payment of note payable and bank loan (40,000) (407,897)
--------------------------
Net cash provided by financing activities 210,000 292,103
Effect of changes in exchange rates on cash - 472
Net decrease in cash and cash equivalents 80,269 (210,132)
Cash and cash equivalents, beginning of period 35,376 232,040
--------------------------
Cash and cash equivalents, end of period $ 115,645 $ 21,908
==========================
Cash paid during the period:
Interest $ - $ -
==========================
Supplemental disclosure of non-cash activities
Non cash items disclosure:
Issuance of common stock for services $ 75,000 $ -
Accrual of Preferred Dividends 38,955 39,547
Reversal of Accrued Dividends due to conversion of preferred stock
to common stock - 49,710
Conversion of Series D preferred stock to common stock - 279,109
Conversion of Series G preferred stock to common stock - 28,978
Issuance of Warrants with Series H preferred stock issuance - 225,514
Deemed Dividends on Series H preferred stock - 236,764
==========================
See accompanying notes to consolidated financial statements.
F-4
BRAVO! FOODS INTERNATIONAL, CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1 - Interim Periods
The accompanying unaudited consolidated financial statements include the
accounts of Bravo! Foods International, Corp. and its wholly-owned
subsidiary Bravo! Foods, Inc. (the "Company"). The Company is engaged in
the co-production, marketing and distribution of branded dairy and snack
food products in the People's Republic of China and the United States. All
significant intercompany balances and transactions have been eliminated.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. All significant inter-company accounts and
transactions have been eliminated in consolidation. The consolidated
financial statements are presented in U.S. dollars. Accordingly, the
accompanying financial statements do not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring adjustments) considered necessary for fair
presentation have been included. Operating results for the three-month
period ended March 31, 2002 are not necessarily indicative of the results
that may be expected for the year ending December 31, 2002. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Company's annual report for the year ended December
31, 2001.
The accompanying unaudited consolidated financial statements have been
prepared assuming that the Company will continue as a going concern. As
previously reported, the Company has suffered recurring losses from
operations and has negative working capital and a stockholders' deficit.
These factors raise substantial doubt about the Company's ability to
continue as a going concern.
Note 2 - Transactions in Shareholders' Equity
On January 2, 2002, the Company issued options for 3,714 shares of common
stock having an exercise price of $0.35 and exercisable for five years,
pursuant to an employment agreement.
On January 18, 2002, the Company issued 238,334 shares of common stock to
Austinvest Anstalt Balzers, upon the conversion of 5,000 shares of Series D
Convertible Preferred.
On January 18, 2002, the Company issued 238,334 shares of common stock to
Esquire Trade & Finance, Inc., upon the conversion of 5,000 shares of
Series D Convertible Preferred.
On January 28, 2002, the Company issued 40,000 shares of common stock to
The Keshet Fund LP, upon the conversion of 883 shares of Series G
Convertible Preferred.
On January 28, 2002, the Company issued 136,038 shares of common stock to
AMRO International, S.A., upon the conversion of 2,840 shares of Series D
Convertible Preferred.
F-5
BRAVO! FOODS INTERNATIONAL, CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 2 - Transactions in Shareholders' Equity (Continued)
On January 30, 2002, the Company issued 15,000 shares of its Series H
convertible preferred stock, having a conversion price of $0.40 per share
of common stock, and warrants for 375,000 shares at $0.50 per share. The
Series H convertible preferred stock and warrants were priced at $10.00 per
unit, and resulted in proceeds of $150,000 in cash. In accordance with
EITF 00-27, the Company recorded a deemed dividend of $65,357 related to a
beneficial conversion feature.
On February 4, 2002, the Company issued 206,700 shares of common stock to
Austinvest Anstalt Balzers, upon the conversion of 4,375 shares of Series D
Convertible Preferred.
On February 4, 2002, the Company issued 206,700 shares of common stock to
Esquire Trade & Finance, Inc., upon the conversion of 4,375 shares of
Series D Convertible Preferred.
On February 5, 2002, the Company issued 20,000 shares of common stock to
The Keshet Fund LP, upon the conversion of 492 shares of Series G
Convertible Preferred.
On February 15, 2002, the Company issued 5,000 shares of its Series H
convertible preferred stock, having a conversion price of $0.40 per share
of common stock, and warrants for 125,000 shares at $0.50 per share to a
sophisticated and accredited investor. The Series H convertible preferred
stock and warrants were priced at $10.00 per unit, and resulted in proceeds
of $50,000 in cash. In accordance with EITF 00-27, the Company recorded a
deemed dividend of $15,582 related to a beneficial conversion feature.
On February 20, 2002, the Company issued 35,000 shares of common stock to
The Keshet Fund LP, upon the conversion of 832 shares of Series G
Convertible Preferred.
On February 29, 2002, the Company issued 279,795 shares of common stock to
AMRO International, S.A, upon the conversion of 7,160 shares of Series D
Convertible Preferred.
On March 1, 2002, the Company issued 20,000 shares of common stock to The
Keshet Fund LP, upon the conversion of 536 shares of Series G Convertible
Preferred.
On March 1, 2002, the Company issued warrants for 25,000 shares of common
stock, having an exercise price of $0.40 per share. The warrants are
immediately exercisable and have an expiration date of February 28, 2007.
These warrants were issued to the lender in connection with a December 27,
2001 loan of $250,000 to the Company.
On March 15, 2002, the Company issued 20,000 shares of common stock to The
Keshet Fund LP, upon the conversion of 532 shares of Series G Convertible
Preferred.
On March 18, 2002, the Company issued 50,000 shares of its Series H
convertible preferred stock, having a conversion price of $0.40 per share
of common stock, and warrants for 1,250,000 shares at $0.50 per share to a
sophisticated and accredited investor. The Series H convertible preferred
stock and warrants were priced at $10.00 per unit, and resulted in proceeds
of $500,000 in cash. In accordance with EITF 00-27, the Company recorded a
deemed dividend of $155,824 related to a beneficial conversion feature.
F-6
BRAVO! FOODS INTERNATIONAL, CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 3 - Adoption of New Accounting Standards
In June 2001, the Financial Accounting Standards Board finalized FASB
Statements No. 141, "Business Combinations" ("SFAS No. 141"), and No. 142,
"Goodwill and Other Intangible Assets" ("SFAS No. 142").
SFAS No. 141 requires the use of the purchase method of accounting and
prohibits the use of the pooling-of-interests method of accounting for
business combinations initiated after June 30, 2001. SFAS No. 141 also
requires that the Company recognize acquired intangible assets apart from
goodwill if the acquired intangible assets meet certain criteria. SFAS No.
141 applies to all business combinations initiated after June 30, 2001 and
for purchase business combinations completed on or after July 1, 2001. It
also requires, upon adoption of SFAS No. 142, companies to reclassify the
carrying amounts of intangible assets and goodwill based on the criteria in
SFAS No. 141.
SFAS No. 142 requires, among other things, that companies no longer
amortize goodwill, but instead test goodwill for impairment at least
annually. In addition, SFAS No. 142 requires that the Company identify
reporting units for the purposes of assessing potential future impairments
of goodwill, reassess the useful lives of other existing recognized
intangible assets, and cease amortization of intangible assets with an
indefinite useful life. An intangible asset with an indefinite useful life
should be tested for impairment in accordance with the guidance in SFAS No.
142. SFAS No. 142 is required to be applied in fiscal years beginning
after December 15, 2001 to all goodwill and other intangible assets
recognized at that date, regardless of when those assets were initially
recognized. SFAS No. 142 requires companies to reassess the useful lives
of other intangible assets within the first interim quarter after adoption
of SFAS No. 142.
The Company adopted SFAS No. 141, SFAS No. 142 effective January 1, 2002.
Previous business combinations were accounted for using the purchase method.
The Company has no goodwill or other intangibles recorded as a result of
these business combinations and, as a result of the adoption of SFAS No. 141
and 142, had no effect on net income or earnings per share. As of March 31,
2002, the Company had license rights with a net book value of $352,222.
Future amortization is as follows for subsequent years ending March 31:
2003 $280,119
2004 64,052
2005 8,051
--------
$352,222
In August 2001, Financial Accounting Standard Board issued Statement of
Financial Accounting Standards, No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets," ("SFAS No. 144"). SFAS No. 144 provides
a single, comprehensive accounting model for impairment and disposal of
long-lived assets and discontinued operations. The Company acopted SFAS
No. 144 effective January 1, 2002. The adoption did not have a material
effect on the Consolidated Financial Statements.
In June 2001, Financial Accounting Standard Board issued Statement of
Financial Accounting Standards, No. 143, "Accounting for Asset Retirement
Obligations," ("SFAS No. 143"). FAS No. 143 is effective for fiscal years
beginning after June 15, 2002. SFAS No. 143 requires that any legal
obligation related to the retirement of long-lived assets be quantified and
recorded as a liability with the associated asset retirement cost
capitalized on the balance sheet in the period it is incurred when a
reasonable estimate of the fair value of the liability can be made. The
Company does not expect that the adoption of SFAS No. 143 will have a
material impact on the consolidated financial statements.
F-7
BRAVO! FOODS INTERNATIONAL, CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 4 - Subsequent Events
On April 18, 2002, the Company received $50,000 in loan proceeds from a
lender who also is a holder of the Company's Series H Convertible Preferred
Stock. The $50,000 is payable May 15, 2002 with interest at the annual
rate of 8%.
On April 19, 2002, the Company issued 10,000 shares of common stock to The
Keshet Fund LP, upon the conversion of 252 shares of Series G Convertible
Preferred.
On April 19, 2002, the Company issued 10,000 shares of common stock to The
Keshet Fund LP, upon the conversion of 234 shares of Series G Convertible
Preferred.
On April 24, 2002 the Company's Board of Directors voted to extend options
for 1,383,705 shares of common stock issued on April 29 and April 30, 1997
to Tamarind Management, Ltd. (an affiliate of Mr. Paul Downes, a founder of
the Company) and options for 700,000 shares of common stock issued on April
30, 1997 to Mr. Dale Reese (a founder of the Company), for services
rendered to the Company. These extended options, which had original
expiration dates of April 29 and April 30, 2002, respectively, retain an
exercise price of $1.00 and are exercisable upon the following conditions:
The expiration dates for these options are extended for a two-year period,
commencing upon the effective date of a registration statement for the
resale of the common stock underlying the options; the options will not be
exercised during a one year lockup period commencing on the 1st day after
the Company's common stock trades during a 90 day period at a moving
average of at least $1.00; the Company has the option to call the options
commencing on the 1st day after the Company's common stock trades during a
90 day period at a moving average of at least $2.00.
F-8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 2002
FORWARD-LOOKING STATEMENTS
Statements that are not historical facts, including statements about the
our prospects and strategies and its expectations about growth contained in
this report are "forward-looking statements" within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. These forward-looking
statements represent the present expectations or beliefs concerning future
events. 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 uncertainty as to whether
our new business model can be implemented successfully; the accuracy of its
performance projections; and our ability to obtain financing on acceptable
terms to finance its operations until profitability.
OVERVIEW
Our business model includes obtaining license rights from Warner Brothers,
Inc., granting production and marketing rights to processor dairies to
produce Looney Tunes(TM) flavored milk and generating revenue primarily
through the sale of "kits" to these dairies. The price of the "kits"
consists of an invoiced price for a fixed amount of flavor ingredients per
kit used to produce the flavored milk and a fee charged to the diaries for
the production, promotion and sales rights for the branded flavored milk.
Prior to 2001, our business primarily involved the production and
distribution of milk in China. In the third quarter of 2000, we began to
refocus our business away from the production - distribution aspect of the
value chain by implementing a business model that involved the branding,
marketing, packaging design and promotion of flavored fresh milk in the
United States, branded with Looney Tunes(TM) characters. The processing,
local promotion and sales of this branded flavored milk were the
responsibility of regional dairy processors, to whom we sold "kits"
pursuant to written production agreements. During the middle of 2001, this
refocused business was implemented in China and, in December 2001, in
Mexico.
The business model that relied on production agreements with regional dairy
processors for branded fresh milk, while viable, proved to have limited
sales expansion capabilities in the US owing to the inherent distribution
limitations of a product with a short shelf life. Under this business
model, we achieved market penetration in approximately 3,200 stores, which
included approximately 11% of the supermarkets on a national basis. The
advent of extended shelf life (ESL) milk presented us with the opportunity
to dramatically increase sales on a national basis. In the third quarter
of 2001 and the first quarter of 2002, we entered into production contracts
with Shamrock Farms, located in Phoenix, and Jasper Products, of Joplin,
Missouri, respectively, and entered into arrangements to supply 400 Wal-
Mart stores and all 86 Super Target stores with Looney Tunes(TM) ESL
flavored milks. While our ESL business promises greater market
9
penetration, we intend to maintain our existing short shelf life milk
business with regional dairy processors currently under contract.
In the first quarter of 2002, we further refined our business model by
assuming greater control over the sales and promotion of our ESL branded
flavored milk and by the addition of a new source of revenue. We are no
longer dependent upon processor dairies to promote the sale of our ESL
product. Since ESL milk sales are not limited to the accounts of regional
dairy processors by distribution issues, we have assumed responsibility for
promoting sales either directly or through food brokers who represent us with
both national and regional accounts. This refined business model, coupled
with the production capacity of these two ESL dairy processors, allowed us to
seek national accounts in an aggressive fashion, resulting in arrangements to
supply, for example, 1,174 Win Dixie locations and 700 Publix supermarkets.
Currently, we have arrangements for the distribution and sale of our branded
ESL flavored milk in over 6,000 supermarkets, representing 25% penetration of
the national market, as well as an additional 1000 discount, club and
convenience stores. Our expansion from 3,700 stores into over 6,000 stores
nationally, in essentially one quarter, is a testament to the efficacy of
this new sales and promotion strategy.
In addition, under our refined business model, our revenue source derives
not only from "kit" sales but also from a share of the differential between
the cost to us of producing the ESL product and the wholesale price to our
accounts. Under this new plan, we will realize on the cost-price
differential between $0.025 and $0.03 per product unit sold in addition to
the $0.05 per unit realized from "kit" sales. We have forecasted sales in
excess of 5,000,000 units for the second quarter of 2002.
CRITICAL ACCOUNTING POLICIES
Our discussion and analysis of our consolidated financial condition and
results of operations are based on our consolidated financial statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States of America. The preparation of these
financial statements requires us to make estimates and disclosure of
contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting
period. On an on-going basis, we evaluate our estimates, including those
related to reserves for bad debts and valuation allowance for deferred tax
assets. We base our estimates on historical experience and on various
other assumptions that are believed to be reasonable under the
circumstances, the result of which form the basis for making judgments
about the carrying values of assets and liabilities that are not readily
apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions. Our use of estimates,
however, is quite limited, as we have adequate time to process and record
actual results from operations.
RESULTS OF OPERATIONS
Financial Condition March 31, 2002
- ----------------------------------
As of March 31, 2002, we had an accumulated deficit of $22,218,956 and cash
on hand of $21,908 and reported total shareholders' equity of $(1,312,693).
10
For this same period of time, we had revenue of $248,221 and general and
administrative expenses of $707,567.
After net interest expenses of $9,737, cost of goods sold of $4,483 and
selling expenses of $10,826 incurred in the operations of the Company's
Chinese and U.S. wholly owned subsidiaries, we had a net loss of $485,220.
Three Months Ended March 31, 2002 Compared to Three Months Ended March 31, 2001
- -------------------------------------------------------------------------------
Revenue
We had revenues in for the three months ended March 31, 2002 of $248,221,
with a cost of sales of $4,483, resulting in a gross profit of $243,738.
Of the $248,221, $221,845 was from sales in the U.S. operation, $6,251 from
sales in China and $20,125 from sales in Mexico, which had its product
launch in December 2001. Our revenue for the three months ended March 31,
2002 increased by $76,130, a 44% increase compared to revenue of $172,091
for the same period in 2001. This increase is the result of
* moving from a production-distribution oriented business model
with limited, capabilities, to the "licensing/branding"
business model;
* adding five additional processor dairies in the US during 2001;
* the continued expansion of sales of extended shelf life product,
which provides greater distribution flexibility; and
* greater market penetration and distribution of Looney Tunes(TM)
flavored milks.
Cost of Goods Sold
We incurred cost of goods sold of $4,483 for the three months ended March
31, 2002, most of which was incurred in our China operation. Our cost of
goods sold in 2002 decreased by $118,613, a 96% decrease compared to
$123,096 for the same period in 2001.
Under the "licensing/branding" business model, we do not bear any financial
responsibility for the cost of the flavor ingredients used to produce the
Looney Tunes(TM) flavored milk, which are purchased directly from approved
suppliers by the processor dairies. In 2001, our China subsidiary operated
under the prior production-distribution model for a portion of the year and
assumed the responsibility to purchase flavor ingredients. In Mexico, the
initial order for flavor ingredients placed by the processor dairy in
Mexico could not be filled at that time by the local division of the
international flavor supplier recommended and approved by us. To expedite
a December 2001 product launch, we purchased the flavor ingredients in the
US for shipment to the Mexico processor dairy. A small portion of theses
expenses was incurred during the first three months of 2002.
Operating Expense
We incurred selling expenses for the three months ended March 31, 2002 of
$10,286, consisting of $7,286 incurred in China and $3,000 in our US
operation. Our selling expense decreased for the three months ended March
31, 2002 by $65,956, an 87% decrease compared to the selling expense of
$76,242 for the same period in 2001, which was incurred only in China. The
11
decrease in selling expense was due to the strategic refocusing of our
effort to implement our kit-sale business model to certain qualified
dairies in major cities of China. We entered the China market more than
five years ago and anticipated significant time for consumers in China to
accept a branded premium Western style flavored milk. We expect that
selling expense in China will remain at current levels as we expand our
business in China.
We incurred general and administrative expenses for the three months ended
March 31, 2002 of $707,567, consisting of $690,585 in our U.S. operation
and $16,982 in China. Our general and administrative expenses in 2002
decreased by $521,687, a 42% decrease compared to $1,229,254 for the same
period in 2001. Of the $521,687 decrease, approximately $116,377 was due to
the decrease in salaries in 2002, approximately $100,000 was due to a
decrease in marketing and promotional expenses in 2002, and approximately
$95,000 was related to a decrease in overhead expense in China.
Interest Expense
We incurred interest expense for the three months ended March 31, 2002 of
$11,105, consisting of $11,098 in our U.S. operation and $7 in our China
operation. Our interest expense in 2002 decreased by $3,447, a 24%
decrease compared to $14,552 in 2001. The decrease came from our China
operation related to a bank loan from Fujian Bank, which was paid off in
2001.
Net Loss
We had a net loss for the three months ended March 31, 2002 of $485,220
compared with a net loss of $1,271,053 fort he same period in 2001. The
net loss consisted of $22,507 in China and $462,713 from our US operation.
The net loss decrease in 2002 amounted to $785,833 or 61% compared to the
same period in 2001. The decrease in net loss in 2002 resulted from a 42%
reduction in general and administrative expenses coupled with a 44%
increase in gross revenues in 2002.
Loss Per Share
We reported a loss of $0.05 per share for the three months ended March 31,
2002, compared to a loss of $0.10 per share for the same period of 2001,
representing a 50% decrease.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2002, we reported that net cash used in operating
activities was $502,707, and net cash provided by financial activities was
$292,103.
As of March 31, 2001, we reported that net cash used in operating
activities was $127,492, net cash used in investing activities was $2,239,
and net cash provided by financing activities was $210,000.
Net cash used in operating activities increased by $375,215 to $502,707 for
the three months ended March 31, 2002, representing approximately 294%
increase, compared to $127,492 of net cash used in operating activities for
the same period of 2001. The increase relates to collection if a $716,000
note receivable during the three months ended March 31, 2001, partially
offset by decreasing net losses.
12
Net cash used in investing activities decreased by $2,239 to $0 for the
three months ended March 31, 2002, representing a 100% decrease, compared
to $2,239 for the same period of 2001.
Net cash provided by financing activities for the period ended March 31,
2002 increased 39% to $292,103 from $210,000 in 2001. In the three months
ended March 31, 2002, we received $700,000 in net proceeds from the
issuance of Series H preferred stock and repaid loans totaling $407,897.
For the period ended March 31, 2002, we had total liabilities of
$2,161,047, representing a 18% decrease from $2,647,374 at December 31,
2001. The decrease relates primarily to the payoff of notes payable and
other liabilities.
Going forward, the our primary requirements for cash consist of (1) the
continued development of our business model in China, the United States and
on an international basis; (2) general overhead expenses for personnel to
support the new business activities; and (3) payments of guaranteed royalty
payments to Warner Bros. under existing licensing agreements. We estimate
that our needs for cash from financing will continue until later 2002, when
cash supplied by then operating activities will enable us to meet the
anticipated cash requirements in 2003.
As of December 31, 2001, we received $1,055,000 of a $2.35 million private
offering of our Series H convertible preferred stock and, during the three
months ended March 31, 2002, we received an additional $700,000. We are
presently negotiating the terms of a debenture with a private lender for
$600,000, which we anticipate receiving before June 2002.
We currently have monthly working capital needs of approximately $241,000.
We anticipate monthly revenues to exceed $250,000 per month by the end of
he third quarter 2002. Total revenues are projected at $1,350,000 through
the first three quarters of 2002. We are continuing to explore new points
of sale for Looney Tunes(TM) flavored milk. Currently, Looney Tunes(TM)
milk products have been placed in vending machines in select secondary
schools in the greater Chicago area to determine whether a school-vending
program is an appropriate point of sale for these products. The
implementation of such a school base program, if viable, could have a
dramatic impact on the level of revenue realized by us during 2002.
Similarly, we expect that commencement of extended shelf life ("ESL") milk
production agreements with strategically placed ESL dairy processors, the
greater control over sales with our refined business model and the cost-
wholesale price differential source of revenue will have a significant
positive impact on revenues, with the distribution pf Looney Tunes(TM)
flavored milk in national chains such as Wal-Marts and Super Target, as
well as large regional supermarkets such as Publix, Pathmark, Albertsons
and Win Dixie.
At the beginning of 2002, we began negotiations with Warner Bros. to extend
the US license agreement for an additional year on the same terms before
renewal of the license was necessary. The parties have agreed to such an
extension. In addition, a Warner Bros. Looney Tunes(TM) license for Canada
has been approved. We have negotiated an agreement with a Canadian dairy
processor to produce Looney Tunes(TM) flavored milk for distribution in
Eastern Canada, beginning in July 2002.
13
Commencing in May 2002, we developed a new branded fortified flavored milk
product under the "Slammers" brand name. Our "Slammers" brand is being
used in conjunction with our licensed Looney Tunes(TM) characters on
vitamin fortified flavored milk. The introduction of the "Slammers" brand
was made in conjunction with our co-sponsoring the nationwide Taz Atti-
Tour, a Looney Tunes(TM) action sports tour sponsored by Warner Bros.
Consumer Products, Warner Bros. Theatrical, Wal-Mart, Acclaim
Entertainment, AOL and ASA Events. This extreme sports tour will feature
professional international inline skating, skateboard and bike sport stars,
who will perform demonstrations and lead interactive clinics. The 2002
Taz Atti-Tour is scheduled at Wal-Mart stores in 19 US cities through
September 20, 2002.
DEBT STRUCTURE
Warner Bros.
- ------------
We hold three licenses for Looney Tunes(TM) characters and names from
Warner Bros. Each license is structured to provide for the payment of
guaranteed royalty payments to Warner Bros. We accounts for these
guaranteed payments as debt and licensing right as assets. The following
is a summary of the balances owed as of March 31, 2002 and the license
expiration dates:
Amount Expiration
License Guaranty Balance Due Past Due Date
- ------- -------- ----------- -------- ----------
<s> <c> <c> <c> <c>
U.S. License $500,000 $ 50,000 $-0- 12/31/03
China $400,000 $190,000 $-0- 06/30/03
Mexico $145,000 $ 76,250 $-0- 05/31/04
International Paper
- -------------------
During the process of acquiring from American Flavors China, Inc. the 52%
of equity interest in and to Hangzhou Meilijian, we issued a promissory
note to assume the American Flavors' debt owed to a supplier, International
Paper. The face value of that note was $282,637 at interest rate of 10.5%
per annum without any collateral attached. The note has a monthly
installment payment of $7,250 with 23 payments and a balloon payment of
$159,862 when the note was due on July 15, 2000. We negotiated with
International paper for the extension of this note. On July 6, 2000,
International Paper agreed to extend the note to July 1, 2001, and the
principal amount was adjusted due to different interest calculation
approach. International Paper imposed a charge of $57,000 to renegotiate
the note owing the failure of Hangzhou Meilijian to pay for certain packing
material, worth more than $57,000 made to order in 1999. The current
outstanding balance on this note is $187,743. The Company is delinquent in
its payments under this note and anticipates discharging this obligation in
2002.
Individual Loans
- ----------------
On November 6 and 7, 2001, respectively, we received the proceeds of two
loans aggregating $100,000 from two offshore lenders. The two promissory
notes, one for $34,000 and the other for $66,000, were payable February 1,
2002 and bear interest at the annual rate of 8%. These loans are secured
by a general security interest in all the assets of the Company. The
respective
14
promissory notes maturity dates have been extended by agreement of the
parties, to be paid upon the completion of the ongoing Series H financing.
On December 27, 2001, we received $250,000 in loan proceeds from a lender
who also is a holder of the Company's Series H Convertible Preferred Stock.
The $250,000 was payable February 28, 2002 and bore interest at the annual
rate of 12%. The holder shall receive five-year options to purchase 25,000
shares of the Company's common stock at an exercise price of $0.40 per
share in 2002. This loan was repaid during March 2002.
On April 18, 2002, we received $50,000 in loan proceeds from a lender who
also is a holder of the Company's Series H Convertible Preferred Stock.
The $50,000 is payable May 15, 2002 with interest at the annual rate of 8%.
EFFECTS OF INFLATION
We believe that inflation has not had material effect on its net sales and
results of operations.
EFFECT OF FLUCTUATION IN FOREIGN EXCHANGE RATES
Our Shanghai subsidiary is located in China. It buys and sells
products in China using Chinese renminbi as functional currency. Based on
Chinese government regulation, all foreign currencies under the category of
current account are allowed to freely exchange with hard currencies.
During the past two years of operation, there were no significant changes
in exchange rates. However, there is no assurance that there will be no
significant change in exchange rates in the near future.
15
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
On January 2, 2002, the Company issued options for 3,714 shares of common
stock having an exercise price of $0.35 and exercisable for five years,
pursuant to an employment agreement and pursuant to an exemption provided
by Section 4(2) of the Act.
On January 18, 2002, the Company issued 238,334 shares of common stock to
Austinvest Anstalt Balzers, upon the conversion of 5,000 shares of Series D
Convertible Preferred, pursuant to an exemption provided by Section 4(2) of
the Act and Rule 506 or Regulation D.
On January 18, 2002, the Company issued 238,334 shares of common stock to
Esquire Trade & Finance, Inc., upon the conversion of 5,000 shares of
Series D Convertible Preferred, pursuant to an exemption provided by
Section 4(2) of the Act and Rule 506 or Regulation D.
On January 28, 2002, the Company issued 40,000 shares of common stock to
The Keshet Fund LP, upon the conversion of 883 shares of Series G
Convertible Preferred, pursuant to an exemption provided by Section 4(2) of
the Act and Rule 506 or Regulation D.
On January 28, 2002, the Company issued 136,038 shares of common stock to
AMRO International, S.A., upon the conversion of 2,840 shares of Series D
Convertible Preferred, pursuant to an exemption provided by Section 4(2) of
the Act and Rule 506 or Regulation D.
On January 30, 2002, the Company issued 15,000 shares of its Series H
convertible preferred stock, having a conversion price of $0.40 per share
of common stock, and warrants for 375,000 shares at $0.50 per share,
pursuant to an exemption provided by Section 4(2) of the Act and Rule 506
or Regulation D. The Series H convertible preferred stock and warrants
were priced at $10.00 per unit, and resulted in proceeds of $150,000 in
cash.
On February 4, 2002, the Company issued 206,700 shares of common stock to
Austinvest Anstalt Balzers, upon the conversion of 4,375 shares of Series D
Convertible Preferred, pursuant to an exemption provided by Section 4(2) of
the Act and Rule 506 or Regulation D.
On February 4, 2002, the Company issued 206,700 shares of common stock to
Esquire Trade & Finance, Inc., upon the conversion of 4,375 shares of
Series D Convertible Preferred, pursuant to an exemption provided by
Section 4(2) of the Act and Rule 506 or Regulation D.
On February 5, 2002, the Company issued 20,000 shares of common stock to
The Keshet Fund LP, upon the conversion of 492 shares of Series G
Convertible Preferred, , pursuant to an exemption from registration
provided by Section 4(2) of the Act and Rule 506 or Regulation D.
On February 15, 2002, the Company issued 5,000 shares of its Series H
convertible preferred stock, having a conversion price of $0.40 per share
of common stock, and warrants for 125,000 shares at $0.50 per share to a
sophisticated and accredited investor, pursuant to an exemption from
registration provided by Section 4(2) of the Act and Rule 506 or Regulation
D. The Series
16
H convertible preferred stock and warrants were priced at $10.00 per unit,
and resulted in proceeds of $50,000 in cash.
On February 20, 2002, the Company issued 35,000 shares of common stock to
The Keshet Fund LP, upon the conversion of 832 shares of Series G
Convertible Preferred, pursuant to an exemption provided by Section 4(2) of
the Act and Rule 506 or Regulation D.
On February 29, 2002, the Company issued 279,795 shares of common stock to
AMRO International, S.A, upon the conversion of 7,160 shares of Series D
Convertible Preferred, pursuant to an exemption provided by Section 4(2) of
the Act and Rule 506 or Regulation D.
On March 1, 2002, we issued 20,000 shares of common stock to The Keshet
Fund LP, upon the conversion of 536 shares of Series G Convertible
Preferred, pursuant to an exemption from registration provided by Section
4(2) of the Act and Rule 506 or Regulation D.
On March 1, 2002, the Company issued warrants for 25,000 shares of common
stock, having an exercise price of $0.40 per share. The warrants are
immediately exercisable and have an expiration date of February 28, 2007.
These warrants were issued to the lender in connection with a December 27,
2001 loan of $250,000 to the Company, pursuant to an exemption provided by
Section 4(2) of the Act.
On March 15, 2002, the Company issued 20,000 shares of common stock to The
Keshet Fund LP, upon the conversion of 532 shares of Series G Convertible
Preferred, pursuant to an exemption provided by Section 4(2) of the Act and
Rule 506 or Regulation D.
On March 18, 2002, the Company issued 50,000 shares of its Series H
convertible preferred stock, having a conversion price of $0.40 per share
of common stock, and warrants for 1,250,000 shares at $0.50 per share to a
sophisticated and accredited investor, pursuant to an exemption provided by
Section 4(2) of the Act and Rule 506 or Regulation D. The Series H
convertible preferred stock and warrants were priced at $10.00 per unit,
and resulted in proceeds of $500,000 in cash.
Subsequent Events
On April 19, 2002, the Company issued 10,000 shares of common stock to The
Keshet Fund LP, upon the conversion of 252 shares of Series G Convertible
Preferred, pursuant to an exemption provided by Section 4(2) of the Act and
Rule 506 or Regulation D.
On April 19, 2002, the Company issued 10,000 shares of common stock to The
Keshet Fund LP, upon the conversion of 234 shares of Series G Convertible
Preferred, pursuant to an exemption provided by Section 4(2) of the Act and
Rule 506 or Regulation D.
On April 24, 2002 the Company's Board of Directors voted to extend options
for 1,383,705 shares of common stock issued on April 29 and April 30, 1997
to Tamarind Management, Ltd. (an affiliate of Mr. Paul Downes, a founder of
the Company) and options for 700,000 shares of common stock issued on April
30, 1997 to Mr. Dale Reese (a founder of the Company), for services
rendered to the Company. These extended options, which had original
expiration dates
17
of April 29 and April 30, 2002, respectively, retain an exercise price of
$1.00 and are exercisable upon the following conditions: The expiration
dates for these options are extended for a two year period, commencing upon
the effective date of a registration statement for the resale of the common
stock underlying the options; the options will not be exercised during a
one year lockup period commencing on the 1st day after the Company's common
stock trades during a 90 day period at a moving average of at least $1.00;
the Company has the option to call the options commencing on the 1st day
after the Company's common stock trades during a 90 day period at a moving
average of at least $2.00.
Item 6. Exhibits and Reports on Form 8-K
Exhibits - Required by Item 601 of Regulation S-B: None
(b) Reports on Form 8-K: None
SIGNATURES
In accordance with the requirements of the Exchange Act of 1934, the
registrant caused this report to be signed on its behalf of the
undersigned, duly authorized.
BRAVO! FOODS INTERNATIONAL CORP. (Registrant)
Date: May 14, 2002
/s/ Roy G. Warren
- --------------------------------------
Roy G. Warren, Chief Executive Officer
18