Attached files
file | filename |
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EX-3.1 - CERTIFICATE OF INCORPORATION - VITAMIN BLUE, INC. | vbs1201002ex3-1.htm |
EX-3.2 - BYLAWS - VITAMIN BLUE, INC. | vbs1201002ex3-2.htm |
EX-23.1 - CONSENT OF HJ ASSOCIATES & CONSULTANTS, LLP, INDEPENDENT PUBLIC ACCOUNTANTS - VITAMIN BLUE, INC. | vbs1201002ex23-1.htm |
EX-99.1 - FORM OF SUBSCRIPTION AGREEMENT FOR SALES OF OUR COMMON STOCK - VITAMIN BLUE, INC. | vbs1201002ex99-1.htm |
EX-5.1 - OPINION OF H. MELVILLE HICKS, JR. - VITAMIN BLUE, INC. | vbs1201002ex5-1.htm |
As filed with the Securities and Exchange Commission on February 10, 2010
Registration
No. 333-________
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
____________
FORM
S-1
REGISTRATION
STATEMENT
UNDER
THE SECURITIES ACT OF 1933
_______________
VITAMIN
BLUE, INC.
(Exact
Name of Registrant As Specified in Its Charter)
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Delaware
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4841
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33-0858127
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(State
or Other Jurisdiction of
Incorporation
or Organization)
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Primary
Standard Industrial
Classification
Code Number
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(IRS
Employer
Identification
Number)
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1005
West 18th
Street
Costa
Mesa, CA 92627
(949)
645-4592
(Address,
Including Zip Code and Telephone Number,
Including
Area Code, of Registrant’s Principal Executive Offices)
______________________
Frank
D. Ornelas
Chief
Executive Officer and President
Vitamin
Blue, Inc.
1005
West 18th
Street
Costa
Mesa, CA 92627
(949)
645-4592
(Name,
Address, Including Zip Code and Telephone Number,
Including
Area Code, of Agent for Service)
____________________
Copies to:
H.
Melville Hicks, Jr., Esq.
551
Fifth Avenue, Suite 1625
New
York, New York 10176
(212)
655-5944
(212)
867-3185
(Name,
Address, Including Zip Code and Telephone Number,
Including
Area Code, of Agent for Service)
Approximate date of commencement of
proposed sale to the public: As soon as practicable after the effective
date of this Registration Statement.
If any of
the securities being registered on this Form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, check
the following box. x
If this
form is filed to register additional securities for an offering pursuant to Rule
462(b) under the Securities Act, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. o
If this
form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. o
If this
form is a post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
(Check
one):
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Large
Accelerated Filer o
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Accelerated
Filer o
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Non-Accelerated
Filer o
(Do
not check if a smaller reporting company)
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Smaller
Reporting Company x
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2
CALCULATION
OF REGISTRATION FEE(1)
Title
of Each Class of Securities to Be Registered
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Amount
to Be
Registered
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Proposed
Maximum
Aggregate
Offering
Price
per Unit
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Proposed
Maximum
Aggregate
Offering
Price
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Amount
of
Registration
Fee
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Common
Stock to be offered for resale by selling shareholders
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11,525,000
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$.002 |
$23,050
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$1.64
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The
offering price has been estimated solely for the purpose of computing the amount
of the registration fee in accordance with Rule 457(o). Our common
stock is not traded on any national exchange, and, in accordance with Rule 457,
the offering price was determined by the price shares were sold to our
shareholders in private placement transactions. The selling
shareholders may sell shares of our common stock at a fixed price of $.002 per
share until our common stock is quoted on the OTC Bulletin Board and thereafter
at prevailing market prices or privately negotiated prices. The fixed
price of $.002 has been determined as the selling price based upon the original
purchase price paid by the selling shareholders of .002. There can be
no assurance that a market maker will agree to file the necessary documents with
the Financial Industry Regulatory Authority (“FINRA”), which operates the OTC
Bulletin Board, nor can
there be any assurance that such an application for quotation will be
approved.
___________________
The Registrant hereby amends this
Registration Statement on such date or dates as may be necessary to delay its
effective date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall thereafter become
effective in accordance with Section 8(a) of the Securities Act, as amended, or
until this Registration Statement shall become effective on such date as the
Commission, acting pursuant to such Section 8(a), may
determine.
The
information in this prospectus is not complete and may be changed. Selling
stockholders may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is effective.
This prospectus is not an offer to sell these securities and is not
soliciting an offer to buy these securities in any jurisdiction where the
offer or sale is not permitted.
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PRELIMINARY
PROSPECTUS
SUBJECT
TO COMPLETION, DATED FEBRUARY 10, 2010
3
PROSPECTUS
VITAMIN
BLUE, INC.
Up
to 11,525,000
Shares
Common
Stock
Offering
Price: $0.002 per share
This
prospectus relates to the resale by the selling stockholders of up to 11,525,000
shares that were acquired directly from the Company in private offerings that
were exempt from registration requirements of the Securities Act of
1933. The selling stockholders named in this prospectus may sell
common stock from time to time in the principle market on which the stock is
traded at the prevailing market price or in negotiated transactions at a fixed
price of $.002 per share until our common stock is listed to trade and quoted on
the Over-The-Counter Bulletin Board. The selling stockholders may be
deemed underwriters of the shares of common stock, which they are
offering. We will pay the expenses of registering these
shares.
This is a
resale prospectus for the resale of up to 11,525,000 shares of our common stock
by the selling stockholders listed herein. We will not receive any
proceeds from the sale of those shares.
Our
common stock is not traded on any public market and, although we intend to apply
to have our common stock quoted on the Over-The-Counter Bulletin Board (“OTCBB”)
maintained by the Financial Industry Regulatory Authority (“FINRA”) upon the
effectiveness of the registration statement of which this prospectus is a part,
we may not be successful in such application and our common stock may never
trade in any market.
Selling
stockholders will sell at a fixed price of $.002 per share until our common
stock is quoted on the OTCBB and thereafter at prevailing market prices, or
privately negotiated prices.
No
other underwriter or person has been engaged to facilitate the sale of shares of
common stock in this offering. None of the proceeds from the sale of
stock by the selling stockholders will be placed in escrow, trust or any similar
account.
We
may amend or supplement this prospectus from time to time by filing amendments
or supplements as required. You should read the entire prospectus and
any amendments or supplements carefully before you make your investment
decision.
Neither
the Securities and Exchange Commission nor any state securities commission has
approved or disapproved of these securities or determined if this Prospectus is
truthful or complete. Any representation to the contrary is a
criminal offense.
Investing in our securities involves
risks. You should consider the risks that we have described in Risk Factors
beginning on page 11 of this prospectus before buying our
securities.
The
date of this prospectus is _________________, 2010.
4
VITAMIN
BLUE, INC.
TABLE
OF CONTENTS
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Page
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Prospectus Summary
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6 | |
Risk Factors
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11 | |
Cautionary Note Regarding Forward-Looking
Statements
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20 | |
Use of Proceeds
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21 | |
Dividend Policy
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22 | |
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
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24 | |
Business
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28 | |
Management
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34 | |
Certain Relationships and Related Party
Transactions
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39 | |
Security Ownership of Certain Beneficial Owners
and Management
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39 | |
Description of Securities
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39 | |
Legal Matters
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47 | |
Experts
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47 | |
Indemnification for Securities Act
Liabilities
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47 | |
Where You Can Find More
Information
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47 | |
Index to Financial
Statements
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F-1
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____________________
You
should rely only on the information contained in this prospectus. Neither the
selling stockholders nor we have authorized any other person to provide you with
different information. If anyone provides you with different or inconsistent
information, you should not rely on it. Neither the selling stockholders nor we
are making an offer to sell these securities in any jurisdiction where the offer
or sale is not permitted. You should assume that the information appearing in
this prospectus is accurate as of the date on the front cover of this prospectus
only. Our business, financial condition, results of operations and prospects may
have changed since that date.
5
This
summary highlights basic information about us and this offering. This summary
does not contain all of the information you should consider before investing in
our common stock. You should read this entire prospectus carefully before making
an investment decision. When we use the words “Company,” “we,” “us” or “our
company” in this prospectus, we are referring to Vitamin Blue, Inc., a Delaware
corporation. This prospectus contains forward-looking statements, which involve
risks and uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth under “Risk Factors” and elsewhere in this
prospectus.
Our
Company
Vitamin
Blue, Inc., was incorporated in Delaware on May 25, 1999, under the name Under
The Influence, Inc., our name was changed to Vitamin Blue, Inc., by amendment to
the Certificate of Incorporation. Our principal executive offices are
located at 1005 West 18th
Street, Costa Mesa, CA 92627 and our telephone number is (949)
645-4592. This area of California is the hub of the surfing
industry. Vitamin Blue, Inc. designs, manufactures, and distributes
surfwear and surfing accessories. Our Company is focused on becoming
a boardsport brand of long-term excellence by its commitment to producing
innovative products of quality and athletic performance, and continuing to
develop a good reputation with its retailers to deliver on time. We
are an authentic source for unique, functional and diverse surf
products.
In
pursuing a strategy of building and maintaining a strong foundation at the core
surf market level, we have began the important first step in this strategy by
distributing product to surfboard manufacturers and surf shops. We
intend to leverage this foundation by expanding product offerings and increasing
brand penetration into the mainstream. Our product distribution will
extend into specialty stores and department stores. In order to
maintain long-term brand awareness we will continue to stay true to our surfing
roots as an authentic source for surf products by supporting the core of the
sport through sponsorship of athletes, competitions and other grassroot
activities, thereby maintaining a strong foundation in the surf
industry.
We
manufacturer most of our surfing accessories and nearly all of our surfwear
in-house. Only the manufacturing of surfboard bags and the sewing of
board shorts (surf trunks) are outsourced.
For the
nine month period ended September 30, 2009, we reported net sales of
approximately $109,695, up 2% from net sales of $107,946 for the nine months
ended September 30, 2008.
Our
Industry
In the
United States, surf/skate sales for 2008 exceeded $7.2
billion. Approximately, 17 percent of sales ($2.4 billion) occurred
in the west coast. The surf industry had shown substantial growth of
10 percent for the previous five years. Source: 2008 Surf
Industry Manufacturers Association (SIMA) Distribution study. Sales
are expected to grow steadily over the next several years. Strong
market growth can be attributed to a number of factors including the all time
high popularity level of outdoor, individual extreme action sports among the
general population, and benefits from shifting demographics, as the teenage
population will grow faster than the rest of the population. With
over half of the world’s population under 25 years old, it is the largest teen
population in history. In addition, with the overall population
pursuing a more physically active lifestyle than ever before, it is not uncommon
for an entire family living in or near beach communities to surf
together. This sport has attracted new comers, from young sons and
daughters to middle aged fathers and mothers.
Historically,
the most frequent buyers of surfwear and surfing accessories were teenage and
young adult males. However, in recent years, the market has expanded
to include surfwear for teenage girls, women, children and
toddlers.
6
Distribution
Channels
Vitamin
Blue will cultivate a variety of distribution channels in order to make its
products available to a large group of consumers. The primary
distribution efforts will focus on retail outlets in North America (U.S.,
Canada, and Mexico). Next, the Company plans to penetrate Europe with
an emphasis on France, United Kingdom, Spain, Italy, and
Germany. Finally, Vitamin Blue will continue to build on the success
of its expansion by penetrating parts of other markets such as Japan and
Australia.
Vitamin
Blue intends to market to four types of retail outlets: surfboard
manufacturers, surf shops, specialty stores, and department stores.
Surfboard
Manufacturers. This retail outlet generally consists of single shops,
where surfboards are designed, manufactured and marketed. They are a
genuine source for surfing accessories. This distribution channel
focuses on the core surf market and is essential in developing long-term growth
potential. Vitamin Blue surfing accessories are currently sold
through this channel.
Surf
Shops. These are generally single to multiple shops located in or
near beach cities. They tend to be privately owned. Surf
shops also focus on the core surf market and provide an authentic retail source
for complete lines of surfwear and surfing accessory products. This
distribution channel is also vital in building long-term growth
potential. The complete line of Vitamin Blue products (surfwear and
surfing accessories) is distributed through this channel.
Specialty
Stores. This type of retail outlet generally consists of single,
regional, and nationwide stores, and tends to be located in or near beach or
resort communities, shopping centers, and shopping malls. Specialty
stores distributing surf products are primarily tourist/vacation shops, sporting
good stores (i.e., Sports Chalet, Inc. –SPCHB), and regional and national retail
stores (i.e., Pacific Sunwear of California-PSUN and Zumiez,
Inc.-ZUMZ). This distribution channel emphasizes the mainstream
market. Vitamin Blue intends to use this type of retail outlet to
distribute its surfwear.
Department
Stores. This type of retail outlet generally has stores located
nationwide. They are often located in shopping malls. Such
stores may include Bloomingdale’s, Macy’s, Saks Fifth Avenue and
Nordstrom. This distribution channel also concentrates on the
mainstream market. Vitamin Blue intends to use this type of retail
outlet to distribute its surfwear.
Our
Products and Solutions
Currently,
Vitamin Blue distributes the majority of its products through surfboard
manufacturers and surf shops. These distribution channels are the
authentic source for surf products and therefore important in enhancing
long-term growth potential, and serve as the primary cornerstone of Vitamin
Blue’s brand building positioning.
Company
Strategy
Vitamin
Blue intends to become a brand of long-term excellence and a leader in the surf
industry by offering innovative quality products, exceptional service, timely
delivery, and aggressive grassroots marketing and word-of-mouth and print
advertising.
The key
points of the Company’s strategy are:
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·
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Continue
to build an authentic surf brand of excellence for the Vitamin Blue
name.
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·
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Focus
on five core elements: product, quality, image, distribution,
and delivery
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Continue
to establish and maintain long standing relationships with surfboard
manufacturers and surf shops. Expand product distribution into specialty
stores and department stores.
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·
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Build
the business infrastructure necessary to support the Company’s planned
growth.
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·
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Continue
the aggressive grassroots marketing
strategy.
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7
Our
Strengths
We
believe that our strengths, critical to our success as an up and coming brand in
the surfwear and accessories industry, lie in our core competency to manufacture
our products in-house helping to ensure reliable, timely and continuous delivery
of our surfing accessories to our customers.
Our
in-house manufacturing capacity allows us to respond ahead of our competition to
new and developing market segments.
Corporate
Information
We were
incorporated in Delaware on May 25, 1999 and commenced business shortly
thereafter in June, 1999. Frank D. Ornelas is our President and
CEO.
Our
principal executive offices are located at 1005 West 18th
Street, Costa Mesa, CA 92627 and our telephone number is (949) 645-4592. Our
website is www.vitaminblue.com. Our Code
of Conduct as well as our annual reports on Form 10-K, quarterly reports on Form
10-Q, current reports on Form 8-K and all amendments to those reports, which
will be filed with the Securities and Exchange Commission, or SEC, are available
to you free of charge through the Investor Relations section on our website as
soon as reasonably practical after such material is electronically filed with,
or furnished to, the SEC. The other information contained in our website is not
a part of this prospectus.
The
Offering
Selling
Stockholders:
|
The
selling stockholders named in this Prospectus are existing stockholders of
Vitamin Blue, Inc., who purchased shares of our common stock in private
placement transactions that were exempt from the registration requirements
of the Securities Act of 1933. See “Selling
Stockholders”.
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Offering
Price:
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The
selling stockholders may sell shares of our common stock at a fixed price
of $.002 per share until shares of our common stock are quoted on the OTC
Bulletin Board or listed for trading or quoted on any other public market,
other than quotation in the pink sheets, and thereafter at prevailing
market prices or privately negotiated prices. We intend to seek
to have our common stock quoted on the OTC Bulletin Board upon our
becoming a reporting entity under the Securities Act of 1934 (the
“Exchange Act”). But we cannot provide any assurance that our
common stock will ever be quoted on the OTC Bulletin Board or traded on
any securities exchange.
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8
Minimum
Number of Shares to be
Sold
In this Offering:
|
None | |
Common
Stock offered
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Up
to 11,525,000 of our $.0001 par value common
stock
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Common
Stock outstanding before and after this offering
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521,525,000
shares
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Use
of proceeds
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We
are not selling any shares of Common Stock in this offering and therefore
will not receive any proceeds. The sale proceeds of each
selling stockholder’s Common Stock belongs to the selling
stockholder.
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Risk
Factors
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See
“Risk Factors” beginning on page 11 and the other information included in
this prospectus for a discussion of factors you should carefully consider
before deciding to invest in our common
stock.
|
There is
no trading market for our common stock. We intend to apply for
listing on the Over-the-Counter Bulletin Board, and we hope that thereafter such
trading market will develop. The selling stockholders will sell at a fixed price
of $.002 per share until our common stock is quoted on the Over-the-Counter
Bulletin Board and thereafter at prevailing market prices, or privately
negotiated prices.
Equity
ownership of the Company currently consists of 521,525,000 shares of common
stock representing all issued and outstanding stock. Frank D. Ornelas
(the “Founder”) owns 510,000,000 shares of common stock and 11,525,000 shares of
common stock are owned by various outside shareholders
The
Company will likely be required to sell additional equity shares, quite possibly
of a different class and priority, so as to secure the desired equity required
by the Company’s business plan. Issuance of such additional equity
will very likely cause substantial dilution to the interests of the holders of
the Common Stock. There can be no assurance that such additional
equity funds can be obtained and, if so, whether the same will be available on
favorable terms.
9
Selected
Financial Information
The table
below summarizes our audited financial statements for the fiscal years ended
December 31, 2007 and 2008 and our unaudited financial statements for the nine
months ended September 30, 2009 and 2008.
Balance
Sheet Summary:
For the Nine Months | For the Years | |||||||||||
Ended September 30, | Ended December 31, | |||||||||||
Balance
Sheet
|
2009
(Unaudited)
|
2008
(Audited)
|
2007
(Audited)
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|||||||||
Cash
and Cash Equivalents
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$ | 2,533 | $ | 3,752 | $ | 9,856 | ||||||
Total
Assets
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$ | 42,966 | $ | 69,263 | $ | 81,566 | ||||||
Total
Liabilities
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$ | 213,517 | $ | 205,001 | $ | 163,259 | ||||||
Total
Stockholders’ Equity (Deficit)
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$ | (170,551 | ) | $ | (135,738 | ) | $ | (81,693 | ) |
Statement
of Operations Summary:
For the Nine Months | For the Years | |||||||||||||||
Ended September 30, | Ended December 31, | |||||||||||||||
Statement
of Operations
|
2009
(Unaudited)
|
2008
(Unaudited)
|
2008
(Audited)
|
2007
(Audited)
|
||||||||||||
Revenue
|
$ | 109,695 | $ | 107,946 | $ | 129,256 | $ | 124,096 | ||||||||
Net
Income (Loss)
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$ | (55,113 | ) | $ | (35,295 | ) | $ | (56,795 | ) | $ | (61,012 | ) | ||||
Net
Earnings (Loss) Per Share of Common Stock, basic and
diluted
|
$ | (0.00 | ) | $ | (7.06 | ) | $ | (11.36 | ) | $ | (12.20 | ) |
Our
operations are located 1005 West 18th
Street, Costa Mesa, CA 92627-4557, (949) 645-4592.
We have
operated at a loss since our inception, and we cannot assure you that we will
operate at a profit in the future. Because we have operated at loss,
we have relied upon a private placement of common stock to fund our operations
since our inception, and must continue to rely on debt or equity investments
until we operate profitably, if ever.
Our auditor’s report dated September
16, 2009 on our financial statements for the year ended December 31, 2008
included a going concern qualification which stated that there was substantial
doubt as to our ability to continue as a going concern. We continue
to be undercapitalized because of our continued losses from operations and do
not have sufficient financial resources to meet the anticipated costs of
expanding our distribution channels. Accordingly, we will need to
obtain additional financing in order to complete our plan of operation and meet
our current obligations as they come due. However, there is no
assurance that suitable financing can be found at all or on terms acceptable to
us.
10
Our
business, industry and common stock are subject to numerous risks and
uncertainties. Any of the following risks, if realized, could
materially and adversely affect our revenues, operating results, profitability,
financial condition, prospects for future development, growth and overall
business, as well as the value of our common stock.
INVESTMENT
IN THE COMPANY IS HIGHLY SPECULATIVE, SUBJECT TO NUMEROUS AND SUBSTANTIAL RISKS,
MANY OF WHICH ARE BEYOND THE CONTROL OF THE COMPANY AND MANY OF WHICH CANNOT BE
REASONABLE ASCERTAINED OR QUANTIFIED AT THIS TIME. THE SHARES ARE
SUITABLE ONLY AS AN INVESTMENT FOR THOSE WHO ARE ABLE TO AFFORD A COMPLETE LOSS
OF THEIR INVESTMENT. THEREFORE, PROSPECTIVE SUBSCRIBERS SHOULD
CAREFULLY CONSIDER THE RISK FACTORS RELATING TO THE PROPOSED ACTIVITIES OF THE
COMPANY AND THE PURCHASE OF ITS SHARES, INCLUDING BUT NOT LIMITED TO, THOSE
CERTAIN RISK FACTORS DISCUSSED BELOW, AND SHOULD CONSULT THEIR LEGAL, TAX AND
BUSINESS ADVISORS.
THE RISK
FACTORS HEREINAFTER SET FORTH IN THIS SECTION ARE NOT INTENDED TO BE A COMPLETE
LIST OF THE RISKS RELATING TO AN INVESTMENT IN THE SHARES. THERE ARE
CONTAINED THROUGHOUT THIS PROSPECTUS OTHER RISK FACTORS IMPACTING UPON YOUR
INVESTMENT DECISION.
Any
investment in our common stock involves a high degree of
risk. Prospective investors should carefully consider the following
information about these risks, together with the other information contained in
this Prospectus, before they decide whether to buy any shares. If any
of the following risks occur, the business, and the results of operations and
financial condition, would likely suffer.
The risks
and uncertainties described below are not the only ones we
face. Additional risks and uncertainties, including those not
presently known to us or that we presently deem immaterial, may also result in
decreased revenue, increased expenses, or other events that could result in a
decline in the price of the common stock.
We
have limited operating history and results; prior losses and no independent
operations
The
accumulated net losses since inception on May 25, 1999 to September 30, 2009,
have amounted to ($198,601). There can be no assurance as to when or
whether we will be able to achieve sustained and growing operating
revenues. Or if operating revenues are achieved, there can be no
assurance they can be sustained. For additional information please
refer to our financial statements with notes that appear elsewhere in this
Prospectus.
RISKS
RELATED TO OUR BUSINESS
We
may need additional financing, Probable Dilution
We can
give no assurance that a sufficient level of sales will be attained by us in our
operations within the foreseeable future, which will enable us to fund our
business and undertake our expansion plans. We may face unbudgeted
costs, delays and difficulties’ executing our business plan, as is frequently
encountered by similarly situated companies. We are aware that there
may be changes in economic, regulatory or competitive conditions that may lead
to increased costs. All of these factors may culminate in
circumstances that could make funds generated by our operations insufficient to
fund our cash requirements for the next twelve months and beyond. We
may determine that it is in our best interests to expand more rapidly than
currently intended, in which case we will need additional
financing.
The
Company may in the future be required to pursue further securities offerings
publicly or privately to finance unanticipated capital costs and working capital
needs and potential expansion. These offerings may be made from
time-to-time over an indefinite period following the conclusion of this Offering
and will result in a dilution of the Shares offered hereby. The
proceeds from this Offering shall not be paid to the Company and current
financing may not be sufficient to fund the Company’s operations through the end
of this year during which time the Company intends to market, and operate its
business. There is no assurance that these objectives will be
achieved. Operations thereafter may depend upon the level of business
revenues and the continued availability of investment capital. If
operating revenues are insufficient to continue the Company’s operations,
additional funds will have to be raised through loans or other financing, and
there can be no assurance that any such financing will be obtained on favorable
terms, if at all.
11
The
Company shall have the right to issue, in the aggregate, during and indefinite
period of following the closing of this Offering (to Accredited Investors
meeting the investment suitability standards) a number of shares equal to the
difference between the number of Shares sold in this Offering and the number of
Shares authorized by its Certificate of Incorporation.
Any new
issuance of equity stock of the Company will have the effect of diluting the
percentage interest of a shareholder for purposes of allocations of equity and
distributions.
Additional
financing may not be available when needed or may not be available on terms
acceptable to us. If additional funds are raised by issuing equity
securities, stockholders may incur dilution. If adequate financing is
not available, we may be required to delay, scale back or eliminate one or more
of our product development programs or otherwise limit the development and
marketing of our products, which could materially and adversely affect our
business, results of operation and financial condition.
Our
Independent Auditors’ Report states that there is a substantial doubt that we
will be able to continue as a going concern
Our
independent auditors, HJ Associates & Consultants, LLP, state in their audit
report, dated September 16, 2009, and included with this prospectus, that the
Company does not generate significant revenue, and has negative cash flows from
operations, which 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 and appropriateness of using the going concern basis is
dependent upon, among other things, additional cash infusion.
Our
future operating results are likely to fluctuate
Our
quarterly and annual operating revenues, expenses and operating results may
fluctuate due to a variety of factors, many of which are beyond our control,
including:
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·
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The
timing of orders from, and shipments to, significant
customers
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·
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The
timing of new product introductions by us or our
competitors
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Variations
in the mix of products sold by us or our
competitors
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The
timely payment of our invoices
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Possible
decreases in average selling prices of our products in response to
competitive pressures
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Market
acceptance for new lines of our
products
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Fluctuations
in general economic conditions
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Due to
all of the foregoing factors, we do not believe that period-to-period
comparisons of our historical results of operations are indications of future
performance. Furthermore, it is possible that in some future quarters
our results of operations may fall below the expectations of securities analysis
and investors. In such event, the price of our stock, when trading
and listed, will likely be materially and adversely affected.
We
are and will continue to be dependent upon key personnel
We depend
to a significant extent upon our President, Frank D. Ornelas and we will depend
upon new and additional senior management, sales and marketing
personnel. The competition for such personnel is
intense. Our growth and future success will depend to a large extent
on our ability to attract and retain highly qualified personnel. We
do not have employment agreements with our President. The loss of our
President or the inability to hire or retain qualified personnel could have a
material adverse effect upon our business and operating results. In
addition, if we are unable to hire additional personnel as needed, we may not be
able to adequately manage our operations or implement our plans for expansion
growth. We may not be able to attract and retain the qualified
personnel necessary for the development of our business which would have a
material adverse effect on our business, products and services and our business
operating results, and financial condition.
12
Our sole
officer and director is not covered by an employment contract and he can
terminate his relationship with us at any time. He is not subject to
non-competition agreements which would survive termination of
employment. We do not have “key person” insurance coverage for the
loss of any of Mr. Ornelas.
Our
operations have been and will continue to be dependent on the efforts of Frank
D. Ornelas, our President, Chief Executive Officer, Secretary and Treasurer and
the sole member of our Board of Directors; The development of our
products and services, as well as the development of improvements to our
products and services is dependent on retaining the services of qualified
personnel who were involved in the development of our products and
services. The loss of key management, the inability to secure or
retain such key personnel with unique knowledge of our products and services and
the technology and programming employed as part of our products and services, or
an inability to attract and retain sufficient numbers of other qualified
personnel would adversely affect our business, products, and services and could
have a material adverse effect on our business, operating results, and financial
condition.
Our
Sole Officer has no experience in managing a public company
Our sole
officer has no previous experience in managing a public company, and we do not
have any employees to segregate responsibilities and may be unable to afford
increasing our staff or engaging outside consultants or professionals to
overcome our lack of employees. During the course of our testing, we
may identify other deficiencies that we may not be able to remediate in time to
meet the deadline imposed by the Sarbanes-Oxley Act for compliance with the
requirements of Section 404. In addition, if we fail to achieve and
maintain the adequacy of our internal controls, as such standards are modified,
supplemented or amended from time to time, we may not be able to ensure that we
can conclude on an ongoing basis that we have effective internal controls over
financial reporting in accordance with Section 404 of the Sarbanes-Oxley
Act. Moreover, effective internal controls, particularly those
related to revenue recognition, are necessary for us to produce reliable
financial reports and are important to help prevent financial
fraud. If we cannot provide reliable financial reports or prevent
fraud, our business and operating results could be harmed, investors could lose
confidence in our reported financial information, and the trading price of our
common stock, if a market ever develops, could drop significantly.
We
are subject to substantial competition.
We are
subject to significant competition that could harm our ability to win business
and increase the price pressure on our products. We face strong competition from
a wide variety of firms, including large, firms. Most of our competitors have
considerably greater financial, marketing and technological resources than we
do, which may make it difficult to win new mandates and we may not be able to
compete successfully. Certain competitors operate larger facilities and have
longer operating histories and presence in key markets, greater name recognition
and larger customer bases. As a result, these competitors may be able to adapt
more quickly changes in customer requirements. They may also be able to devote
greater resources to the promotion and sale of their products. Moreover, we may
not have sufficient resources to undertake the continuing research and
development necessary to remain competitive.
13
We
expect to make, strategic acquisitions and investments, and these activities
involve risks and uncertainties.
In
pursuing our business strategies, we continually review, evaluate and consider
potential investments and acquisitions. In evaluating such transactions, we are
required to make difficult judgments regarding the value of business
opportunities, technologies and other assets, and the risks and cost of
potential liabilities. Furthermore, acquisitions and investments involve certain
other risks and uncertainties, including the difficulty in integrating
newly-acquired businesses, the challenges in achieving strategic objectives and
other benefits expected from acquisitions or investments, the diversion of our
attention and resources from our operations and other initiatives, the potential
impairment of acquired assets and the potential loss of key employees of the
acquired businesses.
Unanticipated
changes in our tax provisions or exposure to additional income tax liabilities
could affect our profitability.
We are
subject to income taxes in the United States. In the ordinary course of our
business, there are many transactions and calculations where the ultimate tax
determination is uncertain. Furthermore, changes in domestic or foreign income
tax laws and regulations, or their interpretation, could result in higher or
lower income tax rates assessed or changes in the taxability of certain sales or
the deductibility of certain expenses, thereby affecting our income tax expense
and profitability. Although we believe our tax estimates are reasonable, the
final determination of tax audits could be materially different from our
historical income tax provisions and accruals. Additionally, changes in the
geographic mix of our sales could also impact our tax liabilities and affect our
income tax expense and profitability.
Risks
Related to our Common Stock
Currently,
there is no public market for our Common Stock, and there can be no assurance
that any public market will ever develop or that our common stock will be quoted
for trading and, even if quoted, it will probably be subject to significant
price fluctuations.
Price to
the date of this prospectus, there has not been any established trading market
for our common stock, and there is currently no public market whatsoever for our
common stock. We intend to retain a market maker to file an
application with FINRA so as to be able to quote the shares of our common stock
on the OTC Bulletin Board (“OTCBB”) maintained by FINRA, commencing upon the
effectiveness of the registration statement of which this prospectus is a
part. There can be no assurance as to whether such market maker will
file the application or if that application will be accepted by
FINRA. We are not permitted to file such application on our own
behalf. If the application is accepted, there can be no assurances as
to whether any market for our common stock will develop or the prices at which
our common stock will trade. If the application is accepted, we
cannot predict the extent to which investor interest in us will result in the
development of an active, liquid trading market. Active trading
markets generally result in lower price volatility and more efficient execution
of buy and sell orders for investors.
In
addition, it is probable that our common stock will not be followed by any
market analysts, and there may be few institutions acting as market makers for
our common stock. Either of these factors could adversely affect the
liquidity and trading price of our common stock. Until our common
stock is fully distributed and an orderly market develops in our common stock,
if ever, the price at which it trades will probably fluctuate
significantly. Prices for our common stock will be determined in the
market and may be influenced by many factors, including the depth and liquidity
of the market for our common stock, developments affecting our business,
including the impact of the factors referred to elsewhere in these RISK FACTORS,
investor perception, and general economic and market conditions. No
assurance can be given that an orderly or liquid market will develop for our
common stock. Because of the anticipated low price of our common
stock, many brokerage firms may not be willing to effect transactions in our
common stock.
14
Because
we can issue additional shares of common stock, purchasers of our common stock
may incur immediate dilution and may experience further dilution.
We are
authorized to issue up to 900,000,000 shares of common stock. At
present, there are 521,525,000 shares of our common stock issued and
outstanding. Our Board of Directors has the authority to cause us to
issue additional shares of common stock without consent of any of our
stockholders. Consequently, our stockholders may experience more
dilution in their ownership of our common stocks in the future.
As our
officers and directors own a significant percentage of our issued and
outstanding common stock, any future sales of their shares may result in a
decrease in the price of our common stock and the value of our stockholders’
investments. Our sole officer and director, currently owns
510,000,000 shares of the total of 521,525,000 issued and outstanding shares of
our common stock. Collectively, our sole officer and director owns
97.8% of our total outstanding shares of our common stock.
The
possibility of future sales of significant amounts of shares held of our common
stock by our officers and directors could decrease the market price of our
common stock, if the market does not orderly adjust to the increase in shares of
our common stock in the market. In such event, the value of your
investment in us will decrease.
If
a market develops for our common stock, sales of our common stock in reliance on
Rule 144 may reduce prices in that market by a material amount.
All of
the outstanding shares of our common stock are “restricted securities” within
the meaning of Rule 144 under the Securities Act of 1933, as
amended. As restricted securities, those shares may be resold only
pursuant to an effective registration statement or pursuant to the requirements
of Rule 144 or other applicable exemptions from registration under that Act and
as required under applicable state securities laws. Rule 144 provides
in essence that an affiliate (i.e., an officer, director, or control person) who
has held restricted securities for a prescribed period under certain conditions,
may sell every three months, in brokerage transactions, a number of shares that
does not exceed 1.0% of the issuer’s outstanding common stock. The
alternative average weekly trading volume during the four calendar weeks prior
to the sale is not available to our shareholders, as the OTCBB (if and when our
common stock is listed thereon) is not an “automated quotation system” and,
accordingly, market based volume limitations are not available for securities
quoted only on the OTCBB.
As a
result of revisions to Rule 144 which became effective on or about February 15,
2008, there is no limit on the amount of restricted securities that may be sold
by a non-affiliate (i.e., a stockholder who has not been an officer, director or
control person for at least 90 consecutive days) after the restricted securities
have been held by the owner for a prescribed period (currently six (6) months if
a reporting company and one (1) year if not). A sale under Rule 144
or under any other exemption from the Securities Act of 1933, if available, or
pursuant to registration of shares of our common stock held by our stockholders,
may reduce the price of our common stock in any market that may
develop.
Any
trading market that may develop may be restricted because of state securities
“Blue Sky” laws which prohibit trading absent compliance with individual state
laws.
These
restrictions may make it difficult or impossible to sell our common stock in
those states. There is no public market for our common stock and
there can be no assurance that any public market will develop in the foreseeable
future. Transfers of our common stock may, also, be restricted under
the securities laws promulgated by various states and foreign jurisdictions,
commonly referred to as “Blue Sky” laws. Absent compliance with such
laws, our common stock may not be traded in such
jurisdictions. Because the shares of our common stock registered
hereunder have not been registered for resale under the “Blue Sky” laws of any
state, the holders of such shares and persons who desire to purchase such shares
in any trading market that might develop in the future, should be aware that
there may be significant state “Blue Sky” law restrictions upon the ability of
investors to sell and purchasers to purchase such shares. These
restrictions prohibit the secondary trading our common stock. We
currently do not intend and may not be able to qualify securities for resale in
approximately 17 states that do not offer manual exemptions and require
securities to be qualified before they can be resold by our
shareholders. Accordingly, investors should consider the secondary
market for our securities to be limited.
15
We
may acquire other companies or product lines
We may
pursue acquisitions that could provide new products or
businesses. Future acquisitions may involve the use of significant
amounts of cash, potentially dilutive issuances of equity securities, incurrence
of debt or amortization of expenses related to good will and other intangible
assets.
In
addition, acquisitions involve numerous risks, including:
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·
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Difficulties
in the assimilation of the operations, products and personnel of the
acquired company.
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The
diversion of management’s attention from other business
concerns
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Risks
of entering markets in which we have no or limited prior
experience
|
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The
potential loss of key employees of ours or of the acquired
company
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We
currently have no commitments with respect to any acquisition. In the
event that such an acquisition does occur and we are unable to successfully
integrate businesses, products, or personnel that we acquire, our business,
results of operations and financial condition could be materially adversely
affected.
Because
our sole officer and director, Frank Ornelas owns 97.8% of our outstanding
common stock, investors may find that corporate decisions controlled by Mr.
Ornelas are inconsistent with the interests of other stockholders.
Frank
Ornelas, our sole officer and director, controls 97.8% of our issued and
outstanding shares of common stock. Accordingly, in accordance with
our Articles of Incorporation and Bylaws, Mr. Ornelas Is able to control who is
elected to our Board of Directors and thus could act, or could have the power to
act, as our management. Since Mr. Ornelas is not simply a passive
investor, but is also our sole officer, his interests as an executive officer
may, at times, be adverse to those of passive investors. Where those
conflicts exist, our shareholders will be dependent upon Mr. Ornelas exercising,
in a manner fair to all of our shareholders his fiduciary duties as an officer
or as a member of our Board of Directors. Also, due to his stock
ownership position, Mr. Ornelas will have: (i) the ability to control
the outcome of most corporate actions requiring stockholder approval, including
amendments to our Articles of Incorporation; (ii) the ability to control
corporate combinations or similar transactions that might benefit minority
stockholders which may be rejected by Mr. Ornelas to their detriment, and (iii)
control over transactions between him and Mr. Ornelas.
If
we fail to maintain an effective system of internal controls over financial
reporting, we may not be able to report accurately our financial results. This
could have a material adverse effect on our share price.
Effective
internal controls are necessary for us to provide accurate financial reports. We
are in the process of documenting and testing our internal control procedures to
satisfy the requirements of Section 404 of the Sarbanes Oxley Act of 2002 and
the related rules of the SEC, which require, among other things, our management
to assess annually the effectiveness of our internal control over financial
reporting and our independent registered public accounting firm to issue a
report on that assessment. During the course of this documentation
and testing, we may identify significant deficiencies or material weaknesses
that we may be unable to remediate before the deadline for those
reports.
16
There can
be no assurance that we will maintain adequate controls over our financial
processes and reporting in the future or that those controls will be adequate in
all cases to uncover inaccurate or misleading financial information that could
be reported by members of management. If our controls failed to identify any
misreporting of financial information or our management or independent
registered public accounting firm were to conclude in their reports that our
internal control over financial reporting was not effective, investors could
lose confidence in our reported financial information and the trading price of
our shares could drop significantly. In addition, we could be subject to
sanctions or investigations by the stock exchange upon which our common stock
may be listed, the SEC or other regulatory authorities, which would require
additional financial and management resources.
Volatility
of our stock price could adversely affect stockholders.
The
market price of our common stock could fluctuate significantly as a result
of:
•
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quarterly
variations in our operating
results;
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cyclical
nature of consumer spending;
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interest
rate changes;
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changes
in the market’s expectations about our operating
results;
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our
operating results failing to meet the expectation of securities analysts
or investors in a particular
period;
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changes
in financial estimates and recommendations by securities analysts
concerning our company or the defense industry in
general;
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operating
and stock price performance of other companies that investors deem
comparable to us;
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news
reports relating to trends in our
markets;
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changes
in laws and regulations affecting our
business;
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material
announcements by us or our
competitors;
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sales
of substantial amounts of common stock by our directors, executive
officers or significant stockholders or the perception that such sales
could occur;
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•
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general
economic and political conditions such as recessions and acts of war or
terrorism; and
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other
matters discussed in the risk
factors.
|
Fluctuations
in the price of our common stock could contribute to the loss of all or part of
an investor’s investment in our company.
We
currently do not intend to pay dividends on our common stock and consequently
your only opportunity to achieve a return on your investment is if the price of
common stock appreciates.
We
currently do not plan to declare dividends on our common stock in the
foreseeable future. Any payment of cash dividends will depend upon our financial
condition, capital requirements, earnings and other factors deemed relevant by
our board of directors. Agreements governing future indebtedness will likely
contain restrictions on our ability to pay cash dividends. Consequently, your
only opportunity to achieve a return on your investment in the common stock of
our company will be if the market price of our common stock appreciates and you
sell your common stock at a profit.
In
addition, we intend to retain earnings, if any, to provide funds for the
implementation of our business plan. We intend not to declare or pay
any dividends in the foreseeable future. Therefore, there can be no
assurance that holders of our common stock will receive any additional cash,
stock or other dividends on their shares of our common stock until we have funds
which our Board of Directors determines can be allocated to
dividends. Investors that require liquidity should also not invest in
our common stock. There is no established trading market and should
one develop it will likely be volatile and subject to minimal trading
volumes.
17
In
addition, under the Certificate of Designations for the Series A Preferred, an
affirmative vote at a meeting duly called or the written consent without a
meeting of Series A Holders representing at least a majority of then outstanding
shares of Series A Preferred is required for us to pay dividends or any other
distribution on our common stock.
Provisions
in our certificate of incorporation and bylaws or Delaware law might discourage,
delay or prevent a change of control of our company or changes in our management
and, therefore, depress the trading price of our stock.
Our
certificate of incorporation and bylaws contain provisions that could depress
the trading price of our common stock by acting to discourage, delay or prevent
a change in control of our company or changes in our management that the
stockholders of our company may deem advantageous. These
provisions:
•
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provide
that only our board of directors shall determine the number of directors
and can fill vacancies on the board of
directors;
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authorize
the issuance of “blank check” preferred stock that our board of directors
could issue to increase the number of outstanding shares and to discourage
a takeover attempt;
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limit
the ability of our stockholders to call special meetings of
stockholders;
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Prohibit
stockholder action by written consent, which requires all stockholder
actions to be taken at a meeting of our
stockholders;
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•
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provide
that the board of directors is expressly authorized to adopt, amend, or
repeal our bylaws; and
|
In
addition, Section 203 of the Delaware General Corporation Law may discourage,
delay or prevent a change in control of our company.
These and
other provisions contained in our amended and restated certificate of
incorporation and bylaws could delay or discourage transactions involving an
actual or potential change in control of us or our management, including
transactions in which our stockholders might otherwise receive a premium for
their shares over then current prices, and may limit the ability of stockholders
to remove our current management or approve transactions that our stockholders
may deem to be in their best interests and, therefore, could adversely affect
the price of our common stock.
INDEMNIFICATION OF DIRECTORS AND
OFFICERS
Our
certificate of incorporation provides for indemnification of our officers and
directors at our expense and limits their liability, which may result in a major
cost to us and damage the interests of our shareholders, because our resources
may be expended for the benefit of our officers and/or directors.
Our
Certificate of Incorporation and applicable Delaware law provide for the
indemnification of our directors, officers, employees, and agents, under certain
circumstances, for attorney’s fees and other expenses incurred by them in any
litigation to which they become a party resulting from their association with us
or activities on our behalf. We will also pay the expenses of such
litigation for any of our directors, officers, employees, or agents, upon such
person’s promise to repay us, if it is ultimately determined that any such
person shall not have been entitled to indemnification. This
indemnification policy could result in substantial expenditures by us, which we
will be unable to recover.
We have been advised that, in the opinion of
the Securities and Exchange Commission, indemnification for liabilities arising
under federal securities laws is against public policy as expressed in the
Securities Act of 1933 and, therefore, unenforceable. In the event
that a claim for indemnification against these types of liabilities, other than
the payment by us of any action, lawsuit, or proceeding, is asserted by a
director, officer, or controlling person in connection with our securities being
registered, we will (unless in the opinion of our counsel, the matter has been
settled by controlling precedent) submit to a court of appropriate jurisdiction,
the issue of whether such indemnification by us is against public policy as
expressed in the Securities Act of 1933, and we will be governed by the final
adjudication of such issue. The legal process relating to this
matter, if it were to occur, probably materially reduce the market and price for
our common stock, if such a market ever develops.
18
MARKET FOR COMMON STOCK
We
anticipate our common stock being quoted on the OTCBB, which may result in
limited liquidity and the inability of our stockholders to maintain accurate
price quotations of our common stock.
Until our
common stock qualifies for inclusion in the NASDAQ system, if ever, the trading
of our common stock, if any, will be in the over-the-counter market, which is
commonly referred to as the OTCBB, as maintained by FINRA. As a
result, an investor may find it difficult to dispose of, or to obtain accurate
quotations as to the price of, our common stock.
PENNY STOCKHOLDERS
Any
market that develops for our common stock will be subject to the penny stock
restrictions, which will create a lack of liquidity and make trading difficult
or impossible.
SEC Rule
15g-9 (as most recently amended and effective on September 12, 2005) establishes
the definition of a “penny stock,” for purposes relevant to us, as an equity
security that has a market price of less than $5.00 per share for with an
exercise price of less than $5.00 per share, subject to a limited number of
exceptions. It is probable that our common stock will be considered
to be penny stocks for the immediately foreseeable future. This
classification severely and adversely affects the market liquidity for our
common stock. For any transaction involving a penny stock, unless
exempt, the penny stock rules require that a broker-dealer approve a person’s
account for transactions in penny stocks, and the broker-dealer receive from the
investor a written agreement to the transaction setting forth the identity and
quantity of the penny stock to be purchased.
To
approve a person’s account for transactions in penny stocks, the broker-dealer
must obtain financial information, investment experience and objectives of that
person and make a reasonable determination that transactions in penny stocks are
suitable for that person and that person has sufficient knowledge and experience
in financial matters to be capable of evaluating the risks of transactions in
penny stocks
The
broker-dealer must, also, deliver, prior to any transaction in a penny stock, a
disclosure schedule prepared by the SEC relating to the penny stock market,
which, in highlight form, sets forth:
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The
basis on which the broker-dealer made the suitability determination,
and
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That
the broker-dealer received a signed, written agreement from the investor
prior to the transaction.
|
Disclosure,
also, has to be made about the risks of investing in penny stock in both public
offerings and in secondary trading and commissions payable to both the
broker-dealer and the registered representative, current quotations for the
securities and the rights and remedies available to an investor in cases of
fraud in penny stock transactions. Finally, monthly statements have
to be sent disclosing recent price information for the penny stock held in the
account and information on the limited market in penny stocks.
Because
of these regulations, broker-dealer may desire to not engage in the necessary
paperwork and disclosures and encounter difficulties in their attempt to sell
our common stock, which may affect the ability of the selling shareholders or
other holders to sell our common stock in the secondary market and have the
effect of reducing trading activities in the secondary market of our common
stock. These additional sales practice and disclosure requirements
could impede the sale of our common stock, if and when our common stock becomes
publicly traded. In addition, the liquidity of our common stock may
decrease, with a corresponding decrease in the price of our common
stock. Our common stock, in all probability, will be subject to such
penny stock rules for the foreseeable future and our shareholders will, quite
probably, have difficulty selling our common stock.
19
We
believe that some of the information contained in this prospectus constitutes
forward-looking statements within the definition of the Private Securities
Litigation Reform Act of 1995. You can identify these statements by
forward-looking words such as “may,” “expect,” “project,” “anticipate,”
“contemplate,” “believe,” “estimate,” “intend,” “plan,” and “continue” or
similar words. You should read statements that contain these words carefully
because they:
•
|
discuss
future expectations;
|
•
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contain
projections of future results of operations or financial condition;
or
|
•
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state
other “forward-looking”
information.
|
We
believe it is important to communicate our expectations to our stockholders.
However, there may be events in the future that we are not able to accurately
predict or over which we have no control. The risk factors and cautionary
language discussed in this prospectus provide examples of risks, uncertainties
and events that may cause actual results to differ materially from the
expectations described by us in our forward-looking statements, including among
other things:
•
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our
ability to realize the full amount of revenues reflected in our
backlog;
|
•
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our
ability to finance the redemption of our Series A Convertible Preferred
Stock in accordance with the terms of such series of Preferred Stock and
our settlement agreement with the holders of such Preferred
Stock;
|
•
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our
reliance on certain suppliers;
|
•
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intense
competition and other risks associated with the surfing industry in
general; and
|
•
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other
matters discussed in the Risk
Factors.
|
You are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date of this prospectus. Forward-looking statements involve
known and unknown risks and uncertainties that may cause our actual future
results to differ materially from those projected or contemplated in the
forward-looking statements.
All
forward-looking statements included herein attributable to us or any person
acting on our behalf are expressly qualified in their entirety by the cautionary
statements contained or referred to in this section and elsewhere in this
prospectus. Except to the extent required by applicable laws and regulations, we
undertake no obligation to update these forward-looking statements to reflect
events or circumstances after the date of this prospectus or to reflect the
occurrence of unanticipated events. You should be aware that the occurrence of
the events described in the “Risk Factors” section and elsewhere in this
prospectus could have a material adverse effect on us.
20
We will
not receive any of the proceeds from the sale of shares of the common stock
offered by the selling stockholders. We are registering 11,525,000 of
our 521,525,000 currently outstanding shares of our common stock for resale to
provide the holders thereof with tradable securities, but the registration of
such shares does not necessarily mean that any of such shares will be offered or
sold by the holders thereof.
DETERMINATION
OF OFFERING PRICE
The
selling stockholders may sell their shares of our common stock at a fixed price
of $.002 per share or our common stock as quoted on the OTC Bulletin Board, or
listed for trading or quoted on any other public market, other than quotation in
the pink sheets, and thereafter at prevailing market prices or privately
negotiated prices. Our common stock is not now, nor has ever been,
traded on any market or securities exchange and we have not applied for listing
or quotation on any public market. We cannot provide our investors
with any assurance that our common stock will ever be quoted on the OTC Bulletin
Board or traded on any exchange. The offering price of $.002 per
share has been determined arbitrarily and does not have any relationship to any
established criteria of value, such as book value or earnings per
share. Additionally, because we have a limited operating
history and have not generated any material revenues to date, the price of the
common stock is not based on past earnings, nor is the price of the common stock
indicative of the current market value of the assets owned by us. No
valuation or appraisal has been prepared for our business and potential business
expansion.
DILUTION
The
common stock to be sold by the selling stockholders is common stock that is
currently issued and outstanding. Accordingly, there will be no
dilution to our existing stockholders.
SELLING
SHAREHOLDERS
All
shares of our common stock offered under this prospectus are being offered by
selling shareholders and may be sold from time to time for the account of the
selling stockholders named in the following table. The table also
contains information regarding each selling stockholder’s beneficial ownership
of shares of our common stock as of December 31, 2009.
SELLING
SECURITY HOLDER
AND
RELATIONSHIP
TO
THE COMPANY
OR
ITS AFFILIATES, IF ANY
|
SHARES
OWNED
(NUMBER
AND PERCENTAGE*)
BEFORE
OFFERING
|
SHARES
OFFERED
|
SHARES
OWNED
(NUMBER
AND PERCENTAGE)
AFTER
OFFERING
|
|||||||||||
James
Ming Yeung
|
10,000,000 | 1.92% | 10,000,000 | - 0 - | 0% | |||||||||
Expressions
Apparel, Corp.
|
50,000 | 0.01% | 50,000 | - 0 - | 0% | |||||||||
Christopher
W. Bauer
|
75,000 | 0.01% | 75,000 | - 0 - | 0% | |||||||||
Joann
P. Bauer
|
75,000 | 0.01% | 75,000 | - 0 - | 0% | |||||||||
Dr.
Edmond H. Henken
|
50,000 | 0.01% | 50,000 | - 0 - | 0% | |||||||||
Dr.
Tamara R. Henken
|
50,000 | 0.01% | 50,000 | - 0 - | 0% | |||||||||
Patrick
A. Reardon
|
50,000 | 0.01% | 50,000 | - 0 - | 0% | |||||||||
Sarah
Aspel
|
50,000 | 0.01% | 50,000 | - 0 - | 0% | |||||||||
Perry
C. Faanes
|
50,000 | 0.01% | 50,000 | - 0 - | 0% | |||||||||
Terry
Senate
|
75,000 | 0.01% | 75,000 | - 0 - | 0% | |||||||||
Mark
Gaudio
|
50,000 | 0.01% | 50,000 | - 0 - | 0% | |||||||||
Jeremy
Robert Wilson
|
50,000 | 0.01% | 50,000 | - 0 - | 0% | |||||||||
Michael
Zippi
|
50,000 | 0.01% | 50,000 | - 0 - | 0% | |||||||||
Joyce
J. Sun
|
50,000 | 0.01% | 50,000 | - 0 - | 0% | |||||||||
Ralph
Lemar
|
50,000 | 0.01% | 50,000 | - 0 - | 0% | |||||||||
N.
Dayle Ervin
|
50,000 | 0.01% | 50,000 | - 0 - | 0% | |||||||||
Ian
L. Wynne
|
50,000 | 0.01% | 50,000 | - 0 - | 0% | |||||||||
Lavinia
Crump
|
50,000 | 0.01% | 50,000 | - 0 - | 0% | |||||||||
John
S. Crump
|
50,000 | 0.01% | 50,000 | - 0 - | 0% | |||||||||
Veronica
Ornelas
|
75,000 | 0.01% | 75,000 | - 0 - | 0% | |||||||||
Francisco
Ornelas
|
75,000 | 0.01% | 75,000 | - 0 - | 0% | |||||||||
Keith
Nehls
|
50,000 | 0.01% | 50,000 | - 0 - | 0% | |||||||||
Ed
Talbot
|
50,000 | 0.01% | 50,000 | - 0 - | 0% | |||||||||
Jose
Angel Amigon
|
100,000 | 0.02% | 100,000 | - 0 - | 0% | |||||||||
Angel
Amigon
|
50,000 | 0.01% | 50,000 | - 0 - | 0% | |||||||||
Glenn
Kennedy
|
50,000 | 0.01% | 50,000 | - 0 - | 0% | |||||||||
Sean
C. Weber
|
100,000 | 0.02% | 100,000 | - 0 - | 0% |
21
We have
not paid any dividends on our common stock to date and do not anticipate paying
any dividends in the foreseeable future. We intend to retain future earnings, if
any, in the operation and expansion of our business. Any future determination to
pay cash dividends will be made at the discretion of our board of directors and
will depend on our financial condition, results of operations, capital
requirements and other factors that our board of directors deemed relevant.
Investors should not purchase our common stock with the expectation of receiving
cash dividends.
PLAN
OF DISTRIBUTION
We are
registering shares of our common stock on behalf of the selling
shareholders. The selling shareholders will offer and sell the shares
of our common stock to which this prospectus relates for their own
accounts. We will not receive any proceeds from the sale of those
shares. We will pay all reasonable fees and expenses in connection
with the registration of those shares. Fees and expenses of any
attorneys or other advisors retained by the selling shareholders in connection
with the registration will be paid by the selling shareholders.
The
selling stockholders may offer their shares of our common stock at various times
in one or more of the following transactions:
|
·
|
On
any market that might develop;
|
|
·
|
In
transactions other than market
transactions;
|
|
·
|
By
pledge to secure debts or other
obligations;
|
|
·
|
Purchases
by a broker-dealer as principal and resale by the broker-dealer for its
account; or
|
|
·
|
In
a combination of any of the above.
|
The
selling stockholders will sell their shares of common stock registered hereby at
a fixed price of $.002 per share until our common stock is quoted on the
over-the-counter Bulletin Board and thereafter at prevailing market prices or
privately negotiated prices. To comply with the securities laws of
certain states, if applicable, those shares may be sold only through registered
or licensed broker-dealers.
22
The
selling stockholders may use broker-dealers to sell our common
stock. If this happens, broker-dealers will either receive discounts
or commissions from the selling stockholders, or they will receive commissions
from purchasers of such shares for whom they have acted as agents. To
date, no discussions have been held or agreements reached with any
broker-dealers.
If any of
the selling shareholders enter into an agreement after the effectiveness of this
registration statement to sell all or a portion of their shares of our common
stock to a broker-dealer as principal and that broker-dealer is acting as
underwriter, we will file a post-effective amendment to this registration
statement identifying that broker-dealer, providing the required information
regarding the plan of distribution, revising disclosures in this registration
statement, as required, and filing a copy of that agreement as an exhibit to
this registration statement.
Our
affiliates and/or promoters, if any, who are offering their shares of our common
stock for sale and any broker-dealers who act in connection with the sale of the
shares of our common stock registered hereby hereunder will be deemed to be
“underwriters” of this offering within the meaning of the Securities Act of
1933, and any commissions they receive and proceeds of any sale of the shares
may be deemed to be underwriting discounts and commissions under the Securities
Act of 1933.
The
selling shareholders and any purchases of our common stock should be aware that
any market that develops for our common stock will be subject to “penny stock”
restrictions.
We will
pay all expenses incidents to the registration, offering and sale of the shares
of our common stock subject to this prospectus, other than commissions or
discounts of underwriters, broker-dealers or agents.
The
offering of our common stock contemplated by this prospectus will terminate on
the earlier of the:
|
(a)
|
date
on which the shares of our common stock are eligible for resale without
restriction pursuant to Rule 144 under the Securities Act of 1933,
or
|
|
(b)
|
date
on which all shares of our common stock offered by this prospectus have
been sold by the selling
stockholders.
|
23
FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The
following Management’s Discussion and Analysis of Financial Condition and
Results of Operations contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those anticipated
in these forward-looking statements as a result of various factors, including
those set forth under “Risk Factors” and elsewhere in this prospectus. The
following discussion should be read in conjunction with our consolidated
financial statements and related notes thereto included elsewhere in this
prospectus.
FINANCIAL
CONDITION AND
RESULTS OF OPERATIONS
This
discussion should be read in conjunction with our consolidated financial
statements and the notes thereto included in this prospectus, as well as the
other sections of this prospectus, including “Risk Factors” and “Description of
Business.” This discussion contains a number of forward-looking statements, all
of which are based on our current expectations and could be affected by the
uncertainties and risk factors described throughout this prospectus. See
“Cautionary Statement Regarding Forward-Looking Statements.” Our actual results
may differ materially.
Overview
We
design, manufacture, and distribute surfwear and surfing
accessories. Our Company is focused on becoming a board sportbrand of
long-term excellence by its commitment to producing innovative products of
quality and athletic performance, and continuing to develop a good reputation
with its retailers to deliver on time. We are an authentic source for
unique, functional and diverse surf products.
Vitamin
Blue, Inc., was incorporated in Delaware on May 25, 1999, under the name Under
The Influence, Inc., our name was changed to Vitamin Blue, Inc., by amendment to
the Certificate of Incorporation. Our principal executive offices are
located at 1005 West 18th
Street, Costa Mesa, CA 92627 and our telephone number is (949)
645-4592.
Since we
began operations we have incurred annual net losses. As of September 30, 2009,
we had an accumulated deficit of $198,601 and we expect to incur additional
losses in the foreseeable future. Our revenues during the nine-month
periods ended September 30, 2009 and 2008 were $109,695 and $107,946,
respectively. We recognized net losses of $55,113 (or a basic and diluted loss
of $0.00 per common share) for the nine months ended September 30, 2009 and
a net loss of $35,295 (or a basic and diluted loss of $7.06 per common share)
for the comparable period in 2008.
Since our
inception, we have financed our operations primarily through loans, shareholder
advances and accounts receivable from sales of our products. In December 2008
and January 2009 we received $23,050 in proceeds of a private placement
offering. From inception through September 30, 2009, we received net
offering proceeds from private sales of equity and debt securities of
$135,750
Based on
our current plans and assumptions, which include our expectations relating to
the future sale of our common stock and the resulting cash flows and revenues,
we believe that we will have adequate resources to fund our operations for the
next twelve months. However, there can be no assurances that we will
be successful in entering into such contracts or arranging financing on terms
satisfactory to us, in which case there would be significant doubt as to our
ability to continue as a going concern. As of September 30,
2009, our available cash balance was $2,533. As such we will need to raise
additional funds to pay outstanding vendor invoices and operating
expenses.
We
consider that our current staff and facilities are adequate to maintain our
present sales and product distribution. Depending upon our actual growth, we
plan to incrementally increase our staff as product sales grow.
We expect
our immediate capital expenditures, which we do not expect to exceed
approximately $25,000, will be related to upgrading our product distribution and
administrative systems.
Generally,
we anticipate that our operating costs and expenses will increase in the future
to support a higher level of revenues. Increased costs will be attributable to
increased personnel, principally sales and distribution personnel and increased
marketing expenditures to promote our products.
24
Results
of Operations: Comparison of Fiscal 2008 and 2007
Generally,
we anticipate that our operating costs and expenses will increase in the future
to support a higher level of revenues. Increased costs will be attributable to
increased personnel, principally sales personnel and support staff for our
infrastructure and increased marketing expenditures to promote our
products. In addition, as a public reporting entity, compliance with
Securities and Exchange Commission and Sarbanes-Oxley regulations will increase
our general and administrative costs.
We had a
loss from operations in each of the last two fiscal years.
Revenues
Total
revenues for the year ended December 31, 2008 were $129,256 compared to
$124,096 for the year ended December 31, 2007. This $5,160 increase in
revenue is due to a marginal increase in pricing on all orders. In both 2008 and
2007 our sales growth was impacted primarily by our lack of new operational
capital with which to execute our business plan.
Cost
of Goods Sold
Cost of
goods sold were $99,508 for the year ended December 31, 2008, compared to
$87,319 for the prior year. The $12,189 increase in cost of goods sold (and the
resulting decrease in gross margin from 29.6% of total revenue to 23%) is
primarily due to increased manufacturing costs that we absorbed, while only
passing along marginal price increases to our customers.
Operating
Expenses
All
expenses related to our operations, including marketing, selling and general and
administrative expenses are reported under the heading Operating Expenses in the
Statement of Operations. For the year ended December 31, 2008 these
expenses were $70,255, a decrease of 15,471 from $85,726 in the prior
year. This 18% decrease resulted from decreased personnel and travel
costs. Depreciation expense of $2,632 remained unchanged for the year
ended December 31, 2008 from the prior year.
Other
Expenses
Interest
expense in 2008 totaled $12,390 compared to $9,065 in 2007. The interest expense
in both 2008 was incurred primarily on investor and related-party
loans. The increase in interest expense was due to higher debt
balances in 2008 compared to the prior year.
Net
Income (Loss)
The net
loss for the year ended December 31, 2008 was $ (56,795) compared to $ (61,012)
for the prior year. This decrease in net loss of $(4,217) was
primarily due to an increase in revenue and a decrease in operating expenses
that was offset by a reduction in the gross profit margin.
Cash
Flows from Operations
Net cash
used in operating activities was $10,375 for the year ended December 31, 2008 as
compared to $56,004 for the prior year. This decrease in cash used in
operations was primarily due to a small net operating loss and an increase in
inventory, which was offset by an increase in accounts payable.
Net cash
used in investing activities was $-0-, for the year ended December
31, 2008 as compared to $589 for the prior year, which was for an equipment
purchase.
Net cash
provided in financing activities was $4,271, for the year ended
December 31, 2008 as compared to $65,312 for the prior year. The
decrease of $61,041 was the net difference from Investor loans during the year
ended December 31, 2007 of $70,000, offset by loan payments of $4,688, as
compared to net loans and subscriptions totaling $5,750, offset by loan payments
of $1,479.
25
Results
of Operations: Comparison of Nine-Month Periods Ended September 30, 2009
and 2008
Revenues
for the nine months ended September 30, 2009 were $109,695, an increase of
$1,883 from the $107,946 in revenue for the nine months ended September 30,
2008. In the 2009 period, revenue increased marginally due to a small percentage
increase in delivered orders over the same nine-month period in
2008.
Cost of
sales for the nine months ended September 30, 2009 was $78,077, a decrease of
$1,883 from the cost of revenue of $79,960 for the nine months ended
September 30, 2008. The gross profit for the nine months ended September
30, 2009 was $31,618, an increase of $3,632 from the same nine-month period in
2008. The increase is attributed to more efficient management of the
manufacturing inventory.
Operations,
including marketing, selling and general and administrative expenses for the
nine months ended September 30, 2009 increased to $75,171 from $51,034 for the
nine-month period ended September 30, 2008, an increase of $24,137. This 47%
increase resulted primarily from new audit and accounting fees not incurred in
the prior period.
Other
expenses
Interest
expense for the nine months ended September 30, 2009 totaled $10,177 an
increase of $1,007 over the same nine month period in 2008. The
increase in interest expense resulted from increased borrowing during the 2009
nine-month period.
Liquidity
and Capital Resources
At
September 30, 2009, we had an accumulated deficit of $(198,601), and we expect
to incur additional losses in the foreseeable future. While we have funded our
operations since inception through investor and related party loans and through
collection of our accounts receivable, there can be no assurance that adequate
financing will continue to be available to us and, if available, on terms that
are favorable to us.
As of
September 30, 2009, our available balance of cash and cash equivalents was
approximately $2,533.
Based on
our current plans and assumptions, which include our expectations relating to
the future sale of our equity securities and the resulting cash flows and
revenues, we believe that we will have adequate resources to fund our operations
in 2009. However, there can be no assurances that we will be successful in
expanding our revenue base or arranging financing on terms satisfactory to us,
in which case there would be significant doubt as to our ability to continue as
a going concern. Notwithstanding the investor and related party loans
outstanding, we will need to raise additional funds to pay outstanding vendor
invoices and operating expenses.
We will
need to raise additional funds through either public or private offerings of our
securities. There can be no assurance that we will be able to obtain further
financing, do so on reasonable terms, or do so on terms that would not
substantially dilute our current stockholders’ equity interests in us. If we are
unable to raise additional funds on a timely basis, or at all, we probably
will not be able to continue as a going concern.
We expect
to put our present and anticipated capital resources to expanding our
operations.
26
APPLICATION
OF CRITICAL ACCOUNTING POLICIES
Our
financial statements and accompanying notes are prepared in accordance with
generally accepted accounting principles used in the United
States. Preparing financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenue, and expenses. These estimates and assumptions
are affected by management’s application of accounting policies. We
believe that understanding the basis and nature of the estimates and assumptions
involved with the following aspects of our consolidated financial statements is
critical to an understanding of our financials.
We have
identified the policies below as critical to our business operations and the
understanding of our results of operations.
Revenue
Recognition
We
recognize revenue in accordance with the Securities and Exchange Commission
(“SEC”) Staff Accounting Bulletin No. 104, “Revenue Recognition in Financial
Statements” (“SAB 104”). We recognize revenue upon delivery, provided
that evidence of an arrangement exists, title, and risk of loss have passed to
the customer, fees are fixed or determinable, and collection of the related
receivable is reasonably assured. We record revenue net of estimated
product returns, which is based upon our return policy, sales agreements,
management estimates of potential future product returns, which is based upon
our return policy, sales agreements, management estimates of potential future
product returns related to current period revenue, current economic trends,
changes in customer composition and historical experience. Generally,
we extend credit to our customers and do not require collateral. We
perform ongoing credit evaluations of our customers and historic credit losses
have been within our expectations,. We do not ship a product until we
have either a purchase agreement or a payment arrangement. This is a
critical policy, because we want our accounting to show only sales which is
“final” with a payment arrangement.
Reserve
for Obsolete/Excess Inventory
Inventories
are stated at the lower of cost or market. We regularly review our
inventories and, when required, will write down any excess or obsolete inventory
based on factors that may impact the realizable value of our inventory
including, but not limited to, market demand, regulatory requirements and
significant changes in our cost structure. If ultimate usage varies
significantly from expected usage, or other factors arise that are significantly
different than those anticipated by management, inventory write-downs or
increases in reserves may be required.
Going
Concern
The
audited financial statements included with this prospectus have been prepared on
the going concern basis which assumes that adequate sources of financing will be
obtained as required and that our assets will be realized and liabilities
settled in the ordinary course of business. Accordingly, the audited
financial statements do no include any adjustments related to the recoverability
of assets and classification of assets and liabilities that might be necessary
should we be unable to continue as a going concern.
In order
to continue as a going concern, we require additional
financing. There can be no assurance that additional financing will
be available to us when needed or, if available, that it can be obtained on
commercially reasonable terms. If we are not able to continue as a
going concern, we would likely be unable to realize the carrying value of our
assets reflected in the balances set out in the preparation of the financial
statements.
27
Overview
of Our Businesses
Vitamin
Blue, Inc. designs, manufactures, and distributes surfwear and surfing
accessories. Our Company is focused on becoming a boardsport brand of
long-term excellence by its commitment to producing innovative products of
quality and athletic performance, and continuing to develop a good reputation
with its retailers to deliver on time. Vitamin Blue, Inc. is an
authentic source for unique, functional and diverse surf products.
In
pursuing a strategy of building and maintaining a strong foundation at the core
surf market level, we have began the important first step in this strategy by
distributing product to surfboard manufacturers and surf shops. We
intend to leverage this foundation by expanding product offerings and increasing
brand penetration into the mainstream. Our product distribution will extend into
specialty stores and department stores. In order to maintain
long-term brand awareness Vitamin Blue, Inc. will continue to stay true to its
surfing roots as an authentic source for surf products by supporting the core of
the sport through sponsorship of athletes, competitions and other grassroot
activities, thereby maintaining a strong foundation in the surf
industry.
We
manufacturer most of our surfing accessories and nearly all of its surfwear
in-house. Only the manufacturing of surfboard bags and the sewing of
boardshorts (surf trunks) are outsourced.
The
primary focus of Vitamin Blue (the “Company”) is surfwear and surfing
accessories. The Company began operations in 1999 and is located in Costa Mesa,
Orange County, California, the epicenter of boardsports culture.
Vitamin
Blue has launched product lines annually beginning in the summer of
2000. The Company has concentrated its sales and marketing efforts
along the entire coastline of California, into northern Baja California
(Mexico), Hawaii and the Eastern coastline. Initial distribution has
centered on surfboard manufacturers and surf shops (the core surf
market).
Vitamin
Blue’s strategy is to build brand recognition in the core surf market with the
aim of enhancing long-term growth potential. The Company intends to leverage the
brand by expanding product offerings that appeal to boardsport participants and
increasing brand penetration into the mainstream to attract those who affiliate
themselves with the action sports lifestyle. Distribution will extend to include
specialty stores and department stores. Vitamin Blue will maintain its image by
staying true to its surfing roots through the sponsorship of athletes,
competitions, and other grassroots activities.
INDUSTRY
OVERVIEW
In the
United States, surf/skate sales for 2008 exceeded $7.2
billion. Approximately, 17 percent of sales ($2.4 billion) occurred
in the west coast. The surf industry had shown substantial growth of
10 percent for the previous five years. Source: 2008 Surf
Industry Manufacturers Association (SIMA) Distribution study. Sales
are expected to grow steadily over the next several years. Strong
market growth can be attributed to a number of factors including the all time
high popularity level of outdoor, individual extreme action sports among the
general population, and benefits from shifting demographics, as the teenage
population will grow faster than the rest of the population. With
over half of the world’s population under 25 years old, it is the largest teen
population in history. In addition, with the overall population
pursuing a more physically active lifestyle than ever before, it is not uncommon
for an entire family living in or near beach communities to surf
together. This sport has attracted new comers, from young sons and
daughters to middle aged fathers and mothers.
28
Historically,
the most frequent buyers of surfwear and surfing accessories were teenage and
young adult males. However, in recent years, the market has expanded
to include surfwear for teenage girls, women, children and
toddlers.
The first
evidence of surfing was in 1500 in Hawaii, when Polynesians
arrived. Surfing became a well-known sport in 1912, when surf
Olympian Duke Kahanamoku introduced the activity around the
world. After World War II, surfboards were created from styrofoam,
polyester resin and fiberglass. The new materials contributed to the
growth of the sport.
In the
late 1950’s and early 1960’s, surfing grew more popular with television shows
like ABC’s Wide World of Sports and movies such as Endless Summer, Gidget and
Beach Blanket Bingo. In recent years, surfing has become one of the
fastest growing sports in the United States.
In the
beginning, the only surfing accessory available was a
surfboard. Surfing apparel was extremely bulky and made from
inflexible material such as canvas. Early surf manufacturers included
Hang Ten, Birdwell Beach Britches, and Kanvas by Katin. Today’s
competitors in the surf industry include Quiksilver (ZQK), Billabong Intl
(AU:BBG), Volcom Inc (VLCM), and Hurley a division of Nike (NKE) among
others. Today’s surf companies offer a complete line of casual
apparel for every season of the year. A line of surfing accessory
products is also offered.
The
surf/skate market in the United States is in excess of $7.2 billion
annually. The industry has taken its casual clothing and innovative
surf products across the globe.
Opportunities
for growth exist over the next several years due to shifting demographics; the
teenage population, the “Generation Y” group, is growing faster than the rest of
the population. With over half the world’s population under 25 years
old, it will be the largest teen population in history. This group is
an important demographic to target because it is a major participant in the
action sports (i.e., surfing) market and it has influence on fashion trends for
older consumers such as Generation X-ers (persons born between 1965 and 1976)
and Baby Boomers (1946 through 1964).
COMPANY
STRATEGY
Vitamin
Blue intends to become a brand of long-term excellence and a leader in the surf
industry by offering innovative quality products, exceptional service, timely
delivery, aggressive grassroots marketing, word-of-mouth and print
advertising.
The key
points of the Company’s strategy are:
1)
|
Continue
to Build a Surf Brand of Long-Term Excellence for the Vitamin Blue
Name
|
Vitamin
Blue management will present the surf industry with an excellent image by
offering superior quality products and customer service. Branding the
Company’s name and image will employ traditional marketing methods such as core
consumer magazines, trade magazines, trade shows, promotional goods, and
sponsorship of top-performing athletes as well as more aggressive grassroots
marketing strategies.
Finally,
and most importantly, the Company will create a positive consumer experience by
offering surf products known for their functionality, athletic performance,
longevity and value.
2)
|
Concentrate
on Five Main Value Chain Elements: Product, Quality, Image,
Distribution, and Delivery.
|
29
Product. The main
thrust of Vitamin Blue’s strategy will revolve around the fashion, function and
performance of their products. Putting a product on the market that
does not perform its function properly can lead to a rapid demise of the
company. Therefore, in order to ensure that all product designs from
Vitamin Blue meet the demands for which they are intended, surfers assist in the
design of the surfwear and surfing accessory products.
Quality. From the
very beginning, Vitamin Blue has made quality a priority. The Company
does not intend to be a low-cost producer, but rather a leader in quality. These
attributes stem directly from the quality that is built into every pair of
boardshorts, t-shirt, fleece, surfboard bag, roof rack pads and other items
marketed by the Company.
Image. Effectively,
surfing only takes place in coastal communities throughout the
world. Yet, the surfing image can be seen in schools, malls and
backyards in every different nook and cranny across North America as well as
other places throughout the world.
Vitamin
Blue is based on surfing, yet none of its revenue comes from surfboards. Rather,
the Company intends to serve both the boardsport participant and those who
affiliate themselves with the action sports lifestyle by cultivating the surfer
image with its uniquely designed and colorful surfwear.
Distribution. Vitamin
Blue is in the process of cultivating a variety of distribution channels (i.e.,
Specialty Shops, Department Stores) to make its product available to as many
consumers as possible. Currently, it distributes its product through
the core distribution channels, surfboard manufacturers and surf
shops.
DISTRIBUTION
CHANNELS
Vitamin
Blue will cultivate a variety of distribution channels in order to make its
products available to a large group of consumers. However, the
Company will steer clear of low-end channels (i.e., mass merchandisers and
membership club stores) so as not to diminish the quality and image of the
products and brand name. It is difficult to sell product at full
price when consumers can purchase it in discount outlets.
The
primary distribution efforts will focus on retail outlets in North America
(U.S., Canada, and Mexico). As the Company continues to successfully
grow, future plans are to penetrate Europe with an emphasis on France, United
Kingdom, Spain, Italy, and Germany. Finally, Vitamin Blue will
continue to build on the success of its expansion by penetrating parts of other
markets such as Japan and Australia.
There are
four types of retail outlets that Vitamin Blue intends to market to: surfboard
manufacturers, surf shops, specialty stores, and department stores.
Surfboard
Manufacturers
This
retail outlet generally consists of single shops, where surfboards are designed,
manufactured and marketed. These shops are located in or near beach
communities. This distribution channel is focused on the central surf
market. They are the genuine source for surfing
accessories. Gaining and maintaining a presence within this group is
one of the cornerstones to building long-term brand recognition in the core surf
market. Among Vitamin Blue’s business relationships are world-renowned surfboard
manufacturers such as Hap Jacobs, Bing Surfboards, Bark Boards and Ron House
Shapes, Dewey Weber, Stewart Surfboards, Vitamin Blue distributes surfing
accessories through this retail outlet.
Surf
Shops
This
distribution channel consists of single to multiple retail outlets, located in
or near beach communities, focused on the central surf market. Surf
shops are an authentic retail source for complete lines of surfwear and surfing
accessory products. Gaining and maintaining a presence within this
segment is also one of the cornerstones to building long-term brand recognition
in the core surf market. Business relationships from coast to coast have been
established through this distribution channel. Some include Freeline Design
(Santa Cruz, California), The Frog House (Newport Beach, California), Infinity
Surfboards (Dana Point, California), Legends Surf (Carlsbad, California),
Hi-Tech Surf Sports (Maui, Hawaii), Second Wind Sail and Surf (Maui, Hawaii),
Hawaiian Island Surf and Sport (Maui, Hawaii) Kennedy Surfboards (Woodland
Hills, California), Malibu Surf Shack, (Malibu, California), E.T. Surf (Hermosa
Beach, California), Spyder (Hermosa Beach, California), Costa Azul (Laguna
Beach, California), Icons of Surf (San Clemente, California), Encinitas
Surfboards (Encinitas, California), Nor Easter Surf Shop (Scituate,
Massachusetts), Air & Speed Surf Shop (Montauk, New York), Xtreme Surf &
Sport (East Northport, New York), and Marsh’s Surf Shop (Atlantic Beach, North
Carolina). Vitamin Blue distributes its complete line of products
from surfwear to surfing accessories through this outlet.
30
Specialty
Stores
Consisting
of single, regional and national stores, this type of retail outlet is generally
located in or near beach or resort communities, shopping centers and shopping
malls. This distribution channel emphasizes the mainstream market,
those who affiliate themselves with the action sports lifestyle. Make
up of this type of retail outlet is primarily tourist/vacation shops, sporting
good stores (i.e., Sports Chalet Inc-SPCHB) or regional and national retail
stores (i.e., Pacific Sunwear of California-PSUN and Zumiez
Inc-ZUMZ). Vitamin Blue intends to use this type of retail outlet to
distribute its surfwear.
Department
Stores
This type
of retail outlet generally has stores located within shopping malls nationwide.
Such stores may include Bloomingdale’s, Macy’s, Saks Fifth Avenue, and
Nordstrom. This distribution channel also concentrates on the
mainstream market, those who affiliate themselves with the action sports
lifestyle. Vitamin Blue intends to sell its surfwear through this
type of retail outlet.
Delivery. Vitamin
Blue has set itself apart from the crowd by ensuring timely delivery of its
products to retailers so they can sell them. The Company has
developed a reputation for on-time delivery that allows it to continue
developing existing relationships and to cultivate new business relationships
with new distributors.
Vitamin
Blue believes that continuous focus on these five specific competencies will
enable it to gain and maintain a leadership position in the surf industry, as
well as make significant inroads into the mainstream clothing
industry.
3)
|
Continue
to Establish and Maintain Longstanding Relationships with Surfboard
Manufacturers and Surf Shops and Expand Product Distribution into
Specialty Stores and Department
Stores.
|
Vitamin
Blue is currently executing on its strategy to establish business relationships
with surfboard manufacturers and surf shops thereby enabling the company to
raise and maintain awareness of the brand. Our objectives are to secure a market
presence at this core level and leverage this strong foundation into the
mainstream clothing industry through specialty stores and department
stores.
4)
|
Continue
the Aggressive Grassroots Marketing
Strategy.
|
To
initiate presence in the industry, Vitamin Blue has relied on aggressive
grassroots marketing. One of the most successful efforts has been
performed by the Company’s street teams, which have blanketed coastal community
traffic signs with Vitamin Blue stickers, thereby transforming these signs into
advertising billboards. In addition, the Company sponsors a team of
up-and-coming professional surfers, numerous surf competitions, beginner surf
camps, surf clubs, and high school surf teams.
5)
|
Build
the Business Infrastructure Necessary to Support the Company’s Planned
Growth.
|
Vitamin
Blue has developed a business model that can accommodate the exceptional growth
and serve its expanding customer base. The Company will continue to
invest in its infrastructure by securing intelligent and tenacious management,
sales and staff personnel. It is believed that the development of
this infrastructure will allow Vitamin Blue to continue to effectively manage
it’s rapidly growing business operations.
31
Surfwear
for Men and Women
Product
designs are developed to appeal to preferences of active
surfers. Innovative designs, active fabrics, and quality are combined
with fashion, functionality and athletic performance. The Company has
distinguished it’s surfwear line with the use of high-quality quick drying
fabrics, triple stitching along the seams, velcroTM and
lycra closing boardshorts (surf trunks), and a unique design feature called the
“key safe”. The key safe is a small velcroTM
pocket on the back inner waistband of the shorts that provides safe key storage
during surfing, wake boarding, swimming, etc.
T-Shirts
made of quality 100% heavy cotton are offered. The shirts are made
loose fitting and offered in a variety of colors with various surf graphics
depicted.
Pullover
hooded fleece made of 80% cotton and 20% polyester is also offered.
Surfing
Accessories
Included
among these products are:
|
·
|
Surfboard
Travel Bags, which offer surfboard protection and can be used daily or for
long distance surf trips.
|
|
·
|
Surf
Gear Travel Bags, which are duffle bags used to carry surfing essentials
on surf trips.
|
|
·
|
Surf
Backpacks, which are specially, designed wet bag backpacks for wetsuit
storage.
|
|
·
|
Roof-Rack
Pads, used on existing car roof racks for surfboard protection and
security on daily surf outings.
|
Operations
and Manufacturing
Another
essential competency for Vitamin Blue is in operations. Vitamin Blue
conducts design, marketing, distribution and nearly all manufacturing in-house
for all of its products. The sewing of boardshorts (surf trunks) and the
manufacturing of surfboard bags are the only functions outsourced. By
outsourcing these two product categories Vitamin Blue only engages in its core
competencies. The Company continually improves its processes to excel
on the design quality and timely delivery of its products.
Sales
and Marketing
The
Company’s marketing programs share a coherent vision in promoting its image and
products to consumers and wholesale accounts. Key elements of Vitamin
Blue’s public relations and advertising efforts include:
|
·
|
Print
advertising (i.e., Eastern Surf Magazine, Bliss
Magazine)
|
|
·
|
Trade
Shows (ASR-Action Sports Retailer and Surf
Expo)
|
|
·
|
Industry
– Specific events sponsorship (Surf Contests and Surf
Camps)
|
|
·
|
Promotional
goods
|
32
KEY
RELATIONSHIPS
The
Company believes that establishing, building and maintaining longstanding
relationships with surfboard manufacturers and surf shops through innovative
quality products and exceptional service are critical to its success in building
long-term brand growth. To strengthen its execution capabilities and
increase brand name awareness, Vitamin Blue is actively pursuing strategic
business and marketing alliances with select partners.
Competition
We are
subject to significant competition that could impact our ability to gain market
share, win business and increase the price of our products. We face strong
competition from a wide variety of firms, including large, retail box or
discount as well as small businesses.
Quicksilver,
Inc., (ZQK) a publicly traded company based in Huntington Beach, California, is
a manufacturer of surfwear and surfing accessories. The company’s
products are carried in surf shops, specialty stores, department stores and its
own Boardriders Club stores throughout the world. This company is
managed and operated by surfers, and generates approximately $2 billion in sales
annually.
Billabong
Intl, (AU:BGG) publicly trades on the Australian Stock Exchange, however, it is
based in Irvine, California. The company manufactures surfwear and
surfing accessories for boys, men, and girls. In 1983, Bob Hurley purchased the
licensing rights to market Billabong in North America. He was
instrumental in bringing the company to its current level of
success. In 1999, Mr. Hurley relinquished the license and began his
own company, Hurley. Billabong is run by surfers and generates over $1 billion
annually in revenue.
Hurley,
based in Costa Mesa, California, manufactures surfwear and surfing accessories
for boys, men and girls. The Company is managed and operated by a
surfer, Bob Hurley. In February 2002, Hurley was purchased by Nike,
Inc. (NKE). Terms of the transaction were not disclosed.
Volcom
Inc., (VLMC) a publicly traded company located in Costa Mesa, California,
manufactures young men’s and young women’s clothing and
accessories. The company’s products are carried in boardsports
retailers, specialty stores and department stores. Volcom produces
over $300 million in sales annually. The company was founded by
surfers and is managed by surfers.
Vitamin
Blue has taken a very assertive stance and has earned an entry position in the
surf industry. By currently distributing its products to surfboard manufacturers
and surf shops, Vitamin Blue has initiated the steps necessary in building
long-term brand awareness. Since 1999 the company has experienced positive sales
growth each year.
Regulation
None
Employees
As of
December 31, 2009, we had no full-time employees nor any part-time employees
other than our CEO.
Properties
We
sublease our facility on a month-to-month basis.
We
believe that our current facilities are suitable and adequate to meet our
current needs. We maintain insurance coverage against losses, including fire,
casualty and theft, for each of our locations in amounts we believe to be
adequate.
Legal
Proceedings
The
Company is not presently a party to any litigation, nor to the knowledge of
management is any litigation threatened against the Company that may materially
affect the Company.
33
Directors,
Executive Officers and Corporate Governances
Our board
of directors consists of one director. The following table sets forth
certain information with respect to each executive officer and director of
Vitamin Blue, Inc. following the distribution:
Name
|
Age
|
Position
|
||
Frank
D. Ornelas
|
50
|
President,
Secretary, Treasurer and sole
Director
|
Frank
Ornelas has served as President and CEO of Vitamin Blue since he founded the
company in 1999. Prior to that, he held various positions in the
financial services industry as a securities analyst, option and bond trader and
stockbroker at several firms from August 1983 until March, 1999, including First
Interstate Bank of California, the New York Stock Exchange, Allied Capital,
Inc., A.S Goldman & Company, Barron Chase Securities and Whale Securities
Co., LP. Mr. Ornelas received his Bachelors of Science degree in
Business Administration from California State University at Long
Beach.
Committees
of the Board of Directors
The Board
of Directors currently does not have any committees and any such functions are
carried out by the Board of Directors.
Audit
Committee
The
functions of the Audit Committee are currently carried out by our Board of
Directors. Our Board of Directors has determined that we do not
presently need an audit committee financial expert on our Board of Directors
carrying out the duties of the Audit Committee. Our Board of
Directors has determined that the cost of hiring a financial expert to act as a
director of us and to be a member of the Audit Committee or otherwise perform
Audit Committee functions outweighs the benefits of having a financial expert on
the Audit Committee.
Director
Nominees
We do not
have a nominating committee. The Board of Directors, sitting as a
Board, selects those individuals to stand for election as members of our
Board. Since the Board of Directors does not include a majority of
independent directors, the decision of the Board as to director nominees is made
by persons who have an interest in the outcome of the
determination. The Board will consider candidates for directors
proposed by security holders, although no formal procedures for submitting
candidates have been adopted. Until otherwise determined, not less
than 90 days prior to the next annual Board of Directors’ meeting at which the
slate of Board nominees is adopted, the Board accepts written submissions that
include the name, address and telephone number of the proposed nominee, along
with a brief statement of the candidate’s qualifications to serve as a director
and a statement of why the shareholder submitting the name of the proposed
nominee believes that the nomination would be in the best interests of
shareholders. If the proposed nominee is not the security holder
submitting the name of the candidate, a letter from the candidate agreeing to
the submission. Of his or her name for consideration should be provided at the
time of submission. The letter should be accompanied by a Resume
supporting the nominee’s qualifications to serve on the Board of Directors, as
well as a list of references.
34
The Board
intends to identify director nominees through a combination of referrals,
including by management, existing Board members and security holders, where
warranted. Once a candidate has been identified, the Board reviews
the individual’s experience and background and may discuss the proposed nominee
with the source of the recommendation. If the Board believes it to be
appropriate, Board members may meet with the proposed nominee before making a
final determination whether to include the proposed nominee as a member of
management’s slate of director nominees submitted to shareholders for election
to the Board.
Among the
factors that the Board considers when evaluating proposed nominees are their
knowledge of and experience in business matters, finance, capital markets and
mergers and acquisitions. The Board may request additional
information from the candidate prior to reaching a determination. The
Board is under no obligation to formally respond to all recommendations,
although as a matter of practice, it will endeavor to do so.
Code
of Ethics
We have
not yet adopted a written code of ethics that applies to our executive officers,
as well as persons performing similar functions. We intend to adopt
such written code of ethics within the next 12 months.
Director
Compensation and Other Information
Our sole
director did not receive compensation for his service as a director since
inception May 25, 1999.
We
reimburse our Directors for reasonable travel and other expenses incurred in
connection with attending meetings of the Board and in performing corporate
duties on behalf of the Company.
Executive
Compensation
Summary
Compensation Table
The
following table sets forth the total compensation earned by our chief executive
officer in 2007 and 2008.
Name
and Principal Position
|
Year
|
Salary
($)
|
Bonus
($)
|
Stock
Awards
($)
|
Option
Awards
($)
|
All
Other
Annual
Compensation
($)
|
Total
($)
|
|||||||||||||||||||||
Frank
D. Ornelas
|
2007
|
$
|
-0-
|
$
|
-0-
|
$
|
-0-
|
$
|
-0-
|
$
|
17,072
|
$
|
17,072
|
|||||||||||||||
Chairman of the Board, |
2008
|
$
|
-0-
|
$
|
-0-
|
$
|
-0-
|
$ |
-0-
|
$
|
21,637
|
$
|
21,637
|
|||||||||||||||
President
and Chief
Executive
Officer
|
|
|
35
Employment
Contracts and Termination or Change of Control Arrangements
We have
not entered into any employment agreement or consulting agreement with our sole
officer/director.
There are
no arrangements or plans in which we provide pension, retirement or similar
benefits for directors or executive officers. Our directors and
executive officers may receive stock options at the discretion of our board of
directors in the future. We do not have any material bonus or profit
sharing plans pursuant to which cash or non-cash compensation is or may be paid
to our directors or executive officers, except that stock options may be granted
at the discretion of our board of directors.
We have
no plans or arrangements in respect of remuneration received or that may be
received by our executive officers to compensate such officers in the vent of
termination of employment (as a result of resignation, retirement, change of
control) or a change of responsibilities following a change of control, where
the value of such compensation exceeds $60,000 per executive
officer.
Pension,
Retirement or Similar Benefit Plans
There are
no arrangements or plans in which we provide pension, retirement or similar
benefits for directors or executive officers. We have no material
bonus or profit sharing plans pursuant to which cash or non-cash compensation is
or may be paid to our directors or executive officers, except that stock options
may be granted at the discretion of the Board of Directors or a committee
thereof.
Plan for
Compensating Officers and Directors During the Next 12 Months
We do not
have a plan for compensating officers and directors during the next 12
months. It is our intention that if before the end of the next 12
months the Company will start to generate revenue, the Company will then
consider whether to provide compensation based on the projection of total
revenues to be generated in the following 12 months to the officers but not to
the directors of the Company.
REPORTS TO SECURITY HOLDERS
We are
not required to deliver an annual report to our stockholders. We
undertake to file annual, quarterly and current reports, proxy statements and
other information with the Securities and Exchange Commission. Our
Securities and Exchange Commission filings are available to the public over the
Internet at the SEC’s website at http://www.sec.gov.
The
public may read and copy any materials filed by us with the SEC at the SEC’s
Public Reference Room at 450 Fifth Street, N.W., Washington, D.C.
20549. The public may obtain information on the operation of the
Public Reference Room by calling the SEC at 1-800-SEC-0330. We are an
electronic filer. The SEC maintains an Internet site that contains
reports, proxy and information statements and other information regarding
issuers that file electronically with the SEC. The Internet address
of the site is http://www.sec.gov.
36
VITAMIN
BLUE, INC.
INDEX
TO FINANCIAL STATEMENTS
ANNUAL
FINANCIAL STATEMENTS FOR THE
TWO
YEARS ENDED DECEMBER 31, 2008 AND 2007
Pages
|
|
Report
of Independent Registered Public Accounting Firm
|
F-1
|
Balance
Sheets
|
F-2
|
Statements
of Operations
|
F-3
|
Statement
of Stockholders' Equity
|
F-4
|
Statements
of Cash Flows
|
F-5
|
Notes
to the Financial Statements
|
F-6
|
INTERIM
FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED
SEPTEMBER
30, 2009 AND 2008
Balance
Sheets
|
F-11
|
Statements
of Operations
|
F-12
|
Statements
of Stockholders' Equity
|
F-13
|
Statements
of Cash Flows
|
F-14
|
Notes
to Financial Statements
|
F-15
|
UNDERTAKINGS
We hereby
undertake to:
(1) File, during
any period in which offers or sales are being made, a post-effective amendment
to this registration statement:
(i)
To include any prospectus required by Section 10(a) (3) of the Securities Act of
1933;
(ii) To
reflect in the prospectus any facts or events arising after the effective date
of registration statement (or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a fundamental change in the
information set forth in the registration statement. Notwithstanding
the foregoing, any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which was
registered) and any deviation from the law or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume
and price represent no more than 20% change in the maximum aggregate offering
price set forth in the “Calculation of Registration Fee” table in the effective
registration statement.
(iii) To
include any material information with respect to the plan of distribution not
previously disclosed in the registration statement or any material change to
such information in the registration statement;
(2) That,
for the purpose of determining any liability under the Securities Act of 1933,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To
remove from registration by means of a post-effective amendment any of the
securities being registered which remain unsold at the termination of the
offering.
37
(4) That,
for the purpose of determining liability under the Securities Act of 1933 to any
purchaser:
(A) Each
prospectus filed by the registrant pursuant to Rule 424(b)(3) shall be deemed to
be part of the registration statement as of the date the filed prospectus was
deemed part of and included in the registrant statement; and
(B) Each
prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as
part of a registration statement in reliance on Rule 430B relating to an
offering made pursuant to Rule 415(a)(1)(i), (vii), or (x) for the purpose of
providing the information required by Section 10(a) of the Securities Act of
1933 shall be deemed to be part of and included in the registration
statement as of the earlier of the date such form of prospectus is first used
after effectiveness or the date of the first contract of sale of securities in
the offering described in the prospectus. As provided in Rule 430B,
for liability purposes of the issuer and any person that is at that date and
underwriter, such date shall be deemed to be a new effective date of the
registration statement relating to the securities in the registration statement
to which that prospectus relates, and the offering of such securities at that
times shall be deemed to be the initial bona fide offering
thereof. Provided, however, that no statement made in a registration
statement or prospectus that is part of the registration statement or made in a
document incorporated or deemed incorporated by reference into the registration
statement of prospectus that is part of the registration statement will, as to a
purchaser with a time of contract of sale prior to such effective date,
supersede or modify any statement that was made in the registration statement or
prospectus that was part of the registration statement or made in any such
document immediately prior to such effective date;
(5) That,
for the purpose of determining liability of the registrant under the Securities
Act of 1933 to any purchaser in the initial distribution of the
securities:
The
undersigned registrant undertakes that in a primary offering of securities of
the undersigned registrant pursuant to this registration statement, regardless
of the underwriting method used to sell the securities to the purchase, if the
securities are offered or sold to such purchaser by means of any of the
following communications, the undersigned registrant will be a seller to the
purchaser and will be considered to offer or sell such securities to such
purchaser:
(i) Any
preliminary prospectus or prospectus of the undersigned registrant relating to
the offering required to be filed pursuant to Rule 424
(ii) Any
free writing prospectus relating to the offering prepared by or on behalf of the
undersigned registrant or used or referred to by the undersigned
registrant.
(iii) The
portion of any other free writing prospectus relating to the offering containing
material information about the undersigned registrant or its securities provided
by or no behalf of the undersigned registrant; and
(iv) Any
other communication that is an offer in the offering made by the undersigned
registrant to the purchaser.
Dealer
Prospectus Delivery Obligation
Until
________ (90 days after the date of this prospectus), all dealers that effect
transactions in these securities, whether or not participating in this offering,
may be required to deliver a prospectus. This is in addition to the
dealers’ obligation to deliver a prospectus when acting as underwriters and with
respect to their unsold allotments or subscriptions.
The
selling stockholders are offering and selling shares of our common stock only to
those persons and in those jurisdictions where these offers and sales are
permitted.
You
should rely only on the information contained in this prospectus, as amended and
supplemented from time to time. We have not authorized anyone to
provide you with information that is different from that contained in this
prospectus. If anyone provides you with different or inconsistent
information, you should not rely on it. The information in this
prospectus is complete and accurate only as of the date of the front cover
regardless of the time of delivery or of any sale of shares. Neither
the delivery of this prospectus nor any sale made hereunder shall under any
circumstances create an implication that there has not been a change in our
affairs since the date hereof.
This
prospectus has been prepared based on information provided by us and by other
sources that we believe are reliable. This prospectus summarizes
information and documents in a manner we believe to be accurate, but we refer
you to the actual documents or the agreements we entered into for additional
information of what we discuss in this prospectus.
38
PART
II. INFORMATION NOT REQUIRED IN PROSPECTUS
OTHER
EXPENSES OF ISSUANCE AND DISTRIBUTION
The
following table sets forth costs and expenses payable by Vitamin Blue, Inc. in
connection with the sale of common shares being registered. All
amounts except the SEC filing are estimates.
SEC
registration fee
|
$ | 1.64 | ||
Accounting
fees and expenses
|
$ | 12,500.00 | ||
Legal
fees and expenses
|
$ | 10,000.00 | ||
Miscellaneous
|
$ | 1,000.00 | ||
Total
|
$ | 23,501.64 |
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
Other
than as listed below, we have not been a party to any transaction, proposed
transaction, or series of transactions in which the amount involved exceeds
$60,000, and in which, to our knowledge, any of our directors, officers, five
percent beneficial security holder, or any member of the immediate family of the
foregoing persons has had or will have a direct or indirect material
interest.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth certain information furnished by the named persons or
other sources considered by management to be reliable, concerning the ownership
of our common stock as of December 31, 2009, of each person who is known to
us as to the beneficial owner of more than 10 percent of our common stock and
each director, officer, and significant employee:
Percent
of Class
|
|||
Name
and Address of
|
Amount
and Nature
|
Before
|
After
|
Beneficial Owner
Offering
|
of Beneficial
Ownership
|
Offering
|
Offering
|
Frank
D. Ornelas
|
510,000,000
shares of
|
97.8%
|
97.8%
|
|
Common
Stock*
|
DESCRIPTION
OF SECURITIES
At
October 1, 2009, our authorized capital stock consists of 900,000,000 shares of
common stock, par value $.0001 per share, of which 521,525,000 shares are issued
and outstanding and 100,000,000 shares of preferred stock, par value $.0001 per
share, of which 0 shares and are issued and outstanding. Our common stock is not
traded on any market or recognized exchange.
Common
Stock
As of
December 31, 2009, there were 521,525,000 shares of common stock outstanding.
Holders of common stock are entitled to one vote per share on matters submitted
to a vote of stockholders. Holders of common stock do not have cumulative voting
rights. Holders of the common stock are entitled to receive dividends as may be
declared from time to time by our board of directors out of funds legally
available for the payment of dividends, subject to the preferences that apply to
any outstanding preferred stock. Upon our liquidation, dissolution or winding
up, the holders of common stock are entitled to share ratably in all assets
remaining after payment of liabilities and after giving effect to the
liquidation preference of any outstanding preferred stock. The common stock has
no preemptive or conversion rights and no additional subscription rights. There
are no redemption or sinking fund provisions applicable to the common stock. All
outstanding shares of common stock are fully paid and
nonassessable.
39
Authorized
but Unissued Common Stock
Delaware
law does not require stockholder approval for any issuance of authorized shares
of our common stock. However, the rules of the NASDAQ, which would
apply only if our common stock were listed on the NASDAQ, and we have no present
plans for any such listing, require stockholder approval of certain issuances of
common stock equal to or exceeding 20% of the then outstanding voting power or
then outstanding number of shares of common stock, including in connection with
a change of control of the Company, the acquisition of the stock or assets of
another business, or the sale or issuance of common stock below the book or
market value price of such stock. These additional shares of common
stock may be used for a variety of purposes including future offerings to raise
additional capital or to facilitate acquisitions.
One of
the effects of the existence of unissued and unreserved common stock may be to
enable our Board of Directors to issue shares of our common stock to persons
friendly to current management, which issuance could render more difficult or
discourage an attempt to obtain control of our Board of Directors by merger,
tender offer, proxy contest, or otherwise, and thereby protect the continuity of
our management and possibly deprive our stockholders of opportunities to sell
their shares of our common stock at prices higher than prevailing market
prices.
Preferred
Stock
Under the
terms of our amended and restated certificate of incorporation, our board of
directors is authorized to issue shares of preferred stock in one or more series
without stockholders approval. Our board of directors has the
discretion to determine the rights, preferences, privileges and restrictions,
including voting rights, dividend rights, conversion rights, redemption
privileges and liquidation preferences of each series of preferred
stock.
The
purpose of authorizing our board of directors to issue preferred stock and
determine its rights and preferences is to eliminate delays associated with a
stockholder vote on specific issuances. The issuance of preferred
stock, while providing desirable flexibility in connection with possible
acquisitions and other corporate purposes, could have the effect of making it
more difficult for a third party to acquire, or could discourage a third party
from acquiring, a majority of our outstanding voting stock. We have
no present plans to issue any shares of preferred stock.
Market
Information
There is
currently no trading market for our common stock. We do not have any
common stock subject to outstanding options or warrants and there are no
securities outstanding that are convertible into our common
stock. None of our currently issued and outstanding common stock is
eligible for sale pursuant to Rule 144 under the Securities Act of
1933. Rule 144, as currently in effect allows a stockholder of shares
of common stock of the Company a reporting company for at least six (6) months
to sell his/her shares of common stock without restriction. If the
Company is a non-reporting company the stockholder may sell his or her shares
without restrictions if the stockholders has beneficially owned the shares for
at least one (1) year.
40
Selling
stockholders who are affiliates of the Company are subject to the availability
of current public information about the company and are restricted to the number
of shares to be sold does not exceed the greater of:
|
(1)
|
one
percent of the shares of the Company’s common stock then outstanding which
in this case will equal 5,215,250 shares as of the date of their
prospectus; or
|
|
(2)
|
the
averages weekly trading volume of the Company’s common stock during the
four calendar week endings proceeding the filing of the notice to the
commission on Form 144 with respect to the
sale.
|
Under
Rule 144(b)(1), a person who is not one of the subject company’s affiliates at
any time during the three months preceding a sale, and who has beneficially
owned the shares proposed to be sold for at least one year, is entitled to sell
shares without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144.
We are
registering 11,525,000 shares of our common stock under the Securities Act of
1933 for sale by the 27 securities holders named in this
prospectus. The affiliates of our company own 510,000,000
shares. There are currently 28 holders of record of our common
stock.
We have
not declared any dividends on our common stock since the inception of our
company on May 25, 1999. There is no restriction in our Articles of
Incorporation and Bylaws that will limit our ability to pay dividends on our
common stock. However, we do not anticipate declaring and paying
dividends to our shareholders in the near future.
Penny
Stock Rules
Shares of
our common stock are subject to rules adopted by the Securities and Exchange
Commission that regulate broker-dealer practices in connection with transactions
in “penny stocks”. “Penny stock” is defined to be any equity security
that has a market price (as defined) less than $5.00 per share or an exercise
price of less than $5.00 per share, subject to certain exceptions. If
we establish a trading market for our common stock, our common stock will most
likely be covered by the penny stock rules, which impose additional sales
practice requirements on broker-dealers, prior to a transaction in a penny stock
not otherwise exempt from the rules, to deliver a standardized risk disclosure
documents in a form prepared by the SEC which provides information about penny
stocks and the nature and level of risks in the penny stock
market. The broker-dealer also must provide the customer with current
bid and offer quotations for the penny stock, the compensation of the
broker-dealer and its salesperson in the transaction and monthly account
statements showing the market value of each penny stock held in this customer’s
account. The bid and offer quotations, and the broker-dealer and
salesperson compensation information, must be given to the customer orally or in
writing prior to effecting the transaction and must be given to the customer in
writing before or with the customer’s confirmation. In addition, the
penny stock rules require that prior to a transaction in a penny stock not
otherwise exempt from these rules, the broker-dealer must make a special written
determination that the penny stock is a suitable investment for the purchaser
and receive the purchaser’s written agreement to the
transaction. These disclosure requirements may have the effect of
reducing the level of trading activity in the secondary market for the stock
that is subject to these penny stock rules. Consequently, these penny
stock rules may affect the ability of broker-dealers to trade our
securities.
41
STATE
SECURITIES-BLUE SKY LAWS
There is
no public market for our common stock, and there can be no assurance that any
such market will develop in the foreseeable future. Transfers of our
common stock may, also, be restricted under the securities laws promulgated by
various states and foreign jurisdictions, commonly referred to as “Blue Sky”
laws. Absent compliance with such laws, our common stock may not be
traded in such jurisdictions. Because our common stock registered
hereunder have not been registered for resale under the “Blue Sky” laws of any
state, the holders of our common stock and persons who desire to purchase our
common stock in any trading market that might develop in the future, should be
aware that there may be significant state “Blue Sky” laws of any
state. Accordingly, investors may not be able to liquidate our common
stock and should be prepared to hold our common stock for an indefinite period
of time.
The
selling shareholders may contact us directly to ascertain procedures necessary
for compliance with Blue Sky laws in the applicable states relating to sellers
and purchasers of our common stock.
We intend
to apply for listing in a nationally recognized securities manual, which, once
published, will provide us with “manual” exemptions in 38 states as indicated in
CCH Blue Sky Law Desk Reference at Section 6301 entitled “Standard Manuals
Exemptions.”
LIMITATIONS
IMPOSED BY REGULATION M
Pursuant
to applicable rules and regulations under the Securities Exchange Act of 1934,
any person engaged in the distribution of our common stock may not
simultaneously engage in market making activities with respect to our common
stock for a period of two business days prior to the commencement of any such
distribution. In addition, and without limiting the foregoing, each
selling stockholder will be subject to applicable provisions of the Securities
Exchange Act of 1934 and the associated rules and regulations thereunder,
including, without limitation, Regulation M, which provisions may limit the
timing of purchases and sales of shares of our commons tock by the selling
stockholders. We will make copies of this prospectus available to the
selling stockholders and inform them of the requirement regarding delivery of
copies of this prospectus to purchasers at or prior to the time of any sale of
the shares offered hereby. We assume no obligation to deliver copies
of this prospectus or any related prospectus supplement.
Our
common stock is not presently traded.
Transfer
Agent and Registrar
The
transfer agent and registrar for our common stock is Island Stock Transfer and
its address is 100 Second Avenue South, Suite 7055, St. Petersburg, FL
33701.
Anti-Takeover
Effects of Certain Provisions of our Certificate of Incorporation, Bylaws and
Delaware Law
Delaware
Anti-Takeover Statute. We are subject to Section 203 of the Delaware
General Corporation Law. In general, these provisions prohibit a Delaware
corporation from engaging in any business combination with any interested
stockholder for a period of three years following the date that the stockholder
became an interested stockholder, unless the transaction in which the person
became an interested stockholder is approved in a manner presented in Section
203 of the Delaware General Corporation Law. Generally, a “business combination”
is defined to include mergers, asset sales and other transactions resulting in
financial benefit to a stockholder. In general, an “interested stockholder” is a
person who, together with affiliates and employees, owns, or within three years,
did own, 15% or more of a corporation’s voting stock.
Our
amended and restated certificate of incorporation and bylaws contain provisions
described below.
Our
certificate of incorporation eliminates the ability of stockholders to fill
vacancies on our board of directors and gives the board the exclusive right to
fill vacancies.
Our board
of directors, without stockholder approval, has authority under our certificate
of incorporation to issue preferred stock with rights superior to the rights of
the holders of common stock. As a result, preferred stock could be issued
quickly and easily, could adversely affect the rights of holders of common
stock, and could be issued with terms calculated to delay or prevent a change of
control or make removal of management more difficult.
42
Inspection
Rights
Delaware
law, also, specifies that shareholders have the right to inspect a corporation’s
records. This right extends to any person who has been a shareholder
of record for at least six months immediately preceding such person’s
demand. It also extends to any person holding, or authorized in
writing by the holders of, at least 5% of our outstanding shares of common
stock. Shareholders having this right are to be granted inspection
rights upon five days’ written notice. The records subject to this
right include official copies of the Certificate of Incorporation, and all
amendments thereto; by laws and all amendments thereto; and a stock ledger or a
duplicate stock ledger, revised annually, containing the names, alphabetically
arranged of all persons who are stockholders of the corporation, showing their
places of residence, if known, and the number of shares held by them,
respectively.
In lieu
of the stock ledger or duplicate stock ledger, Delaware law provides that the
corporation may keep a statement setting forth the name of the custodian of the
stock ledger or duplicate stock ledger, and the present and complete post office
address, including street and number, if any, where the stock ledger or
duplicate stock ledger specified in this section is kept.
Our
bylaws provide that our stockholders may call a special meeting only upon the
request of the holders of at least a majority of the outstanding common stock
entitled to vote. Our bylaws certificate of incorporation prohibits
stockholder action by written consent and requires all stockholder actions to be
taken at a meeting of our stockholders.
SHAREHOLDER
MATTERS
Certain
provisions of Delaware law create rights that might be deemed material to our
shareholders. Other provisions might delay or make more difficult
acquisitions of our common stock or changes in our control or might have the
effect of preventing changes in our management or make it more difficult to
accomplish transactions that some of our shareholders may believe to be in their
best interests.
Our
certificate of incorporation and bylaws provide that our board of directors can
amend the bylaws or provisions in the certificate of incorporation.
The above
provisions in our third amended and restated certificate of incorporation and
are intended to enhance the likelihood of continuity and stability in the
composition of the board of directors and in the policies formulated by the
board of directors and to discourage certain types of transactions that may
involve an actual or threatened change of control of our company. These
provisions also are designed to reduce our vulnerability to an unsolicited
proposal for a takeover of us that does not contemplate the acquisition of all
of our outstanding shares or an unsolicited proposal for the restructuring or
sale of all or part of our company. These provisions, however, could discourage
potential acquisition proposals and could delay or prevent a change in control
of us. They may also have the effect of preventing changes in our
management.
INDEMNIFICATION
OF DIRECTORS AND OFFICERS
Our
Certificate of Incorporation provides to the fullest extent permitted by
Delaware law, that our directors or officers shall not be personally liable to
us or our stockholders for damages for breach of such director’s or officer’s
fiduciary duty. The effect of this provision of our Certificate of
Incorporation is to eliminate our right and the right of our stockholder
(through stockholders’ derivative suits on behalf of our company) to recover
damages against a director or officer for breach of the fiduciary duty of care
as a director or officer (including breaches resulting from negligent or grossly
negligent behavior, except under certain situations defined by
statute. We believe that the indemnification m provisions in our
Certificate of Incorporation are necessary to attract and retain qualified
persons as directors and officers.
43
Insofar
as indemnification for liabilities arising under the Securities Act of 1933 (the
“Securities Act”) may be permitted to our directors, officers and controlling
person pursuant to the foregoing provisions, or otherwise, we have been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a directors, officer, or controlling
person of the registrant in the successful defense of any action, suite or
proceeding) is asserted by such director officer or controlling person in
connection with the securities being registered, we willfulness in the opinion
of its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
RECENT
SALES OF UNREGISTERED SECURITIES
During
the past year we have issued the following securities which were not registered
under the Securities Act of 1933, as amended:
We issued
510,000,000 shares to Frank Ornelas, our sole officer and director in exchange
for 1,000,000 shares of our preferred stock, which have been
cancelled.
We issued
11,525,000 shares to the Selling Shareholders listed on Page 21 of this
Prospectus at $.002 per share for a total of $23,050.
The
Company’s shares were issued in reliance upon the exemption afforded by Section
4(2) of the Securities Act of 1933 (“Securities Act”). No commissions
were paid for the issuance of such shares. All of the above issuances
of shares of our common stock qualified for exemption under Section 4(2) of the
Securities Act since the issuance of such shares by us did not involve a public
offering. Each of the accredited investors is a sophisticated
investor and had access to information normally provided in a prospectus
regarding us. The transactions were not a “public offering” due to
the limited number of persons involved, size of the transactions, manner of the
offering, restricted nature of the shares and number of shares offered, among
other factors. We did not undertake an offering in which we sold a
high number of shares to a large number of investors. In addition,
our offerees are believed to have had the necessary investment intent and all
subscribers received share certificates bearing a legend stating that such
shares may not be resold except pursuant to a valid exemption under the
Securities Act. These restrictions ensure that these shares would not
be immediately redistributed into the market and were therefore not part of a
“public offering.” Based on an analysis of the above factors, we
believe we have met the criteria to qualify for exemption under Section 4(2) of
the Securities Act for the above transaction.
EXHIBITS
AND FINANCIAL STATEMENT SCHEDULES
The
FOLLOWING EXHIBITS ARE Filed with this Registration Statement on Form
S-1.
Exhibit
|
Description
|
|
3.1
|
Certificate
of Incorporation
|
|
3.2
|
Bylaws
|
|
4.1
|
Specimen
Stock Certificate
|
|
5.1
|
Opinion
of H. Melville Hicks, Jr.
|
|
23.1
|
Consent
of HJ Associates & Consultants, LLP, Independent Public
Accountants
|
|
23.2
|
Consent
of H. Melville Hicks, Jr., Attorney at Law (Incorporated by reference in
Exhibit 5.1)
|
|
99.1
|
Form
of subscription agreement for sales of our common
stock
|
44
UNDERTAKINGS
We hereby
undertake:
(1) To
file, during any period in which it offers or sells securities, a post-effective
amendment to this registration statement to:
(i)
file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(ii)
To include any prospectus
required by Section 10(a)(3) of the Securities Act of 1933;
(iii) To
reflect in the prospectus any facts or events arising after the effective date
of registration statement (or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a fundamental change in the
information set forth in the registration statement. Notwithstanding
the foregoing, any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which was
registered) and any deviation from the law or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume
and price represent no more than 20% change in the maximum aggregate offering
price set forth in the “Calculation of Registration Fee” table in the effective
registration statement.
(iv) To
include any material information with respect to the plan of distribution not
previously disclosed in the registration statement or any material change to
such information in the registration statement;
(2) That,
for the purpose of determining any liability under the Securities Act of 1933,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To
remove from registration by means of a post-effective amendment any of the
securities being registered which remain unsold at the termination of the
offering.
(4) That,
for the purpose of determining liability under the Securities Act of 1933 to any
purchaser:
(A) Each
prospectus filed by the registrant pursuant to Rule 424(b)(3) shall be deemed to
be part of the registration statement as of the date the filed prospectus was
deemed part of and included in the registrant statement; and
(B) Each
prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as
part of a registration statement in reliance on Rule 430B relating to an
offering made pursuant to Rule 415(a)(1)(i), (vii), or (x) for the purpose of
providing the information required by Section 10(a) of the securities Act of
1933 shall be deemed to be part of and included in the registration statement as
of the earlier of the date such form of prospectus is first used after
effectiveness or the date of the first contract of sale of securities
in the offering described in the prospectus. As provided in Rule
430B, for liability purposes of the issuer and any person that is at that date
and underwriter, such date shall be deemed to be a new effective date of the
registration statement relating to the securities in the registration statement
to which that prospectus relates and the offering of such securities at that
times shall be deemed to be the initial bona fide offering
thereof. Provided, however, that no statement made in a registration
statement or prospectus “a” that is part of the registration statement or made
in a document incorporated or deemed incorporated by reference into the
registration statement of prospectus that is part of the registration statement
will, as to a purchaser with a time of contract of sale prior to such effective
date, supersede or modify any statement that was made in the registration
statement or prospectus that was part of the registration statement or made in
any such document immediately prior to such effective date;
45
(5) That,
for the purpose of determining the liability of the registrant under the
Securities Act of 1933 to any purchaser in the initial distribution of the
securities:
The
undersigned registrant undertakes that in a primary offering of securities of
the undersigned registrant pursuant to this registration statement, regardless
of the underwriting method used to sell the securities to the purchase, if the
securities are offered or sold to such purchase by means of any of the following
communications, the undersigned registrant will be a seller to the purchaser and
will be considered to offer or sell such securities to such
purchaser:
(i)
Any preliminary prospectus or prospectus of the undersigned
registrant relating to the offering required to be filed pursuant to Rule
424;
(ii) Any
free writing prospectus relating to the offering prepared by or on behalf of the
undersigned registrant or used or referred to by the undersigned
registrant;
(iii) The
portion of any other free writing prospectus relating to the offering containing
material information about the undersigned registrant or its securities provided
by or on behalf of the undersigned registrant; and
(iv) any
other communications that is an offer in the offering made by the undersigned
registrant to the purchaser.
46
LEGAL
MATTERS
H.
Melville Hicks, Jr., New York, New York will pass upon the validity of the
issuance of the common stock offered by this prospectus as our
counsel.
EXPERTS
The
financial statements included in this prospectus have been audited by HJ
Associates & Consultants, LLP, independent registered public accountants, to
the extent and for the periods set forth in its report appearing elsewhere
herein and are included in reliance upon such report given upon the authority of
that firm as experts in auditing and accounting.
INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
Section
145 of the Delaware General Corporation Law, as amended, authorizes us to
indemnify any director or officer under certain prescribed circumstances and
subject to certain limitations against certain costs and expenses, including
attorney’s fees actually and reasonably incurred in connection with any action,
suit or proceeding, whether civil, criminal, administrative or investigative, to
which a person is a party by reason of being one of our directors or officers if
it is determined that such person acted in accordance with the applicable
standard of conduct set forth in such statutory provisions. Our certificate of
incorporation contains provisions relating to the indemnification of director
and officers and our by-laws extend such indemnities to the full extent
permitted by Delaware law. We may also purchase and maintain insurance for the
benefit of any director or officer, which may cover claims for which we could
not indemnify such persons. We also intend to enter into indemnification
agreements with our directors and certain officers.
Insofar
as indemnification for liabilities arising under the Securities Act of 1933 may
be permitted to directors, officers or persons controlling us pursuant to the
foregoing provisions, or otherwise, we have been advised that in the opinion of
the SEC, such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable.
WHERE
YOU CAN FIND MORE INFORMATION
We have
filed a registration statement on Form S-1 with the SEC, to register the shares
of our common stock being offered by this prospectus. In addition, we file
annual, quarterly and current reports, proxy statements and other information
with the SEC. You may read and copy any reports, statements or other information
that we file at the SEC’s public reference facilities at 100 F Street, N.E.,
Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further
information regarding the public reference facilities. The SEC maintains a
website, http://www.sec.gov, that
contains reports, proxy statements and information statements and other
information regarding registrants that file electronically with the SEC,
including us. Our SEC filings are also available to the public from commercial
document retrieval services and through the Investor Relations section on our
website at http://www.vitaminblue.com
as soon as reasonably practical after such material is electronically filed
with, or furnished to, the SEC. The other information contained in our website
is not a part of this prospectus.
You may
also request a copy of our filings at no cost by writing or telephoning us
at:
|
Vitamin
Blue, Inc.
|
|
1005
West 18th
Street
|
|
Costa
Mesa, CA 92627
|
|
Attn: Frank
D. Ornelas
|
|
(949)
645-4592
|
47
SIGNATURES
In accordance with the requirements of
the Securities Act of 1933, the registrant certifies that it has reasonable
grounds to believe that it meets all of the requirements of filing on Form S-1
and authorized this registration statement to be signed on our behalf by the
undersigned, in the City of Costa Mesa, State of California, on February 10,
2010.
Vitamin
Blue, Inc.
|
||||
By:
|
/s/ Frank D. Ornelas | |||
Name: | Frank D. Ornelas | |||
Title: |
President
and Chief Executive Officer
|
48
Report
of Independent Registered Public Accounting Firm
To the
Board of Directors
Vitamin
Blue, Inc.
Costa
Mesa, California
We have
audited the accompanying balance sheets of Vitamin Blue, Inc. as of December 31,
2008 and 2007, and the related statements of operations, shareholder’s equity,
and cash flows for each of the two years in the period ended December 31,
2008. 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 audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. 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 audits provide a reasonable basis
for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Vitamin Blue, Inc. as of December
31, 2008 and 2007, and the results of its operations and its cash flows for each
of the two years in the period ended December 31, 2008, in conformity with U.S.
generally accepted accounting principles.
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from
operations. This raises substantial doubt about the Company's ability
to continue as a going concern. Management's plans in regard to these
matters are also described in Note 1. The financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
/s/ HJ
Associates & Consultants, LLP
HJ
Associates & Consultants, LLP
Salt Lake
City, Utah
September
16, 2009
F-1
VITAMIN
BLUE, INC.
BALANCE
SHEETS
12/31/08
|
12/31/07
|
|||||||
ASSETS
|
||||||||
CURRENT
ASSETS
|
||||||||
Cash
|
$ | 3,752 | $ | 9,856 | ||||
Accounts
receivable
|
10,974 | 11,635 | ||||||
Inventory
|
52,930 | 55,836 | ||||||
TOTAL
CURRENT ASSETS
|
67,656 | 77,327 | ||||||
PROPERTY
& EQUIPMENT, at cost
|
||||||||
Vehicles
|
21,811 | 21,811 | ||||||
Machinery
& equipment
|
1,020 | 1,020 | ||||||
Office
equipment
|
1,839 | 1,839 | ||||||
24,670 | 24,670 | |||||||
Less
accumulated depreciation
|
(23,063 | ) | (20,431 | ) | ||||
NET
PROPERTY AND EQUIPMENT
|
1,607 | 4,239 | ||||||
TOTAL
ASSETS
|
$ | 69,263 | $ | 81,566 | ||||
LIABILITIES
AND SHAREHOLDER'S EQUITY/(DEFICIT)
|
||||||||
CURRENT
LIABILITIES
|
||||||||
Accounts
payable
|
$ | 25,749 | $ | 1,927 | ||||
Accrued
expenses
|
46,113 | 29,853 | ||||||
Accrued
interest, related party
|
139 | - | ||||||
Loan
payable, related party (note 7)
|
3,000 | - | ||||||
Loan
payable, investor (note 7)
|
130,000 | 130,000 | ||||||
Loan
payable, NIF
|
- | 1,479 | ||||||
TOTAL
CURRENT LIABILITIES
|
205,001 | 163,259 | ||||||
SHAREHOLDER'S
EQUITY/(DEFICIT)
|
||||||||
Preferred
Stock, $0.0001 par value 100,000,000 authorized preferred
shares
|
- | - | ||||||
Common
Stock, $0.0001 par value; 900,000,000 shares authorized 5,000
shares issued and outstanding
|
1 | 1 | ||||||
Additional
paid in capital
|
4,999 | 4,999 | ||||||
Subscription
payable
|
2,750 | - | ||||||
Accumulated
Deficit
|
(143,488 | ) | (86,693 | ) | ||||
TOTAL
SHAREHOLDER'S EQUITY/(DEFICIT)
|
(135,738 | ) | (81,693 | ) | ||||
TOTAL
LIABILITIES AND SHAREHOLDER'S EQUITY/(DEFICIT)
|
$ | 69,263 | $ | 81,566 |
The
accompanying notes are an integral part of these financial
statements
F-2
VITAMIN
BLUE, INC.
STATEMENTS
OF OPERATIONS
For
the Years Ended
|
||||||||
12/31/08
|
12/31/07
|
|||||||
REVENUE
|
$ | 129,256 | $ | 124,096 | ||||
COST
OF SALES
|
99,508 | 87,319 | ||||||
GROSS
PROFIT
|
29,748 | 36,777 | ||||||
OPERATING
EXPENSES
|
70,255 | 85,726 | ||||||
DEPRECIATION
EXPENSE
|
2,632 | 2,632 | ||||||
TOTAL
OPERATING EXPENSES
|
72,887 | 88,358 | ||||||
LOSS
FROM OPERATIONS BEFORE OTHER EXPENSES
|
(43,139 | ) | (51,581 | ) | ||||
OTHER
EXPENSES
|
||||||||
Penalties
|
(466 | ) | (366 | ) | ||||
Interest
expense
|
(12,390 | ) | (9,065 | ) | ||||
TOTAL
OTHER EXPENSES
|
(12,856 | ) | (9,431 | ) | ||||
LOSS
FROM OPERATIONS BEFORE PROVISION FOR TAXES
|
(55,995 | ) | (61,012 | ) | ||||
State
income taxes
|
(800 | ) | - | |||||
NET
LOSS
|
$ | (56,795 | ) | $ | (61,012 | ) | ||
BASIC
AND DILUTED LOSS PER SHARE
|
$ | (11.36 | ) | $ | (12.20 | ) | ||
WEIGHTED-AVERAGE
COMMON SHARES OUTSTANDING BASIC AND DILUTED
|
5,000 | 5,000 |
The
accompanying notes are an integral part of these financial
statements
F-3
VITAMIN
BLUE, INC.
STATEMENTS
OF SHAREHOLDER’S EQUITY/(DEFICIT)
Deficit
|
||||||||||||||||||||||||
Accumulated
|
||||||||||||||||||||||||
Additional
|
during
the
|
|||||||||||||||||||||||
Common
stock
|
Paid-in
|
Subscription
|
Development
|
|||||||||||||||||||||
Shares
|
Amount
|
Capital
|
Payable
|
Stage
|
Total
|
|||||||||||||||||||
Balance,
December 31, 2006
|
5,000 | 1 | 4,999 | - | (25,681 | ) | (20,681 | ) | ||||||||||||||||
Net
Loss for the year ended December 31, 2007
|
- | - | - | - | (61,012 | ) | (61,012 | ) | ||||||||||||||||
Balance
at December 31, 2007
|
5,000 | 1 | 4,999 | - | (86,693 | ) | (81,693 | ) | ||||||||||||||||
Subscription
Payable
|
- | - | - | 2,750 | - | 2,750 | ||||||||||||||||||
Net
Loss for the year ended December 31, 2008
|
- | - | - | - | (56,795 | ) | (56,795 | ) | ||||||||||||||||
Balance
at December 31, 2008
|
5,000 | $ | 1 | $ | 4,999 | $ | 2,750 | $ | (143,488 | ) | $ | (135,738 | ) |
The
accompanying notes are an integral part of these financial
statements
F-4
VITAMIN
BLUE, INC.
STATEMENTS
OF CASH FLOWS
For
the Years Ended
|
||||||||
12/31/08
|
12/31/2007
|
|||||||
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
Net
Loss
|
$ | (56,795 | ) | $ | (61,012 | ) | ||
Adjustment
to reconcile net loss to net cash used in operating
activities
|
||||||||
Depreciation
|
2,632 | 2,632 | ||||||
(Increase)
Decrease in:
|
||||||||
Accounts
receivable
|
661 | 717 | ||||||
Inventory
|
2,906 | (11,841 | ) | |||||
Increase
(Decrease) in:
|
||||||||
Accounts
payable
|
23,822 | 1,581 | ||||||
Accrued
expenses
|
16,399 | 11,919 | ||||||
NET
CASH USED IN OPERATING ACTIVITIES
|
(10,375 | ) | (56,004 | ) | ||||
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
Purchase
of equipment
|
- | (589 | ) | |||||
NET
CASH USED IN INVESTING ACTIVITIES
|
- | (589 | ) | |||||
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
Payments
on loan payable
|
(1,479 | ) | (4,688 | ) | ||||
Proceeds
from related party
|
3,000 | - | ||||||
Proceeds
from subscriptions payable
|
2,750 | - | ||||||
Proceeds
from Investor loans
|
- | 70,000 | ||||||
NET
CASH PROVIDED BY FINANCING ACTIVITIES
|
4,271 | 65,312 | ||||||
NET
INCREASE/(DECREASE) IN CASH
|
(6,104 | ) | 8,719 | |||||
CASH,
BEGINNING OF PERIOD
|
9,856 | 1,137 | ||||||
CASH,
END OF PERIOD
|
$ | 3,752 | $ | 9,856 | ||||
SUPPLEMENTAL
DISCLOSURES OF CASH FLOW INFORMATION
|
||||||||
Interest
paid
|
$ | 17 | $ | 323 | ||||
Taxes
paid
|
$ | 800 | $ | - |
The
accompanying notes are an integral part of these financial
statements
F-5
VITAMIN
BLUE, INC.
NOTES
TO FINANCIAL STATEMENTS
DECEMBER
31, 2008 AND 2007
1. ORGANIZATION
AND LINE OF BUSINESS
Organization
Vitamin
Blue, Inc. (the "Company") was incorporated in the state of Delaware on May 25,
1999. The Company, based in Costa Mesa, California, began operations
on June 1, 1999 in designing and selling surfing clothing and
accessories
Line of
Business
The
Company designs, manufactures and distributes surf-wear and
accessories.
Going
Concern
The
accompanying financial statements have been prepared on a going concern basis of
accounting, which contemplates continuity of operations, realization of assets
and liabilities and commitments in the normal course of business. The
accompanying financial statements do not reflect any adjustments that might
result if the Company is unable to continue as a going concern. The
Company does not generate significant revenue, and has negative cash flows from
operations, which 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 and appropriateness of using the going concern basis is
dependent upon, among other things, additional cash infusion. The
Company has obtained funds from its shareholder through the period ended
December 31, 2008. Management believes this funding will continue, and has also
obtained funding from new investors. Management believes the existing
shareholders and the prospective new investors will provide the additional cash
needed to meet the Company’s obligations as they become due, and will allow the
development of its core of business.
2. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
This
summary of significant accounting policies of Vitamin Blue, Inc. is presented to
assist in understanding the Company’s financial statements. The financial
statements and notes are representations of the Company’s management, which is
responsible for their integrity and objectivity. These accounting policies
conform to accounting principles generally accepted in the United States of
America and have been consistently applied in the preparation of the financial
statements.
Accounts
receivable
The
Company extends credit to its customers, who are located primarily in
California. Accounts receivable are customer obligations due under
normal trade terms. The Company performs continuing credit
evaluations of its customers’ financial condition. Management reviews
accounts receivable on a regular basis, based on contracted terms and how
recently payments have been received to determine if any such amounts will
potentially be uncollected. The Company includes any balances that
are determined to be uncollectible in its allowance for doubtful
accounts. After all attempts to collect a receivable have failed, the
receivable is written off. The balances of the allowance account at
December 31, 2008 and 2007 are $0 and $0, respectively.
Revenue
Recognition
The
Company recognizes revenue when services are performed, and at the time of
shipment of products, provided that evidence of an arrangement exists, title and
risk of loss have passed to the customer, fees are fixed or determinable, and
collection of the related receivable is reasonably assured.
F-6
VITAMIN
BLUE, INC.
NOTES
TO FINANCIAL STATEMENTS
DECEMBER
31, 2008 AND 2007
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Cash and Cash
Equivalents
The Company considers all highly liquid
investments with an original maturity of three months or less to be cash
equivalents.
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 amounts reported in the accompanying financial
statements. Significant estimates made in preparing these financial
statements include the estimate of useful lives of property and equipment, the
deferred tax valuation allowance, and the fair value of stock options. Actual
results could differ from those estimates.
Property and
Equipment
Property
and equipment are stated at cost, and are depreciated using the straight line
and modified accelerated cost recovery system (macrs) method over 3-10
years.
Office
equipment
|
SL
|
5
Years
|
Warehouse
equipment
|
SL
|
5
Years
|
Vehicle
|
Macrs
|
5
Years
|
Fair Value of Financial
Instruments
SFAS No.
107, “Disclosures About Fair Value of Financial Instruments”, requires
disclosure of the fair value information, whether or not recognized in the
balance sheet, where it is practicable to estimate that value. As of December
31, 2008, the amounts reported for cash, accounts receivable, accounts payable,
accrued interest and other expenses, and notes payable approximate the fair
value because of their short maturities.
Inventory
Inventories
are stated at the lower of cost (first-in, first-out basis) or market, and
consists of raw materials. As of December 31, 2008 and 2007, the value of the
inventory was $52,930 and $55,836, respectively.
Loss per Share
Calculations
The
Company adopted Statement of Financial Standards (“SFAS”) No. 128 for the
calculation of “Loss per Share”. SFAS No. 128 dictates the
calculation of basic earnings per share and diluted earnings per share. Basic
earnings per share is computed by dividing income available to common
shareholders by the weighted-average number of common shares available. Diluted
earnings per share is computed similar to basic earnings per share except that
the denominator is increased to include the number of additional common shares
that would have been outstanding if the potential common shares had been issued
and if the additional common shares were dilutive. No shares for employee
options or warrants were used in the calculation of the loss per share as they
were all anti-dilutive. The Company’s diluted loss per share is the same as the
basic loss per share for the year ended December 31, 2008, as the inclusion of
any potential shares would have had an anti-dilutive effect due to the Company
generating a loss.
Income
Taxes
The
Company uses the liability method of accounting for income
taxes. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to financial statements carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carry-forwards. The measurement of
deferred tax assets and liabilities is based on provisions of applicable tax
law. The measurement of deferred tax assets is reduced, if necessary,
by a valuation allowance based on the amount of tax benefits that, based on
available evidence, is not expected to be realized.
F-7
VITAMIN
BLUE, INC.
NOTES
TO FINANCIAL STATEMENTS
DECEMBER
31, 2008 AND 2007
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recently Issued Accounting
Pronouncements
|
In
September 2006, the FASB issued SFAS 157, which defines fair value,
establishes a framework for measuring fair value, and expands disclosures
about fair value measurements. The provisions of SFAS 157 are effective as
of the beginning of our 2008 fiscal year. The adoption of SFAS
157 had no impact on our financial
statements.
|
3.
|
CAPITAL
STOCK
|
|
At
December 31, 2008, the Company’s authorized stock consists of 900,000,000
shares of common stock, par value $0.0001 per share, and 100,000,000
shares of preferred stock, par value of $0.0001. During the year ended
December 31, 2008, the Company received from investors $2,750 for the
purchase of common stock; the Company had 5,000 shares of common stock
issued and outstanding as of December 31, 2008 and
2007.
|
4.
|
RENTAL
LEASE
|
|
The
Company subleases office space on a month-to-month basis. The rent paid
for the years ended December 31, 2008 and 2007 was $6,629 and $5,706
respectively.
|
5.
|
NOTES
PAYABLE
|
|
During
the year ended December 31, 2004, the Company obtained a loan in the
amount of $16,811 with an interest rate of 8% per annum. The
principal and interest payments per month were $418. Total interest paid
for the years ended December 31, 2008 and 2007 are $17 and $323
respectively. The loan was paid off during the year ended
December 31, 2008.
|
6.
|
INCOME
TAXES
|
|
The
Company files income tax returns in the U.S. Federal jurisdiction, and the
state of California. With few exceptions, the Company is no longer subject
to U.S. federal, state and local, or non-U.S. income tax examinations by
tax authorities for years before
2000.
|
|
The
Company adopted the provisions of FASB Interpretation No. 48, Accounting
for Uncertainty in Income Taxes, on January 1, 2007. Deferred
income taxes have been provided by temporary differences between the
carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for tax purposes. To the extent allowed by
GAAP, we provide valuation allowances against the deferred tax assets for
amounts when the realization is
uncertain.
|
|
Included
in the balance at December 31, 2008, are no tax positions for which the
ultimate deductibility is highly certain, but for which there is
uncertainty about the timing of such deductibility. Because of
the impact of deferred tax accounting, other than interest and penalties,
the disallowance of the shorter deductibility period would not affect the
annual effective tax rate but would accelerate the payment of cash to the
taxing authority to an earlier
period.
|
|
The
Company's policy is to recognize interest accrued related to unrecognized
tax benefits in interest expense and penalties in other expenses. During
the years ended December 31, 2008 and 2007, the Company recognized $466
and $366 in penalties related to unpaid payroll taxes, and $533 and $336,
respectively, in interest related to these unpaid taxes. These are not
considered to be uncertain tax positions because these amounts have not
been deducted for tax purposes.
|
F-8
VITAMIN
BLUE, INC.
NOTES
TO FINANCIAL STATEMENTS
DECEMBER
31, 2008 AND 2007
7.
|
RELATED
PARTY
|
During
the years ended December 31, 2008 and 2007, investors loaned the Company $0 and
$70,000 respectively, for operating expenses. As of December 31, 2008 the loan
amount is $130,000 with an interest rate of 9% per annum. The loan will be
converted into shares of common stock.
During
the year ended December 31, 2008, Veronica Ornelas the sister of the corporate
president loaned the Company $3,000 for operating expenses. The loan bears
interest at a rate of 9% per annum.
8.
|
DEFERRED
TAX BENEFIT
|
|
At
December 31, 2008, the Company had net operating loss carry-forwards of
approximately $133,665 which expire at dates that have not been
determined. No tax benefit has been reported in the December 31, 2008
financial statements since the potential tax benefit is offset by a
valuation allowance of the same
amount.
|
|
The
income tax provision differs from the amount of income tax determined by
applying the U.S. federal income tax rate to pretax income from continuing
operations for the years ended December 31, 2008 and 2007 due to the
following:
|
2008
|
2007
|
|||||||
Book
loss
|
$ | (22,718 | ) | $ | (22,424 | ) | ||
State
income taxes
|
(320 | ) | - | |||||
Meals
and entertainment
|
239 | - | ||||||
Depreciation
|
- | 35 | ||||||
Penalties
|
185 | 148 | ||||||
Valuation
Allowance
|
22,614 | 22,241 | ||||||
Income
tax expense
|
$ | - | $ | - |
|
Deferred
taxes are provided on a liability method whereby deferred tax assets are
recognized for deductible differences and operating loss and tax credit
carry-forwards and deferred tax liabilities are recognized for taxable
temporary differences. Temporary differences are the difference between
the reported amounts of assets and liabilities and their tax bases.
Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion or all
of the deferred tax assets will not be realized. Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws and rates
on the date of enactment.
|
|
Deferred
taxes are provided on a liability method whereby deferred tax assets are
recognized for deductible differences and operating loss and tax credit
carry-forwards and deferred tax liabilities are recognized for taxable
temporary differences. Temporary differences are the difference between
the reported amounts of assets and liabilities and their tax
bases.
|
|
Deferred
tax assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or all of the
deferred tax assets will not be realized. Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws and rates
on the date of enactment.
|
F-9
VITAMIN
BLUE, INC.
NOTES
TO FINANCIAL STATEMENTS
DECEMBER
31, 2008 AND 2007
8.
|
DEFERRED
TAX BENEFIT (continued)
|
Net
deferred tax liabilities consist of the following components as of December 31,
2008 and 2007:
2008
|
2007
|
|||||||
Deferred
tax assets:
|
||||||||
NOL
carryover
|
$ | 53,466 | $ | 30,866 | ||||
Related
party accruals
|
55 | - | ||||||
Deferred
tax liabilites:
|
||||||||
Depreciation
|
(6 | ) | 35 | |||||
Less
Valuation Allowance
|
(53,515 | ) | (30,901 | ) | ||||
Net
deferred tax asset
|
$ | - | $ | - |
|
Due
to the change in ownership provisions of the Tax Reform Act of 1986, net
operating loss carry-forwards for Federal income tax reporting purposes
are subject to annual limitations. Should a change in ownership occur, net
operating loss carry-forwards may be limited as to use in future
years.
|
9.
|
SUBSEQUENT
EVENTS
|
|
On
January 29, 2009, the Company issued 1,000,000 shares of its Series A
non-cumulative preferred stock to Mr. Frank Ornelas in exchange for the
5,000 shares of common stock owned by Mr. Ornelas. Each of the preferred
shares carries voting rights at 500 votes per preferred
share.
|
F-10
VITAMIN
BLUE, INC.
BALANCE
SHEETS
September
30, 2009
|
December
31, 2008
|
|||||||
(Unaudited)
|
||||||||
ASSETS
|
||||||||
CURRENT
ASSETS
|
||||||||
Cash
|
$ | 2,533 | $ | 3,752 | ||||
Accounts
receivable
|
14,527 | 10,974 | ||||||
Inventory
|
25,325 | 52,930 | ||||||
TOTAL
CURRENT ASSETS
|
42,385 | 67,656 | ||||||
PROPERTY
& EQUIPMENT, at cost
|
||||||||
Vehicles
|
21,811 | 21,811 | ||||||
Machinery
& equipment
|
1,020 | 1,020 | ||||||
Office
equipment
|
1,839 | 1,839 | ||||||
24,670 | 24,670 | |||||||
Less
accumulated depreciation
|
(24,089 | ) | (23,063 | ) | ||||
NET
PROPERTY AND EQUIPMENT
|
581 | 1,607 | ||||||
TOTAL
ASSETS
|
$ | 42,966 | $ | 69,263 | ||||
LIABILITIES
AND SHAREHOLDERS' DEFICIT
|
||||||||
CURRENT
LIABILITIES
|
||||||||
Accounts
payable
|
$ | 42,068 | $ | 25,749 | ||||
Accrued
expenses
|
58,108 | 46,113 | ||||||
Accrued
interest, related party
|
341 | 139 | ||||||
Loan
payable, investor
|
110,000 | 130,000 | ||||||
Loan
payable, related party
|
3,000 | 3,000 | ||||||
TOTAL
CURRENT LIABILITIES
|
213,517 | 205,001 | ||||||
SHAREHOLDERS'
DEFICIT
|
||||||||
Preferred
Stock, $0.0001 par value100,000,000 authorized preferred shares;
none issued or outstanding
|
- | - | ||||||
Common
Stock, $0.0001 par value; 900,000,000 shares authorized 521,525,000
and 5,000 shares issued and outstanding, respectively
|
52,153 | 1 | ||||||
Additional
paid in capital
|
(24,103 | ) | 4,999 | |||||
Subscription
payable
|
- | 2,750 | ||||||
Accumulated
Deficit
|
(198,601 | ) | (143,488 | ) | ||||
TOTAL
SHAREHOLDERS' DEFICIT
|
(170,551 | ) | (135,738 | ) | ||||
TOTAL
LIABILITIES AND SHAREHOLDERS' DEFICIT
|
$ | 42,966 | $ | 69,263 |
The
accompanying notes are an integral part of these financial
statements.
F-11
VITAMIN
BLUE, INC.
STATEMENTS
OF OPERATIONS
(Unaudited)
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||
September
30, 2009
|
September
30, 2008
|
September
30, 2009
|
September
30, 2008
|
|||||||||||||
REVENUE
|
$ | 49,167 | $ | 49,640 | $ | 109,695 | $ | 107,946 | ||||||||
COST
OF SALES
|
40,113 | 45,235 | 78,077 | 79,960 | ||||||||||||
GROSS
PROFIT
|
9,054 | 4,405 | 31,618 | 27,986 | ||||||||||||
OPERATING
EXPENSES
|
26,411 | 21,290 | 75,171 | 51,034 | ||||||||||||
DEPRECIATION
EXPENSE
|
342 | 658 | 1,026 | 1,974 | ||||||||||||
TOTAL
OPERATING EXPENSES
|
26,753 | 21,948 | 76,197 | 53,008 | ||||||||||||
LOSS
FROM OPERATIONS BEFORE OTHER EXPENSES
|
(17,699 | ) | (17,543 | ) | (44,579 | ) | (25,022 | ) | ||||||||
OTHER
EXPENSES
|
||||||||||||||||
Penalties
|
(118 | ) | (122 | ) | (357 | ) | (303 | ) | ||||||||
Interest
expense
|
(3,833 | ) | (3,062 | ) | (10,177 | ) | (9,170 | ) | ||||||||
TOTAL
OTHER EXPENSES
|
(3,951 | ) | (3,184 | ) | (10,534 | ) | (9,473 | ) | ||||||||
LOSS
FROM OPERATIONS BEFORE PROVISION FOR INCOME TAXES
|
(21,650 | ) | (20,727 | ) | (55,113 | ) | (34,495 | ) | ||||||||
Provision
for income taxes
|
- | - | - | (800 | ) | |||||||||||
NET
LOSS
|
$ | (21,650 | ) | $ | (20,727 | ) | $ | (55,113 | ) | $ | (35,295 | ) | ||||
BASIC
AND DILUTED LOSS PER SHARE
|
$ | (0.00 | ) | $ | (4.15 | ) | $ | (0.00 | ) | $ | (7.06 | ) | ||||
WEIGHTED-AVERAGE
COMMON SHARES OUTSTANDING BASIC AND DILUTED
|
521,525,000 | 5,000 | 173,842,198 | 5,000 |
The
accompanying notes are an integral part of these financial
statements.
F-12
VITAMIN
BLUE, INC.
STATEMENT
OF SHAREHOLDERS’ DEFICIT
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2009
Additional
|
||||||||||||||||||||||||||||||||
Preferred
Stock
|
Common
stock
|
Paid-in
|
Subscription
|
Deficit
|
||||||||||||||||||||||||||||
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
Payable
|
Accumulated
|
Total
|
|||||||||||||||||||||||||
Balance,
December 31, 2008
|
- | $ | - | 5,000 | $ | 1 | $ | 4,999 | $ | 2,750 | $ | (143,488 | ) | $ | (135,738 | ) | ||||||||||||||||
Common
stock subscription payable (unaudited)
|
- | - | - | - | - | 300 | - | 300 | ||||||||||||||||||||||||
Conversion
of common stock into preferred stock (unaudited)
|
1,000,000 | 100 | (5,000 | ) | (1 | ) | (99 | ) | - | - | - | |||||||||||||||||||||
Issuance
of common stock in July 2009
|
||||||||||||||||||||||||||||||||
(1,525,000
shares of common stock issued at $0.002 per share)
(unaudited)
|
- | - | 1,525,000 | 153 | 2,897 | (3,050 | ) | - | - | |||||||||||||||||||||||
Conversion
of debt for common stock in July 2009
|
||||||||||||||||||||||||||||||||
(10,000,000
shares of common stock issued at $0.002 per share)
(unaudited)
|
- | - | 10,000,000 | 1,000 | 19,000 | - | - | 20,000 | ||||||||||||||||||||||||
Conversion
of preferred stock into common stock in July 2009
|
||||||||||||||||||||||||||||||||
(510,000,000
shares of common stock issued at $0.0001 per share)
(unaudited)
|
(1,000,000 | ) | (100 | ) | 510,000,000 | 51,000 | (50,900 | ) | - | - | - | |||||||||||||||||||||
Net
loss for the nine months ended September 30, 2009
(Unaudited)
|
- | - | - | - | - | - | (55,113 | ) | (55,113 | ) | ||||||||||||||||||||||
Balance
at September 30, 2009 (unaudited)
|
- | $ | - | 521,525,000 | $ | 52,153 | $ | (24,103 | ) | $ | - | $ | (198,601 | ) | $ | (170,551 | ) |
The
accompanying notes are an integral part of these financial
statements.
F-13
VITAMIN
BLUE, INC.
STATEMENTS
OF CASH FLOWS
(Unaudited)
Nine
Months Ended
|
||||||||
September
30, 2009
|
September
30, 2008
|
|||||||
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
Net
loss
|
$ | (55,113 | ) | $ | (35,295 | ) | ||
Adjustment
to reconcile net loss to net cash used in operating
activities
|
||||||||
Depreciation
|
1,026 | 1,974 | ||||||
Changes
in Assets and Liabilities
|
||||||||
(Increase)
Decrease in:
|
||||||||
Accounts
receivable
|
(3,553 | ) | (8,591 | ) | ||||
Inventory
|
27,605 | (4,852 | ) | |||||
Increase
(Decrease) in:
|
||||||||
Accounts
payable
|
16,319 | 28,123 | ||||||
Accrued
expenses
|
12,197 | 11,788 | ||||||
NET
CASH USED IN OPERATING ACTIVITIES
|
(1,519 | ) | (6,853 | ) | ||||
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
- | - | |||||||
NET
CASH PROVIDED IN INVESTING ACTIVITIES
|
- | - | ||||||
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
Proceeds
from related party, loan payable
|
- | 3,000 | ||||||
Payments
on notes payable
|
- | (1,479 | ) | |||||
Proceeds
from subscriptions payable
|
- | 1,300 | ||||||
Proceeds
from issuance of common stock
|
300 | - | ||||||
NET
CASH PROVIDED IN FINANCING ACTIVITIES
|
300 | 2,821 | ||||||
NET
DECREASE IN CASH
|
(1,219 | ) | (4,032 | ) | ||||
CASH,
BEGINNING OF PERIOD
|
3,752 | 9,856 | ||||||
CASH,
END OF PERIOD
|
$ | 2,533 | $ | 5,824 | ||||
SUPPLEMENTAL
DISCLOSURES OF CASH FLOW INFORMATION
|
||||||||
Interest
paid
|
$ | - | $ | 17 | ||||
Taxes
paid
|
$ | - | $ | 800 | ||||
SUPPLEMENTAL
DISCLOSURES OF NON-CASH ACTIVITIES
|
||||||||
During
the nine months ended September 30, 2009, the Company issued 10,000,000
shares of common stock for conversion of debt in the amount of
$20,000; 1,000,000 shares of its Series A non-cumulative preferred stock
were issued in exchange for 5,000 shares of common stock; and 510,000,000
shares of common stock were issued in exchange for 1,000,000 shares of
Series A non-cumulative preferred stock.
|
The
accompanying notes are an integral part of these financial
statements.
F-14
VITAMIN
BLUE, INC.
NOTES
TO FINANCIAL STATEMENTS
SEPTEMBER
30, 2009
1. BASIS
OF PRESENTATION
The
accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Rule 10-01 of Regulation
S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all normal recurring
adjustments considered necessary for a fair presentation have been
included. Operating results for the nine months ended September 30,
2009 are not necessarily indicative of the results that may be expected for the
year ending December 31, 2009. For further information refer to the financial
statements and footnotes thereto included in the Company's Form 10 for the year
ended December 31, 2008.
Going
Concern
The
accompanying financial statements have been prepared on a going concern basis of
accounting, which contemplates continuity of operations, realization of assets
and liabilities and commitments in the normal course of business. The
accompanying financial statements do not reflect any adjustments that might
result if the Company is unable to continue as a going concern. The
Company does not generate significant revenue, and has negative cash flows from
operations, which 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 and appropriateness of using the going concern basis is
dependent upon, among other things, additional cash infusion. The
Company has obtained funds from its shareholder through the period ended
September 30, 2009. Management believes this funding will continue, and has also
obtained funding from new investors. Management believes the existing
shareholders and the prospective new investors will provide the additional cash
needed to meet the Company’s obligations as they become due, and will allow the
development of its core of business.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This
summary of significant accounting policies of Vitamin Blue, Inc. is presented to
assist in understanding the Company’s financial statements. The financial
statements and notes are representations of the Company’s management, which is
responsible for their integrity and objectivity. These accounting policies
conform to accounting principles generally accepted in the United States of
America and have been consistently applied in the preparation of the financial
statements.
Revenue
Recognition
The
Company recognizes revenue when services are performed, and at the time of
shipment of products, provided that evidence of an arrangement exists, title and
risk of loss have passed to the customer, fees are fixed or determinable, and
collection of the related receivable is reasonably assured.
Loss per Share
Calculations
The
Company adopted Statement of Financial Standards for the calculation of “Loss
per Share”. Loss per Share dictates the calculation of basic earnings
per share and diluted earnings per share. Basic earnings per share is computed
by dividing income available to common shareholders by the weighted-average
number of common shares available. Diluted earnings per share is computed
similar to basic earnings per share except that the denominator is increased to
include the number of additional common shares that would have been outstanding
if the potential common shares had been issued and if the additional common
shares were dilutive. No shares for employee options or warrants were used in
the calculation of the loss per share as none have been granted through
September 30, 2009. The Company’s diluted loss per share is the same as the
basic loss per share for the three and nine months ended September 30, 2009, as
the inclusion of any potential shares would have had an anti-dilutive effect due
to the Company generating a loss.
F-15
VITAMIN
BLUE, INC.
NOTES
TO FINANCIAL STATEMENTS
SEPTEMBER
30, 2009
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Cash and Cash
Equivalents
The Company considers all highly liquid
investments with an original maturity of three months or less to be cash
equivalents.
Recently Issued Accounting
Pronouncements
In June
2009, the FASB issued guidance under Accounting Standards Codification (“ASC”)
Topic 105, “Generally Accepted Accounting Principles” (SFAS No. 168, The FASB
Accounting Standards Codification TM and the Hierarchy of Generally Accepted
Accounting Principles). This guidance establishes the FASB ASC as the single
source of authoritative U.S. GAAP recognized by the FASB to be applied by
nongovernmental entities. Rules and interpretive releases of the SEC under
authority of federal securities laws are also sources of authoritative U.S. GAAP
for SEC registrants. SFAS 168 and the ASC are effective for financial statements
issued for interim and annual periods ending after September 15, 2009. The ASC
supersedes all existing non-SEC accounting and reporting standards. All other
non-grandfathered, non-SEC accounting literature not included in the ASC has
become non-authoritative. Following SFAS 168, the FASB will no longer issue new
standards in the form of Statements, FSPs, or EITF Abstracts. Instead, the FASB
will issue Accounting Standards Updates, which will serve only to update the
ASC, provide background information about the guidance, and provide the bases
for conclusions on the change(s) in the ASC. We adopted ASC 105 effective for
our financial statements issued as of September 30, 2009. The adoption of this
guidance did not have an impact on our financial statements but will alter the
references to accounting literature within the consolidated financial
statements.
In August
2009, the FASB issued guidance under Accounting Standards Update (“ASU”) No.
2009-05, “Measuring Liabilities at Fair Value”. This guidance clarifies how the
fair value a liability should be determined. This guidance is effective for the
first reporting period after issuance. We will adopt this guidance for our year
ending December 31, 2009. We do not expect the adoption of this guidance to have
a material impact on our financial statements
3.
CAPITAL
STOCK
|
During
the nine months ended September 30, 2009, the Company issued 1,525,000
shares of common stock at a price of $0.002 per share for cash of $300 and
fulfillment of $2,750 in previously received subscriptions; 10,000,000
shares of common stock were issued in conversion of a debt in the amount
of $20,000; 1,000,000 shares of its Series A non-cumulative preferred
stock in exchange for 5,000 shares of common stock; the preferred shares
carry voting rights at 500 votes per preferred share; 510,000,000 shares
of common stock were issued in exchange for 1,000,000 shares of Series A
non-cumulative preferred stock.
|
4.
INCOME TAXES
The
Company files income tax returns in the U.S. Federal jurisdiction, and the state
of California. With few exceptions, the Company is no longer subject to U.S.
federal, state and local, or non-U.S. income tax examinations by tax authorities
for years before 2000.
Deferred
income taxes have been provided by temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the
amounts used for tax purposes. To the extent allowed by GAAP, we provide
valuation allowances against the deferred tax assets for amounts when the
realization is uncertain.
F-16
VITAMIN
BLUE, INC.
NOTES
TO FINANCIAL STATEMENTS
SEPTEMBER
30, 2009
4.
INCOME TAXES (Continued)
Included
in the balance at September 30, 2009, are no tax positions for which the
ultimate deductibility is highly certain but for which there is uncertainty
about the timing of such deductibility.
The
Company's policy is to recognize interest accrued related to unrecognized tax
benefits in interest expense and penalties in other expenses. During the nine
months ended September 30, 2009 and 2008, the Company recognized $357 and $303,
respectively, in penalties related to unpaid payroll taxes, and $561 and $378,
respectively, in interest related to these unpaid taxes. These are not
considered to be uncertain tax positions because these amounts have not been
deducted for tax purposes.
5.
SUBSEQUENT EVENTS
Management evaluated subsequent events
after the balance sheet date of September 30, 2009 through February 3, 2010, the
date the financial statements were available to be issued.
As of
December 2009, the Company received $20,000 for the purchase of 10,000,000
shares of common stock at a price of $0.002 per share.
F-17