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8-K/A - AFH HOLDING II, INC. | v186448_8ka.htm |
First
Blush, Inc
FINANCIAL
STATEMENTS
INDEX
· Financial
Statements:
|
|
Balance
Sheets, March 31, 2010, unaudited, and December 31, 2009
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2
|
Statements
of Profit and Loss, unaudited, for the quarters ended
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|
March
31, 2010 and 2009
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3
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Statements
of Cash Flows, unaudited, for the quarters ended
|
|
March
31, 2010 and 2009
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4
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Notes
to Financial Statements
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5
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First
Blush, Inc.
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Page
1
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First
Blush, Inc.
Balance
Sheets
At March 31,
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At December 31,
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|||||||
2010
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2009
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|||||||
Assets
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||||||||
Current
assets:
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||||||||
Cash
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$ | 32,038 | $ | - | ||||
Accounts
receivable
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11,711 | 37,065 | ||||||
Inventory
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201,352 | 293,135 | ||||||
Total
current assets
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245,101 | 330,200 | ||||||
Deferred
income taxes
|
20,434 | 19,534 | ||||||
Intangible
assets, net
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53,428 | 55,786 | ||||||
Total
assets
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$ | 318,963 | $ | 405,520 | ||||
Liabilities
& Equity (Deficit)
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||||||||
Current
liabilities:
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||||||||
Accounts
payable
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$ | 305,350 | $ | 344,968 | ||||
Promotional
liability
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22,970 | 27,194 | ||||||
Other
accrued liabilities
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158,635 | 160,557 | ||||||
Notes
payable - Parent, current
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928,322 | 927,191 | ||||||
Notes
payable related party, current
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100,000 | 100,000 | ||||||
Total
current liabilities
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1,515,277 | 1,559,910 | ||||||
Commitments
and contingencies
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||||||||
Equity
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||||||||
Series
A preferred, par value $0.0001, 3,850,000 shares authorized, 151,250
outstanding at March 31, 2010 and December 31, 2009.
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15 | 15 | ||||||
Common
stock, par value $0.0001, 14,850,000 authorized and 7,063,750
outstanding at March 31, 2010 and December 31, 2009.
|
706 | 706 | ||||||
Additional
paid in capital
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312,982 | 312,982 | ||||||
Retained
loss
|
(1,510,017 | ) | (1,468,093 | ) | ||||
Total
equity (deficit)
|
(1,196,314 | ) | (1,154,390 | ) | ||||
Total
liabilities and equity (deficit)
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$ | 318,963 | $ | 405,520 |
The
accompanying notes are an integral part of these financial
statements.
First
Blush, Inc.
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Page
2
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First
Blush, Inc.
Statements
of Profit and Loss
For the Quarters Ended
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||||||||
March 31,
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||||||||
2010
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2009
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|||||||
Gross
revenue
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$ | 211,246 | $ | 137,025 | ||||
Promotion
allowance
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(73,208 | ) | (8,983 | ) | ||||
Net
revenue
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138,038 | 128,042 | ||||||
Cost
of goods sold
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84,262 | 78,618 | ||||||
Gross
profit
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53,776 | 49,424 | ||||||
Selling,
general and administrative
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61,132 | 204,632 | ||||||
Abnormal
production losses
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- | 28,415 | ||||||
Operating
loss
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(7,356 | ) | (183,623 | ) | ||||
Interest
expense
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35,467 | 27,124 | ||||||
Pre-tax
loss
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(42,823 | ) | (210,747 | ) | ||||
Tax
benefit
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(899 | ) | (4,426 | ) | ||||
Net
loss
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$ | (41,924 | ) | $ | (206,321 | ) | ||
Basic
loss per share
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$ | (0.01 | ) | $ | (0.02 | ) | ||
Diluted
loss per share
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$ | (0.01 | ) | $ | (0.02 | ) |
The
accompanying notes are an integral part of these financial
statements.
First
Blush, Inc.
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Page
3
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First
Blush, Inc.
Statements
of Cash Flows
For
the Quarters Ended
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||||||||
March 31,
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||||||||
2010
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2009
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|||||||
Cash
flow used by operating activities:
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||||||||
Cash
collected from customers
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$ | 152,577 | $ | 36,682 | ||||
Cash
paid to suppliers
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(8,222 | ) | (34,301 | ) | ||||
Cash
paid for management services
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- | (163,237 | ) | |||||
Cash
paid for other selling, general & administrative costs
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(113,448 | ) | (201,208 | ) | ||||
Net
cash used by operating activities
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30,907 | (362,064 | ) | |||||
Cash
flow from financing activities:
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||||||||
Payments
on notes payable
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(27,591 | ) | (74,107 | ) | ||||
Proceeds
from issuing notes payable
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28,722 | 185,297 | ||||||
Proceeds
from the sale of Series A Preferred Stock
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- | 250,000 | ||||||
Net
cash from financing activities
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1,131 | 361,190 | ||||||
Increase/(decrease)
in cash
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32,038 | (874 | ) | |||||
Cash
at the start of the period
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- | 874 | ||||||
Cash
at the end of the period
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$ | 32,038 | $ | - | ||||
Reconciliation
of net loss to cash used by operating activities
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||||||||
For
the Quarters Ended
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||||||||
March 31,
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||||||||
2010
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2009
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|||||||
Net
loss
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$ | (41,924 | ) | $ | (206,321 | ) | ||
Amortization
expense
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2,357 | 2,357 | ||||||
(Increase)/decrease
in A/R
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25,354 | (88,268 | ) | |||||
(Increase)/decrease
in inventory
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91,783 | (114,975 | ) | |||||
Increase
in deferred tax asset
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(899 | ) | (4,426 | ) | ||||
Increase/(decrease)
in accounts payable & promotional liability
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(43,842 | ) | 72,677 | |||||
Decrease
in other accrued
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(1,922 | ) | (23,108 | ) | ||||
Net
cash flows used by operating activity
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$ | 30,907 | $ | (362,064 | ) | |||
Supplemental
disclosure of cash flow information
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||||||||
Cash
paid for interest
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$ | - | $ | - |
The
accompanying notes are an integral part of these financial
statements.
First
Blush, Inc.
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Page
4
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First
Blush, Inc.
Notes
to Financial Statements
1.
The Company
As used
herein, “we” and “our” refers to First Blush, Inc. First Blush Inc., is a
Delaware corporation and is based in Beverly Hills, California. Currently, we
produce and market two product lines:
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1.
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An
all natural, premium grape juice crafted from 100% pure, fine wine grapes.
We currently offer four juices: Cabernet, Merlot, Syrah and Chardonnay
juice under the name “First Blush.”
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2.
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An
all natural ready-to-drink tea crafted from 50% of our First Blush juice
and 50% brewed organic white tea. We currently offer two teas: Cabernet
White Tea and Chardonnay White Tea, also under the name “First
Blush.”
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We flash
pasteurize all of our products for safety and product quality. The result is
that our products have a 24-month shelf life.
We sell
our products in over 1,500 retail outlets in the United States, primarily
through grocery stores.
We
purchase all of our grapes from third-party suppliers and outsource all
production, warehousing and distribution. As well, we utilize brokers to help us
initiate new sales and service existing customers.
2.
Basis of Presentation
We have
prepared our accompanying unaudited financial statements in accordance with
generally accepted accounting principles in the United States (“GAAP”) for
interim financial information and in accordance with the rules and regulations
of the United States Securities and Exchange Commission (“SEC”). Accordingly,
the financial statements do not include all of the information and notes
required by GAAP for annual financial statements as permitted under applicable
rules and regulations. In the opinion of management, all normal recurring
adjustments considered necessary for a fair presentation have been included. The
results of operations for the three months ended March 31, 2010 are not
necessarily indicative of the results to be expected for the full year ending
December 31, 2010. For further information, refer to our financial statements
and notes thereto included with our 8-K filed with the Securities and Exchange
Commission on May 13, 2010.
First
Blush, Inc.
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Page
5
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3. Recapitalization
In
January 2007, First Blush began operations as Rose Hill Gardens, LLC dba First
Blush, a California limited liability company. On August 1, 2008 First Blush,
Inc., a Delaware corporation, was formed and was owned 76.9% by Rose Hill
Gardens, LLC and the remaining 23.1% by two other minority holders.
On
December 31, 2008 Rose Hill Gardens, LLC transferred the assets of the business
into First Blush, Inc. In exchange First Blush, Inc. issued a promissory note to
Rose Hill Gardens, LLC’s for $828,698. Rose Hill Gardens also extended to us the
option to borrow additional funds up to a combined aggregate borrowing of
$1,000,000. The promissory note accrues annual interest at 12%.
The
purpose of this recapitalization was to create a corporate entity that we
believe will facilitate future attempts to raise capital. There was no change in
the business operations.
The
transfer of the assets of Rose Hill Gardens, LLC into First Blush, Inc. is
between entities under common control pursuant to Accounting Standards
Codification 805, Business
Combinations. The transfer of the assets also constitutes a set of
activities and assets to be a business in accordance with FASB ASC 805. For a
transferred set of activities and assets to be a business, it must contain all
of the inputs and processes necessary for it to continue to conduct normal
operations after the transferred set of assets is separated from the transferor,
which include the ability to sustain a revenue stream by providing its outputs
to customers. First Blush, Inc. obtained the inputs and processes necessary for
normal operations.
The
transaction has been accounted for as a recapitalization of Rose Hill Gardens,
LLC. Accordingly, the assets were carried over to First Blush, Inc. at the
historical carrying values and the historical operations of those assets by Rose
Hill Gardens, LLC are presented in the accompanying financial statements as the
historical operations of First Blush, Inc. for all periods
presented.
Subsequent
to formation of First Blush, Inc., Rose Hill Gardens, LLC’s ownership of First
Blush increased to 97.4% as a result of the cancellation of 1,875,000 minority
shareholder shares of First Blush, Inc.
First
Blush is majority owned by Rose Hill Gardens, LLC (the “Parent”). The financial
statements presented represent only those transactions of First Blush, Inc and
not the consolidated accounts of Rose Hill Gardens, its parent. Since subsidiary
only statements are presented, the net contributions of Rose Hill Gardens, LLC
are presented as Notes Payable – Parent in accompanying financial
statements.
4.
Summary of Significant Accounting Policies
a.
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Use
of estimates in preparation of financial
statements
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The
preparation of our financial statements in conformity with accounting principles
generally accepted in the United States requires us to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and contingent liabilities at the date of our
financial statements and our reported amounts of revenue and expense during the
reporting period. Actual results could differ from our estimates.
First
Blush, Inc.
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Page
6
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b.
Inventory and inventory valuation
Our
inventory consists of raw materials and finished goods as follows:
At March 31,
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At December 31,
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2010
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2009
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|||||||
Finished
goods
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||||||||
First
Blush Juice
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$ | - | $ | 57,782 | ||||
First
Blush Tea
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- | 34,003 | ||||||
Total
finished goods
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$ | - | $ | 91,785 | ||||
Raw
materials
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||||||||
Concentrate
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$ | 172,738 | $ | 172,737 | ||||
Other
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28,614 | 28,613 | ||||||
Total
raw materials
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$ | 201,352 | $ | 201,350 | ||||
Total
Inventory
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$ | 201,352 | $ | 293,135 |
Finished
goods include all of the costs to produce cases of completed juice and tea
bottles that are ready to sell. These costs include: 1) cost of physical inputs
such as the cost of the juice and tea, the bottle, the cap, etc. and 2) cost of
service inputs such as cost to mix the juice, fill the bottles, shipping raw
materials to the bottler and storage of the finished goods. In addition, we
include in the cost of finished goods the cost of normal production losses
expected to be incurred during the bottling process. We use the industry norm of
5% of total production cost to calculate the loss factor to include in our
inventory. We expense any losses above 5% of total production cost in the period
of production and report it separate from cost of goods sold in our statement of
profit and loss.
In 2009,
we had abnormal production losses in excess of the 5% norm equating to $28,415
due to issues with one of our bottlers. These were expensed as part of operating
income separate from cost of goods sold in our statement of profit and loss for
the quarter ended March 31, 2009.
We value
our inventory using a first-in first-out cost flow assumption adjusted for lower
of cost or market valuation, if needed. To date, no lower of cost or market
valuation adjustments have been necessary. In addition, our finished goods have
a two year shelf-life; to date we have not had a loss related to expiration of
our inventory’s shelf-life.
c.
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Revenue
and related cost recognition
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We
recognize revenue when the following revenue recognition criteria are
met:
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•
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We
have persuasive evidence of a sales
arrangement;
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First
Blush, Inc.
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Page
7
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•
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We
have evidence that delivery of goods has
occurred;
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•
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We
have a sales price that is fixed or determinable;
and
|
|
•
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We
have reasonable assurance of
collectability.
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We
generally sell our product FOB destination and therefore transfer title and the
related risks of ownership when the customer accepts the product at their
receiving dock.
We report
revenue net of any state imposed redemption requirements, which we collect from
the purchaser and remit to the respective state. We are not required to collect
sales taxes as we sell to retailers, who are responsible for collecting sales
taxes from the ultimate consumer.
Consistent
with our revenue recognition practices, we recognize related cost of goods sold
when our product is received by our customers.
d.
Promotional liability
Many of
our promotional programs are based on discounts given to the ultimate consumer
at the point of purchase. For these programs we generally reduce our cost to the
retailer for all product sold under promotion so there is no, or limited, impact
on the retailer’s gross profit. Because we do not know the ultimate amount of
product that will be sold under promotional programs and because retailers pay
us 100% of the purchase price upon purchase of our product, we accrue an
estimated liability for the amount we expect we will have to refund to the
retailers due to these programs. As a result we have an accrual for promotional
programs of $22,970 and $27,194 at March 31, 2010 and December 31, 2009,
respectively.
We treat
promotional allowance as contra revenue and recorded promotional allowance of
$73,208 and $8,983 for the quarters ended March 31, 2010 and 2009,
respectively.
j.
Recent accounting pronouncements
There
have been no recent accounting pronouncements that will directly and materially
impact us in the future.
5.
Warrants
At March
31, 2010 and December 31, 2009 we had warrants outstanding. We calculated the
fair value of those warrants at the date of issuance to be $35,432 using the
Black-Scholes option pricing model. Subsequent to March 31, 2010, the warrant
holder forfeited those warrants. See Note 13. Subsequent
Events.
First
Blush, Inc.
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Page
8
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6.
Fair Value of Financial Instruments
We have
adopted the applicable provisions of the new accounting guidance on fair value
measurements which defines fair value, establishes a framework for measuring
fair value and expands disclosures about fair value measurements related to
financial instruments.
Current
fair value accounting guidance includes a hierarchy that is intended to increase
consistency and comparability in fair value measurements and related
disclosures. The fair value hierarchy is based on inputs to valuation techniques
that are used to measure fair value that are either observable or unobservable.
Observable inputs reflect assumptions market participants would use in pricing
an asset or liability based on market data obtained from independent sources
while unobservable inputs reflect a reporting entity’s pricing based upon their
own market assumptions. The current guidance establishes a three-tiered fair
value hierarchy which prioritizes the inputs used in measuring fair value as
follows:
·
|
Level
1. Observable inputs such as quoted prices in active
markets;
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|
·
|
Level
2. Inputs, other than quoted prices, that are observable for the asset or
liability, either directly or indirectly. These include quoted prices for
similar assets or liabilities in active markets and quoted prices for
identical or similar assets or liabilities in markets that are not active;
and
|
|
·
|
Level
3. Unobservable inputs in which there is little or no market data, which
require the reporting entity to develop its own
assumptions.
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The
Financial Accounting Standards Board’s accounting guidance requires disclosure
of fair value information about financial instruments, whether or not recognized
in the accompanying balance sheets. Fair value as defined by the guidance is the
price that would be received to sell an asset or paid to transfer a liability in
an orderly transaction between market participants at the measurement date. The
fair value estimates of financial instruments are not necessarily indicative of
the amounts we might pay or receive in actual market transactions. The use of
different market assumptions and/or estimation methodologies may have a material
effect on the estimated fair value amounts.
·
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Receivables,
Accounts Payable and Certain Other Accrued Liabilities.
|
Due to
their short-term nature, fair value approximates carrying
value.
·
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Notes
payable.
|
o
|
The
following table reflects the carrying value and fair value of our notes
payable:
|
At
March 31,
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At
December 31,
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|||||||||||||||
2010
|
2009
|
|||||||||||||||
Carrying
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Carrying
|
|||||||||||||||
Value
|
Fair
Value
|
Value
|
Fair
Value
|
|||||||||||||
Notes
payable
|
$ | 1,028,322 | $ | 1,026,628 | $ | 1,027,191 | $ | 1,025,499 |
First
Blush, Inc.
|
Page
9
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We
believe the carrying value of our fixed rate debt is not a reasonable estimate
of its fair value due to recent changes in the credit markets. We have estimated
the fair value of our fixed rate debt using discounted cash flow techniques
based on level 3 inputs, as discussed in the paragraph above. Specifically we
estimated the fair market discount rate for our debt considering the credit
markets, our credit risk and the terms of our debt including call provisions and
collateral.
7.
Related Party Notes
We have
transactions with related parties as follows:
|
·
|
Rose
Hill Gardens, LLC
|
We had a
secured note payable with a balance of $928,322 and $927,191 at March 31, 2010
and December 31, 2009, respectively, to Rose Hill Gardens, LLC. Rose Hill
Gardens, LLC owned 97.4% at March 31, 2010 and December 31, 2009. Victoria
Briggs, was our acting president at the time and member of our board of
directors, is the sole owner of Rose Hill Gardens, LLC.
In
addition starting January 1, 2009 we began paying Rose Hill Gardens, LLC a
consulting fee of $8,500 per month for office rent and related expenses as well
as operating and management services including, but not limited to, sales and
marketing, fulfillment, production, customer service and accounting. Either
party may terminate this agreement at any time.
|
·
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Michael
D. Bagdasarian, Trustee
|
At March
31, 2010, we had a secured note payable of $100,000 to Michael D. Bagdasarian,
Trustee. Michael Bagdasarian is the father of Chris Bagdasarian who is Victoria
Briggs’ husband.
8.
Intangibles
We have
the following amortizable intangible asset:
First
Blush, Inc.
|
Page
10
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At March, 31
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At December 31,
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|||||||||||||||||||||||
2010
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2009
|
|||||||||||||||||||||||
Gross
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Net
|
Gross
|
Net
|
|||||||||||||||||||||
Carrying
|
Accumulated
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Carrying
|
Carrying
|
Accumulated
|
Carrying
|
|||||||||||||||||||
Amount
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Amortization
|
Amount
|
Amount
|
Amortization
|
Amount
|
|||||||||||||||||||
Exclusive
right to use bottle production mold
|
$ | 66,000 | $ | (12,572 | ) | $ | 53,428 | $ | 66,000 | $ | (10,214 | ) | $ | 55,786 |
While we
have the exclusive right to use the bottle production mold in perpetuity, we
estimate its economic life to be seven years and amortize it on a straight-line
basis over this period. We incurred amortization expense related to this asset
of $2,357 for the quarters ended March 31, 2010 and 2009,
respectively.
As of
March 31, 2010, we expect amortization expense for this asset for the next six
years to be as follows:
2010
|
$ | 7,071 | ||
2011
|
$ | 9,429 | ||
2012
|
$ | 9,429 | ||
2013
|
$ | 9,429 | ||
2014
|
$ | 9,429 | ||
2015
|
$ | 8,641 | ||
$ | 53,428 |
9.
Calculation of Earnings per Share
Basic
earnings per share is calculated by dividing net income by the weighted-average
number of shares outstanding during the period. Diluted earnings per share is
calculated by dividing net income by the weighted-average number of common
shares outstanding after giving effect to all potentially dilutive common shares
outstanding during the period. Basic and diluted earnings per share were
calculated as follows:
First
Blush, Inc.
|
Page
11
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For
the Quarter Ended
|
||||||||
March
31,
|
||||||||
2010
|
2009
|
|||||||
Net
loss
|
$ | (41,924 | ) | $ | (206,321 | ) | ||
Weighted
average common shares
|
||||||||
Basic
|
7,063,750 | 8,938,750 | ||||||
Effect
of dilutive potential
|
||||||||
Stock
options
|
- | - | ||||||
Non-vested
shares
|
- | - | ||||||
Diluted
|
7,063,750 | 8,938,750 | ||||||
Basic
loss per share
|
$ | (0.01 | ) | $ | (0.02 | ) | ||
Diluted
loss per share
|
$ | (0.01 | ) | $ | (0.02 | ) |
Because
their inclusion would have had an anti-dilutive effect, we excluded potential
common shares of 1,000,000 for the quarters ended March 31, 2010 and 2009,
consisting of shares issuable upon exercise of warrants.
10.
Equity
Preferred
Stock
At March
31, 2010 and December 31, 2009 we had 151,250 shares of Series A Preferred Stock
issued and outstanding. Subsequent to March 31, 2010 holders of Series A
Preferred Stock exchanged their shares into common stock of AFH Holding II, Inc.
See Note 13. Subsequent
Events for additional details.
11.
Going Concern
We began
operations in January 2007 and have incurred costs in formulating our products
and establishing a market for them. We incurred net losses of $41,924 and
$206,321 for the quarters ended March 31, 2010 and 2009, respectively. In
addition, at March 31, 2010 our current liabilities of $1,515,277 are
considerably in excess of our current assets of $245,101. As a result of these
factors, there is substantial doubt about our ability to continue as a going
concern and our ability to pay off our current liabilities. We are attempting to
obtain additional capital through either debt or equity financing sources, or a
combination of the two, however, if we are unable to obtain additional capital
we may need to declare bankruptcy, discontinue operations or both. The
accompanying financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
12.
Concentrations
We had
concentrations in gross revenue and accounts receivable as follows:
%
of Gross Revenue
|
%
of Accounts Receivable
|
|||||||||||||||
For
the Quarter Ended
|
At
|
At
|
||||||||||||||
March
31,
|
March
31,
|
December 31,
|
||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Safeway
|
96 | % | 65 | % | 69 | % | 76 | % | ||||||||
UNFI | 2 | % | 0 | % | 30 | % | 0 | % | ||||||||
New Age | 0 | % | 14 | % | 0 | % | 24 | % |
Our
payment terms generally require payment within 30 days. As of March
31, 2010 we have collected substantially all of our accounts receivable when
due. The balances at March 31, 2010 and December 31, 2009 consisted
of receivables that were outstanding less than 30 days. We do not
require collateral
for receivables from our customers, however, we do evaluate new customers for
credit worthiness.
13.
Subsequent Events
On May 4,
2010 the holder of our warrants to purchase common stock chose to forfeit the
warrants rather than exercise the warrants prior to the reverse takeover
discussed below in this note.
First
Blush, Inc.
|
Page
12
|
On May
12, 2010 we completed a share exchange and reverse takeover with AFH Holding II,
Inc., a shell company with its common stock registered under Section 12(g) of
the Securities Exchange Act of 1934. As a result, First Blush, Inc. has become a
wholly owned subsidiary and operating company of AFH Holding II, Inc. AFH
Holding and Advisory, LLC, formerly the sole stockholder of AFH Holding II,
Inc., retained common stock of AFH Holding II Inc. representing 10% of the
outstanding stock of AFH Holding II, Inc. immediately after the completion of
the reverse takeover. As part of this transaction: 1) Tony Roth became the chief
executive officer and president of AFH Holding II, Inc. and 2) Barrett Carrere
became the chief financial officer and secretary of AFH Holding II, Inc. In
addition, we owe AFH Holding and Advisory, LLC $175,000 related to the
transaction.
On May
13, 2010 we filed a Schedule 14F-1 statement, under the Securities and Exchange
Commission’s Rule 14c-101 giving notice of a change of control of the Board of
Directors of AFH Holding II, Inc.
On May
18, 2010 we filed a Schedule 14C, Information Statement, under the Securities
and Exchange Commission’s Rule 14c-101 giving notice that among other things, we
authorized an amendment to our articles of incorporation changing the name of
AFH Holding II, Inc. to First Blush Brands, Inc.
We have
evaluated subsequent events through May 25, 2010; the date we issued these
financial statements.
First
Blush, Inc.
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