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EX-31.1 - CERTIFICATION - Pulse Beverage Corpexhibit31-1.htm
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EX-32.1 - CERTIFICATION - Pulse Beverage Corpexhibit32-1.htm
 
 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: MARCH 31, 2012

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 193

Commission File Number: 000-53586

THE PULSE BEVERAGE CORPORATION
(Exact name of registrant as specified in its charter)

Nevada 36-4691531
(State or other jurisdiction of incorporation of organization) (I.R.S. Employer Identification No.)

12195 Mariposa Street, Westminster, CO 80234
 (Address of principal executive offices, including zip code)

(720) 382-5476
(Telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YES [X]   NO [   ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
YES [X]   NO [   ]

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.

Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] (Do not check if a smaller reporting company) Smaller reporting company [X]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES [   ]  NO [X]

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

35,012,791 shares of common stock, par value $0.00001, as of May 15, 2012.


 

THE PULSE BEVERAGE CORPORATION
FORM 10-Q

INDEX

  PAGE
PART I—FINANCIAL INFORMATION  
   
Item 1.  Financial Statements 1
   
Condensed Balance Sheets as at March 31, 2012 (Unaudited) and December 31, 2011 1
   
Condensed Statements of Operations for the three months and nine months ended March 31, 2012 and 2011 (Unaudited) 2
   
Condensed Statements of Cash Flows for the nine months ended March 31, 2012 and 2011 (Unaudited) 3
   
Notes to Condensed Financial Statements 5
   
Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations 8
   
Item 3.  Quantitative and Qualitative Disclosures About Market Risk 18
   
Item 4.  Controls and Procedures 18
   
PART II—OTHER INFORMATION  
   
Item 1.  Legal Proceedings 18
   
Item 1A.  Risk Factors 18
   
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds 12
   
Item 3.  Defaults Upon Senior Securities 19
   
Item 4. Mine Safety Disclosure 19
   
Item 5.  Other Information 19
   
Item 6.  Exhibits 19
   
Signature Page 20
   
Certifications  
          Exhibit 31.1  
          Exhibit 31.2  
          Exhibit 32.1  


 

FORWARD-LOOKING STATEMENTS

                  This Report on Form 10-Q contains forward-looking statements within the meaning of the “safe harbor” provisions of  the Private Securities Litigation Reform Act of 1995.  Reference is made in particular to the description of our plans and objectives for future operations, assumptions underlying such plans and objectives, and other forward-looking statements included in this report.  Such statements may be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “believe,” “estimate,” “anticipate,” “intend,” “continue,” or similar terms, variations of such terms or the negative of such terms.  Such statements are based on management’s current expectations and are subject to a number of factors and uncertainties, which could cause actual results to differ materially from those described in the forward-looking statements.  Such statements address future events and conditions concerning, among others, capital expenditures, earnings, litigation, regulatory matters, liquidity and capital resources, and accounting matters.  Actual results in each case could differ materially from those anticipated in such statements by reason of factors such as future economic conditions, changes in consumer demand, legislative, regulatory and competitive developments in markets in which we operate, results of litigation, and other circumstances affecting anticipated revenues and costs, and the risk factors set forth under the heading “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011 filed on March 16, 2012.

                  Unless otherwise indicated, in this Form 10-Q, references to “we,” “our,” “us,” the “Company,” “Pulse” or the “Registrant” refer to The Pulse Beverage Corporation, a Nevada corporation.

YOU SHOULD NOT PLACE UNDUE RELIANCE ON THESE FORWARD LOOKING STATEMENTS

                  The forward-looking statements made in this report on Form 10-Q relate only to events or information as of the date on which the statements are made in this report on Form 10-Q.  Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events, or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events.  You should read this report and the documents that we reference in this report, including documents referenced by incorporation, completely and with the understanding that our actual future results may be materially different from what we expect or hope.


 

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

The Pulse Beverage Corporation
Condensed Balance Sheets
As at March 31, 2012 (Unaudited) and December 31, 2011

    March 31,
2012
$
    December 31,
2011
$
 
ASSETS            
             
Current Assets            
             
     Cash   319,125     87,918  
     Accounts receivable   206,266     21,302  
     Inventories   336,699     370,968  
     Prepaid expenses   65,913     46,907  
     Current portion of loan receivable – related party (Note 4)   4,935     4,885  
             
     Total Current Assets   932,938     531,980  
     Property and equipment, net of accumulated depreciation of $3,883 and $2,577 (Note 5)   917,231     858,536  
     Other assets            
     Loan receivable, net of current portion – related party (Note 4)   191,862     193,114  
     Intangible assets, net of accumulated amortization of $11,254 and $8,309 (Note 5)   1,031,957     1,031,228  
     Total Other Assets   1,223,819     1,224,342  
             
Total Assets   3,073,988     2,614,858  
             
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)            
             
Current Liabilities            
             
     Accounts payable   217,282     189,483  
     Accrued liabilities   21,339     20,392  
             
Total Current Liabilities   238,621     209,875  
             
Contingencies (Notes 1 and 3)   -     -  
             
Stockholders’ Equity            
             
Preferred Stock, 1,000,000 shares authorized, $0.001 par value, none issued   -     -  
Common Stock, 100,000,000 shares authorized, $0.00001 par value 34,122,887 and 31,011,667 issued and outstanding, respectively (Notes 6, 7 and 8)   341     310  
Additional Paid in Capital   4,353,158     3,403,543  
Subscription (Note 6)   -     120,000  
Deficit   (1,518,132 )   (1,118,870 )
             
Total Stockholders’ Equity   2,835,367     2,404,983  
             
Total Liabilities and Stockholders’ Equity   3,073,988     2,614,858  

(See Notes to Financial Statements)

1


 

The Pulse Beverage Corporation
Condensed Statements of Operations
Three Months Ended March 31, 2012 and 2011
(Unaudited)

    2012
$
    2011
$
 
             
Revenue, net   376,700     -  
Cost of Sales   288,977     -  
             
Gross Profit   87,723     -  
             
Expenses            
     Advisory board and director fees   26,050     -  
     Amortization and depreciation   4,251     -  
     Consulting fees   18,000     -  
     Office, insurance, rent and telephone   51,084     1,187  
     Professional fees   47,567     80,398  
     Promotions, advertising and slotting fees   25,724     -  
     Regulatory fees   3,545     10,075  
     Salaries, commissions and benefits   142,181     15,250  
     Shareholder and investor relations   132,615     8,750  
     Tradeshows   15,021     -  
     Travel   33,975     -  
             
Total Operating Expenses   500,013     115,660  
             
Net Loss Before Other Income   (412,290 )   (115,660 )
             
Other Income            
Forgiveness of debt   10,971     36,018  
Interest income   2,057     105  
             
Total Other Income   13,028     36,123  
             
Net Loss   (399,262 )   (79,537 )
             
Net Loss Per Share – Basic and Diluted   (.01 )   -  
             
Weighted Average Shares Outstanding – Basic and Diluted   32,268,000     35,844,000  

(See Notes to Financial Statements)

2


 

The Pulse Beverage Corporation
Condensed Statements of Cash Flows
Three Months Ended March 31, 2012 and 2011
(Unaudited)

    2012
$
    2011
$
 
Operating Activities            
             
     Net loss   (399,262 )   (79,537 )
     Less non-cash items:            
          Amortization and depreciation   4,251     -  
          Shares issued for services   123,334     -  
          Forgiveness of debt   (10,971)     (36,018 )
     Changes in operating assets and liabilities:            
     Increase in accounts receivable   (184,864 )   -  
     Increase (decrease) in prepaid expenses   (2,338)     -  
     Increase (decrease) in inventories   34,269     -  
     Increase in accounts payable and accrued liabilities   75,460     2,226  
             
Net Cash Used in Operating Activities   (360,220 )   (113,329 )
             
Investing Activities            
             
     Investment in note receivable - related party   -     (50,000 )
     Payment on note receivable - related party   1,203     -  
     Acquisition of property and equipment   (60,000 )   (100,000 )
     Acquisition of intangible assets   (3,675 )   (19,750 )
             
Net Cash Used in Investing Activities   (62,472 )   (392,399 )
             
Financing Activities            
             
Cash received in acquisition   -     56  
Repayment of short-term loans   -     (65,442 )
Proceeds from common stock issued   671,000     1,025,000  
Share offering costs   (17,100 )   -  
             
Net Cash Provided by Financing Activities   653,900     959,614  
             
Increase in Cash   231,208     676,535  
             
Cash - Beginning of Period   87,918     -  
             
Cash - End of Period   319,125     676,535  
             
Non-cash Financing and Investing Activities:            
             
     Acquisition of assets for common shares   -     1,618,020  
     Short-term loans and payables assumed in acquisition   -     167,165  
     Shares issued for services, debt and prepaid expenses   175,745     -  
             
Supplemental Disclosures:            
             
     Interest paid   -     -  
     Income taxes paid   -     -  
             

(See Notes to Financial Statements)

3


 

The Pulse Beverage Corporation
Statement of Stockholders’ Equity
From December 31, 2009 to March 31, 2012
(Unaudited)

    Shares
#
    Amount
$
    Additional Paid-in Capital
$
    Subscription
$
    Deficit
$
    Total
$
 
                                     
Balance – December 31, 2009   3,515,000     35     149,015     -     (177,200 )   (28,150 )
                                     
Net loss for the year   -     -     -     -     (26,912 )   (26,912 )
                                     
Balance – December 31, 2010   3,515,000     35     149,015     -     (204,112 )   (55,062 )
Shares issued as dividend   38,665,000     387     (387 )   -     -     -  
Cancellation of shares   (26,660,000 )   (267 )   267     -     -     -  
Shares issued for asset acquisition   13,280,000     133     1,617,887     -     -     1,618,020  
Shares issued pursuant to $1 Unit offer   1,025,000     10     1,024,990     -     -     1,025,000  
Shares issued for services   70,000     1     53,444     -     -     53,445  
Accounts payable settled with $0.50 Units   116,667     1     58,337     -     -     58,338  
Shares issued pursuant to $0.50 Unit offer   1,000,000     10     499,990     -     -     500,000  
Subscription (Note 14)   -     -     -     120,000     -     120,000  
Net loss for the year   -     -     -     -     (914,758 )   (914,758 )
                                     
Balance – December 31, 2011   31,011,667     310     3,403,543     120,000     (1,118,870 )   2,404,983  
Shares issued pursuant to $0.30 Unit subscription received in 2011   400,000     4     119,996     (120,000 )   -     -  
Accounts payable settled with $0.30 Units   213,887     2     64,165     -     -     64,167  
Accrued expenses settled with shares   11,667     1     6,578     -     -     6,579  
Shares issued for services and prepaid expenses   249,000     2     104,998     -     -     105,000  
Shares issued pursuant to $0.50 Unit offer   2,236,666     22     670,978     -     -     671,000  
Share issuance costs   -     -     (17,100 )               (17,100 )
Net loss for the period                     -     (399,262 )   (399,262 )
                                     
Balance – March 31, 2012   34,122,887     341     4,353,158     -     (1,518,132 )   2,835,367  

(See Notes to Financial Statements)

4


 

The Pulse Beverage Corporation
Notes to Condensed Financial Statements
(Unaudited)

1. Nature of Operations

  Darlington Mines Ltd. (the “Company”) was incorporated in the State of Nevada on August 23, 2006. From August 23, 2006 to February 15, 2011 it was first, an exploration stage company, and recently a development stage company. On February 15, 2011 (the “Closing”) the Company closed a voluntary share exchange transaction (the “Share Exchange Transaction”) with The Pulse Beverage Corporation (“Pulse”) by and among the Company, Pulse and the stockholders of Pulse (the “Pulse Stockholders”). The Pulse Beverage Corporation manufactures and distributes Cabana™ 100% Natural Lemonade and plans to launch the Pulse® NutriPurpose™ brand of beverages in June, 2012. Pulse became a wholly-owned subsidiary. On February 16, 2011 the Company’s name was changed to “The Pulse Beverage Corporation”.

2. Summary of Significant Accounting Policies

  Use of Estimates

  The preparation of financial statements in accordance with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses in the reporting period. The Company regularly evaluates estimates and assumptions related to the useful life and recoverability of long-lived assets, stock-based compensation, and deferred income tax asset valuation allowances. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.

  Cash and Cash Equivalents

  Cash and cash equivalents include cash on deposit in overnight deposit accounts and investments in money market accounts.

  Property and Equipment

  Property and equipment are stated at historical cost less accumulated depreciation and amortization. Depreciation and amortization are computed on a straight-line basis over the estimated useful lives of the assets or, when applicable, the life of the lease, whichever is shorter. Vehicles and equipment are depreciated based on estimated useful lives.

  Intangible Assets

  The Company’s intangible assets consist of the cost of formulations, manufacturing processes, labeling rights and trademarks. To the extent capitalized, the Company’s intangible assets are amortized over their estimated useful lives based on the period the assets are expected to contribute to the Company’s cash flows. The Company performs impairment tests whenever events or circumstances indicate that intangible assets might be impaired.

  Revenue Recognition

  Revenue is recognized in accordance with Staff Accounting Bulletin (“SAB”) No. 101, Revenue Recognition in Financial Statements, as revised by SAB No. 104. The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable and collectability is reasonably assured. Ownership and title of our products pass to customers upon delivery of the products to customers. Certain of our distributors may also perform a separate function as a co-packer on our behalf. In such cases, ownership of and title to our products that are co-packed on our behalf by those co-packers who are also distributors, passes to such distributors when we are notified by them that they have taken transfer or possession of the relevant portion of our finished goods. Net sales have been determined after deduction of discounts and other allowances in accordance with ASC 605-50.

5


 
  Recent Pronouncements

  Recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the AICPA, and the SEC did not or are not believed by management to have a material impact on the Company's present or future financial statements.

3. Going Concern

  The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has an accumulated deficit of $1,518,132 since inception and has incurred start-up losses. These conditions give rise to doubt about the Company’s ability to continue as a going concern. These financial statements do not include adjustments relating to the recoverability and classification of reported asset amounts or the amount and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The Company’s continuation as a going concern is dependent upon its ability to obtain additional financing and to generate profits and positive cash flow. The Company will require a cash injection of an additional $1,500,000 over the next twelve months to continue to grow its Cabana™ 100% Natural Lemonade and launch its PULSE® NutriPurpose™ brand. Management believes this additional capital will provide the Company the opportunity to be operationally cash flow positive and profitable over the next twelve months.

4. Loan Receivable – Related party

  Pursuant to a Letter Agreement dated December 24, 2010 between the Company and Catalyst Development Inc., (“Catalyst”) a company owned by the Company’s Chief of Product Development, the Company agreed to loan $200,000 to Catalyst. The loan bears interest at a rate of 4% per annum, is amortized over 25 years and matures on May 16, 2016 with a balloon payment due in the amount of $174,000. Between March 21, 2011 and May 26, 2011 the Company funded the entire $200,000 obligation pursuant to the Letter Agreement. In June 2011, Catalyst began paying the Company monthly principal and interest in the amount of $1,055. As of March 31, 2012, the remaining principal balance due is $196,796.

5. Property and Equipment and Intangible Assets

  Property and Equipment   Carrying Value
March 31, 2012
$
    Carrying Value
December 31, 2011
$
 
  Manufacturing equipment and molds   650,000     590,000  
  Display equipment   120,000     120,000  
  Office equipment and computers   26,113     26,113  
  Mobile display unit   125,000     125,000  
  Less: depreciation   (3,883 )   (2,577 )
               
  Total Property and Equipment   917,231     858,536  

  Intangible Assets   Carrying Value
March 31, 2012
$
    Carrying Value
December 31, 2011
$
 
  Formulations and manufacturing methods   720,488     720,488  
  Trademarks   115,814     112,139  
  Side panel statement rights   125,000     125,000  
  Patents   50,160     50,160  
  Website   31,750     31,750  
  Less: Amortization   (11,255 )   (8,309 )
               
  Total Intangible Assets   1,031,957     1,031,228  

6


 
6. Common Stock

  During the quarter ended March 31, 2012 the Company:

  a) issued a total of 400,000 units (each a “$0.30 Unit”) pursuant to $120,000 received in 2011 in anticipation of the Company’s 2012 $0.30 Unit offering which was recorded as a subscription in stockholders’ equity at December 31, 2011. Each $0.30 Unit consisted of one share and one five year share purchase warrant to acquire one common share at $0.45;

  b) issued a total of 213,887 $0.30 Units to settle $64,167 in advisory and business consulting fees owing to Advisory Board members and a director. A total of $29,166 was to settle amounts owing at December 31, 2011 and $35,000 was for services owing for the quarter ended March 31, 2012. Each $0.30 Unit consisted of one share and one five year share purchase warrant to acquire one common share at $0.45;

  c) issued a total of 21,667 shares of common stock pursuant to an Advisory Board Agreement. The fair valued of the shares issued totaled $11,579. A total of $6,579 was to settle accrued amounts owing at December 31, 2011 and $5,000 was for services owing for the quarter ended March 31, 2012;

  d) issued a total of 239,000 common shares, having a fair value of $100,000, pursuant to agreements for services. A total of $50,000 was charged to operations and $50,000 was recorded as a prepaid expense;

  e) received $671,000 pursuant to the Company’s 2012 $0.30 Unit offering and issued a total of 2,236,666 $0.30 Units. Each $0.30 Unit consisted of one share and one five year share purchase warrant to acquire one common share at $0.45.

7. Options and Warrants

  On July 29, 2011, the Company held a Special Meeting of Shareholders whereby the shareholders’ approved the Company’s 2011 Equity Incentive Plan (“The 2011 Plan"). Pursuant to the plan documents, 4,500,000 shares of common stock are reserved under The 2011 Plan. Further, the plan authorizes the Board of Directors to grant options, restricted stock awards, performance stock awards and stock appreciation rights as compensation for services to the Company. As of December 31, 2011, no grants have been authorized or issued under the plan.

  During the year ended December 31, 2011, the Company has issued a total of 1,116,667 warrants to purchase shares of the Company’s common stock in connection with its $0.50 Unit offering. Each warrant is exercisable at a price of $0.75 per share and expires in 2016.

  During the quarter ended March 31, 2012, the Company has issued a total of 2,850,553 warrants to purchase shares of the Company’s common stock in connection with its $0.30 Unit offering. Each warrant is exercisable at a price of $0.45 per share and expires in 2017.

  No other options or warrants have been granted as of March 31, 2012. See Subsequent Events Note 8 for options and equity incentive earn-out shares granted on April 27, 2012.

8. Subsequent Events

  The Company has evaluated all subsequent events through the date these financial statements were issued and determined that there are no subsequent events to record and the following subsequent events to disclose:

  a) On May 9, 2012 the Company issued a total of 620,000 $0.30 Units pursuant to $186,000 received. Each $0.30 Unit consisted of one share and one five year share purchase warrant to acquire one common share at $0.45 per share expiring in 2017.

  b) On May 9, 2012 the Company issued a total of 91,333 $0.30 Units to settle advisory, director and consulting fees owing totaling $27,400. Each $0.30 Unit consisted of one share and one five year share purchase warrant to acquire one common share at $0.45

  c) On May 9, 2012 the Company issued a total of 178,571 shares at a fair value of $0.56 per share pursuant to a services contract payment of $100,000 owing for the period April 25, 2012 to July 25, 2012.

7


 
  d) On April 27, 2012 the Board of Directors of the Company resolved to grant stock options to certain officers, directors, employees and consultants to purchase 3,100,000 common shares at $0.50 per common share being the fair value as at April 25, 2012. A total of 25% invest immediately and 25% vests on October 31, 2012, 25% on April 30, 2012 and 25% on October 31, 2013. Vested options expire on April 30, 2017.

  e) On April 27, 2012 the Board of Directors of the Company resolved to issue shares to certain officers and consultants on an earn-out basis. A total of 650,000 shares are issuable for every 250,000 cases of product sold up to a maximum of 2,600,000 shares upon a total of 1,000,000 cases of product sold. Any shares not earned by December 31, 2013 will expire unissued.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion should be read in conjunction with our financial statements and notes thereto included elsewhere in this quarterly report. This section of this report, as well as other sections, includes a number of forward-looking statements that reflect our current views with respect to future events and financial performance. Forward-looking statements are statements not based on historical information and which relate to future operations, strategies, financial results or other developments.  Forward-looking statements are based upon estimates, forecasts and assumptions that are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control and many of which, with respect to future business decisions, are subject to change.  These uncertainties and contingencies can affect actual results and could cause actual results to differ materially from those expressed in any forward-looking statements made by us, or on our behalf.  We disclaim any obligation to update forward-looking statements.

Corporate History

We were incorporated as Darlington Mines Ltd. (the “Company”) in the State of Nevada on August 23, 2006. From August 23, 2006 to February 15, 2011 we were first, an exploration stage company, and recently a development stage company. On February 15, 2011 (the “Closing”) we closed a voluntary share exchange transaction with The Pulse Beverage Corporation (“Pulse”) by and among the Company, Pulse and the stockholders of Pulse. Pulse became a wholly-owned subsidiary and on February 16, 2011 the Company’s name was changed to “The Pulse Beverage Corporation”.

We manufacture and distribute Cabana™ 100% Natural Lemonade and we plan to launch Pulse® NutriPurpose™ brand of beverages in June, 2012.

Overview

Pulse was formed in 2010 by senior beverage industry veterans for the purpose of exploiting niche markets in the beverage industry. Our Pulse® brand of beverages contain functional ingredients that have been shown to promote health. Pulse® beverages are unique in that they were scientifically developed and contain effective ingredients that are widely considered to be critical to adult health using liposome nanotechnology that introduces the ingredients into the beverage in a format that allows the body to absorb the nutrients. We own all the formulations, rights and trademarks relating to the Pulse® brand of beverages and specifically we own the right to use the following Side Panel Statement: “Formulation developed under license from BAXTER HEALTHCARE CORPORATION”. This right is in perpetuity without royalties.

We have developed the trademarks NutriPurpose™ and Nutripurposed™ to describe our Pulse® brand of beverages. “NutriPurpose™" is a term combining the essence of “nutrition” and “purposed functionality” and is intended to depict a food product that provides health and nutritional benefits.

Our mission is to be one of the market leaders in the development and marketing of nutritional/functional beverage products that provide real health benefits to a significant segment of the population and are convenient and appealing to consumers.

We have an experienced management team of beverage industry executives that have successfully launched and/or managed the distribution for more than twenty-five major brands over the past twenty years. They have strong relationships with distributors and buyers who supply thousands of retail outlets, supermarkets and convenience stores.

Our initial products consist of Pulse® Heart Health Formula™, Pulse® Women’s Health Formula™, Pulse® Men’s Health Formula™; and Cabana™ 100% Natural Lemonades. We presently manufacture, through co-packers, distribute and market Cabana 100% Natural Lemonade. We launched our Cabana™ 100% Natural Lemonades ahead of our Pulse® NutriPurpose™ beverages to establish our distribution network with an easily understood Lemonade product and then launch our flagship Pulse® NutriPurpose™ brand through the established distribution network.

Products

Our products are targeted at the non-carbonated lemonade segment and the nutritional/functional “nutraceutical” beverage segment. Non-carbonated beverages divide into a number of categories including energy and sports drinks, teas, juices, lemonades, bottled water, and nutraceuticals. These beverage categories include a host of products that are fortified with vitamins, minerals and dietary supplements.

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To ensure that the flavor profiles of our products are satisfying and meet the needs of consumers’ health and life-style, we have contracted the services of Catalyst Development Inc. (“Catalyst”), a highly respected product development firm located in Burnaby, BC, Canada. Catalyst developed the formulations for our Pulse™ brand of beverages, under license, for Baxter Healthcare Corporation. Its owner, Ron Kendrick, is our Chief of Product Development and Operations and oversees quality assurance.

Pulse® NutriPurpose™

Our Pulse® NutriPurpose™ brand of beverages is not an emerging growth brand; it is 2 to 3 years ahead in development as significant development and test marketing costs were spent by a major healthcare company. Our Pulse® NutriPurpose™ brand is formulated and aimed at specific health platforms, providing all natural functional ingredients in a low calorie format (less than 55 calories per 8oz. serving). “NutriPurpose™" and “NutriPurposed™ are trademarked terms combining the essence of “nutrition” and “purposed functionality” and depicts a food product that provides health and nutritional benefits. Pulse: Nutrition Made Simple®” is a registered trademark. We offer consumers the nutrients they need in a convenient package. The nutrients in all Pulse® Nutripurpose™ beverages are backed by solid research and are scientifically demonstrated to promote health in targeted areas. The nutritional ingredients were specifically selected to provide the nutrition necessary to achieve targeted health benefits. These nutrients normally cannot be consumed in adequate amounts by eating food without substantially increasing calories.

Our Pulse® NutriPurpose™ brand of beverages may be the only niche beverage line that has sufficient dosages of active functional ingredients to help maintain health. The Pulse® NutriPurpose™ brand product line-up is presently comprised of three nutritional beverages in three functional health platforms:

  • Pulse® - Heart Health Formula contains safe and effective levels of a number of important heart and health friendly nutrients in a great tasting beverage. It has vitamin C and selenium, both of which are considered important nutrients to help maintain heart health. Pulse® Heart Health Formula™ is an excellent source of dietary fiber which may help maintain healthy cholesterol levels.
  • Pulse® - Men’s Health Formula™ is a unique combination of nutritional ingredients that include a variety of antioxidants that may reduce free radicals in our bodies. Free radicals are generally associated with aging, cardiovascular problems, cancer and many health concerns for men. While it is designed to support health in particular areas, such as prostate health, the combination of green tea catechins, Vitamins E & C, lycopene and selenium may help men maintain an ongoing counter attack in the battle against free radical damage to our bodies.
  • Pulse® - Women’s Health Formula™ is a convenient nutritional beverage designed specifically for women. Our ability to be active and healthy is directly affected by the strength of our bodies. Pulse® Women’s Health Formula™ contains meaningful levels of the key ingredients that work in concert to enhance bone health – calcium, magnesium and Vitamin D. Additionally, these ingredients coupled with folic acid and other B vitamins, may help women prepare for pregnancy while soy isoflavones may help buffer symptoms of menopause.

Target Market

Our targeted demographics are 30+ adults who want to feel 30+ for the rest of their lives. Our Pulse® brand mission and concept is supported by a growing consumer link between nutrition and wellness and the ever growing need for convenient solutions. This fact ensures that the product line does not just attract the huge "baby boomer" category but includes all consumers who want health conscious beverages. Our goal is to create a new product category that is focused on providing true and meaningful health and wellness benefits in a convenient and good tasting format. Wise nutritional decisions make for better health. Better health makes for a better quality of longer life. The consumer recognizes this and in growing numbers is choosing health – from the kitchen cabinet instead of the medicine cabinet.

Market Environment

  • Societal shift away from carbonated beverages - our Pulse® NutriPurpose™ brand is supported by a growing consumer link between nutrition and wellness in convenient solutions.
  • Emergence of new product categories - energy and sports drinks, teas, juices, flavored waters, functionals and lemonades.
  • Aging population – influencing the food and beverage industry and affecting everything from packaging and taste profiles to calories and contents.

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Competitive Landscape

  • Glaceau Vitamin Water® - Numerous beverages/flavors, zero calories, mostly trace amounts of vitamins and elements.
  • SoBe Lifewater® - Numerous beverages/flavors, varying calories, mostly trace amounts of vitamins and elements.
  • Function® Drinks - Three beverages/seven flavors, emphasis on detox/weight loss/energy, various antioxidants.
  • Neuro® - Eight beverages/formulations/flavors, lightly carbonated, proprietary blends and vitamins.

Competitive Differentiators

  • Proprietary formulations, scientifically effective in the recommended serving sizes as part of a daily health regimen;
  • Pulse® formulas include functional ingredients that are widely considered to be critical to adult health including anti-oxidants, vitamins, minerals, soluble fiber and soy isoflavones;
  • Liposome nanotechnology that introduces the ingredients into the beverage in a format that allows the body to absorb the nutrients.

Product Launch

We intend to launch our Pulse® NutriPurpose™ brand of beverages during June 2012. Pre-marketing with distributors is being done as we develop our distribution system with our initial product, Cabana™ 100% Natural Lemonades. Our strategy is to launch Pulse® NutriPurpose™ after we have established a distribution system with Cabana™. Our efforts with the launch of Pulse® would not be in establishing a distribution system but rather educating the beverage consumer as to the benefits of our functional products. With the existing distribution system being comfortable with the successful launch of the lemonade product, the more complex functional beverage product can then be launched less expensively into our established beverage distribution system. Mr. Ron Kendrick, our Chief of Product Development and Operations, and his team are presently completing the re-formulation of the Pulse® NutriPurpose™ line of beverages to be an all-natural, lower calorie functional beverage and to align the product with the hot-fill process when bottling. This process was completed on April 30, 2012. The hot-fill process of production allows the product to have all natural ingredients without the use of preservatives.

Cabana™ 100% Natural Lemonade

Cabana™ 100% Natural Lemonades are a line-up of refreshing, all-natural, “good-for-you”, ready-to-drink lemonades in five distinct and great tasting flavors, offering significantly reduced calories without the use of artificial sweeteners or coloring. Our Cabana™ 100% Natural Lemonade offers approximately 40% less calories than our competitors and is one of two all-natural lemonades in the marketplace.

Competive Landscape

  • Simply Lemonade® - One flavor in a 13.5oz plastic bottle using natural lemon juice and high in calories;
  • Calypso® – distributed in 30% of the US market in a 20oz. glass bottle in five flavors. It is high in calories with artificial coloring;
  • Arizona® Iced Tea – a lemonade/tea known as “Arnold Palmer” in a 24oz can;
  • Country Time Lemonade® - One flavor in a 12oz can, high in calories;
  • Hubert’s Lemonade® – all natural lemonade in a 16oz glass bottle. 

Competitive Differentiators

Nationally, only a handful of companies market ready-to-drink lemonades and there are only two major brands, AriZona® and Calypso® neither of which contain 100% natural ingredients. Cabana™ 100% Natural Lemonades have competitive advantages over existing lemonade brands in the market place:

  • they have 55 calories per 8oz. serving compared to 120 calories in the Calypso® product;
  • they have 100% all natural ingredients and the fact that our Cabana™ 100% Natural Lemonades contain no preservatives or artificial sweeteners means that they can be sold in health food stores such as Whole Foods, GNC Live Well, Vitamin Cottage and Sunflower;
  • they are known to be great tasting and refreshing with superior graphics and packaging that offer a great value in a 20oz glass bottle.

Product Launch

We launched our Cabana™ 100% Natural Lemonades ahead of our Pulse® NutriPurpose™ beverages for the following reasons:

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  •  there was a real opportunity in the lemonade beverage category due to few competitors. The leader in the category is growing at a rate of 51% over the previous year;
  • lemonades are no longer considered to be a seasonal beverage and there was only one competitor that had a 100% all natural ingredient product;
  • messaging needed to market our Cabana™ 100% Natural Lemonades is rather simple “Everyone knows what a lemonade is”;
  • management’s years of establishing strong distributor contacts allowed us to quickly set up an elaborate distribution system for our Cabana™ 100% Natural Lemonades with large, well known, Class “A” distributors so that the Pulse® NutriPurpose™ beverages could be launched inexpensively into the already established distribution system;
  • We determined that the most efficient way to build up an extensive and reliable distribution system was to introduce a product that appealed to a wide variety of demographics and didn’t require a great deal of consumer education relating to the health benefits of the product.

Product Positioning

We are positioning our Cabana™ 100% Natural Lemonades as natural complements to food in an effort to broaden their appeal. We believe that the lemonade market is well established and that there is an immediate demand in North America and internationally.  Our Cabana™ 100% Natural Lemonades, being all-natural, lower calorie, and “good for you”, are in-line with our corporate mission to reach a large demographic by aiming to be the healthiest, all-natural lemonade in the marketplace. Our sales team has polled retail stores where our Cabana™ 100% Natural Lemonades are presently selling and the feedback is that they are selling very well with no advertising of any kind.

Industry Background

Non-alcoholic beverages are among the most widely distributed food products in the world and are being sold through more than 400,000 retailers in the United States, our core market. The United States has more than 2,600 beverage companies and 500 bottlers of beverage products. Collectively they account for more than $100 billion in annual sales. It is estimated that globally more than $300 billion worth of non-alcoholic beverages are sold annually. The beverage market is controlled by two giants, The Coca-Cola Company (“Coke”) and PepsiCo, combining for over 70% of the non-alcoholic beverage market. Carbonated beverage sales are slipping, while non-carbonated beverage sales are growing. Experts predict that beverage companies that only offer carbonated beverages will have to work hard to off-set flagging demand. Industry watchers believe that growth will be largely confined to non-carbonated beverages and will chiefly affect functional drinks. Functional, sports and energy drinks are expected to be the principal beneficiaries of this trend.

Industry watchers are particularly confident about the prospect for drinks that are functional and that offer therapeutic benefit and as such capitalize on the public’s growing interest in products that promise to improve health. Although we will face competition in our bid for market share, we believe, based on market research that our products, strong packaging, unique formulations and promotions will induce early trial and in the course of two years build a widespread and loyal following. We also believe that our products will have strong appeal in Europe and the Pacific Rim, in particular, China, a country with which we have long standing relationships. Key drivers of the Chinese beverage market include rising inflows of foreign direct investment, growing levels of consumer spending power, an increasingly health conscious consuming public and the Chinese government’s market-focused economic policy.  We believe our products will be accepted in China because of China’s growing desire for healthy products and its growing middle class and its interest in brands that come from North America.

Market Segments

Non-carbonated beverages divide themselves into a number of categories including: nutraceuticals, energy drinks, sports drinks, teas, juices, lemonades, bottled water and milk and include a host of products that are fortified with vitamins, minerals and dietary supplements. Our product mix is calculated to exploit niches that have been identified in elected categories, niches that are either unoccupied or have yet to attract significant attention such as all-natural, low calorie lemonades and neutraceuticals. Nutraceuticals, according to just-drinks.com, is a category growing at the rate of 10% per annum. Our Pulse® NutriPurpose™ brand falls squarely within this category. Forecasters believe that this growth trend will continue. Currently, Japan is the largest consumer of nutraceuticals, with 2010 sales over $9 billion. However, the growing popularity of the nutraceutical category in the United States has caused some experts to predict it will overtake Japan in 2014. Although the category is experiencing good growth, no clear-cut winner has emerged. The neutraceutical category is filled with smaller companies marketing unproven products. The Ready-to-Drink Lemonade category, according to just-drinks.com, 2008 sales, in this category, was approximately $360 million.

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Distribution Systems

Our distribution systems are comprised of the following types of distributors:

Direct Store Delivery (“DSD”)

DSDs provide pre-sales, delivery and merchandising services to their customers and have a large fleet of delivery vehicles and a substantial team of marketing and sales personnel to provide these full ranges of services. Service levels are daily and weekly and they require 25% to 30% gross profit from sales to their customers. As of the date of this Report, we maintain a network of approximately 50 distributors in over 27 states in America, nine provinces in Canada and Panama. We grant these independent distributors the exclusive right in defined territories to distribute finished cases of one or more of our products through written agreements. These agreements typically include compensation to those distributors in the event we provide product directly to one of our regional retailers located in the distributor’s region. We are also obligated to pay termination fees for cancellations of most of these written distributor agreements, which have terms generally ranging from one to three years. We have chosen, and will continue to choose, our distributors based on their perceived ability to build our brand franchise in convenience stores and grocery stores.

We do not have any DSD distributors who account for more than 10% of sales.

Direct to Retail Channel (“DTR”)

We have large retail convenience store (“C-store”) and grocery store customers where we ship direct to a retailers warehousing system. Retailers must have warehousing and delivery capabilities. Services to retailer are provided by an assigned broker, approved by us, to oversee all needs which provide some pre-sale and merchandising services. Our direct to retail channel of distribution is an important part of our strategy to target large national or regional restaurant chains, retail accounts, including mass merchandisers and premier food-service businesses. Through these programs, we negotiate directly with the retailer to carry our products, and the account is serviced through the retailer’s appointed distribution system. As of the date of this Report we have obtained listings and orders for Cabana™ 100% Natural Lemonade with certain key retail grocery, convenience and mass merchandiser accounts, including, as of the date of this Report, Toot’n Totum and Hy-Vee Food Stores. These arrangements are terminable at any time by these retailers or us, and contain no minimum purchase commitments.

We do not have any DTR distributors who account for more than 10% of sales.

Sales and Marketing Strategy

We use a mix of industry standard sales and marketing strategies. We plan to capitalize on mounting concern with health issues. While our products may not offer a total solution to health issues, if our products were widely distributed, our products might help lower the incident of a wide variety of diet related disorders, including obesity and diabetes. We plan to launch a public relations campaign during quarter two of fiscal 2012. The campaign is aimed to enhance our public image as a purveyor of products that are healthy, good tasting and foster the belief that our products can be a standard against which all competitive products must inevitably be measured. In addition, we intend to garner the support of influential health organizations, advocacy groups, major publications, social networks, school boards and health providers for our products. Our goal is to shape public perception with a carefully planned and executed advertising campaign together with a determined sales effort, spearheaded by our network of distributors and salespeople.

Sales Organization and Compensation

Our sales team is managed by our CEO, Robert Yates and our VP and National Sales Manager, Parley (Paddy) Sheya. They are supported by various regional brokers and a small administrative staff. Our sales team is crisscrossing the Western, Midwest and Eastern United States, being the focus of the initial roll-out of Cabana™ 100% Natural Lemonade, meeting with buyers/distributors of leading supermarkets and convenience store chains with whom they have long standing relationships. To date they have secured distribution contracts covering all of Canada, Panama and over 20 US states and DTR contracts with a few large supermarket chains. Bob Yates is focusing on international distribution contracts in Mexico, Bermuda, Puerto Rico and Philippines. He will focus on Asia and Europe during the third quarter of 2012. The Canadian and US distribution system is managed by Mr. Sheya. We plan to add two more regional managers; one in the Midwest and one in the West with up to four district managers reporting to each regional manager over the next three years.

We pay our senior sales executives a contracted amount and will pay sales people a commission. The commission will be based strictly on performance and will require that they achieve certain sales levels.

Growth Strategy

Our growth strategy includes:

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  • securing additional distributors in America and internationally;
  • securing DTR’s and key accounts across America and internationally;
  • updating our website overall and to add online shopping in the spring of 2012;
  • launching our flagship beverage product Pulse® NutriPurpose brand in the spring of 2012;
  • expanding our Pulse® NutriPurpose™ brand by developing new proprietary formulations;
  • completing development of a third branded product closely associated with the Pulse® NutriPurpose platforms planned to be launched in 2013;
  • acquiring products and/or securing distribution rights that complement or extend our current product mix;
  • expand distribution for all products into Asia and internationally in the latter part of 2012;
  • acquire North American distribution rights for a successful Chinese premium water brand;
  • capitalizing on strategic Asian partners for distribution into China and other major Asian markets including financing its inventory, build-out and branding;
  • obtaining a more senior stock exchange listing in North America and co-listing on an Asian stock exchange.

Production Facilities

We do not directly manufacture our products but instead outsource the manufacturing process to third party bottlers and independent contract manufacturers (co-packers). For our bottle products, we purchase certain raw materials which are delivered to our various third party co-packers. We currently use two primary co-packers located in Portland, Oregon and Pittsburgh, Pennsylvania to prepare and package our bottled products. We are negotiating co-packing agreements in at least two other strategic locations in Texas and California. We will need all four co-packing facilities in operation to take advantage of lower shipping rates. We intend to identify co-packers in Canada, Europe, and Asia to support the expansion of our products in those markets. Once the product is manufactured, we store the finished product at that location or in third party warehouses. These co-packing facilities are chosen on the basis of their proximity to markets covered by our distributors. Most of the ingredients used in the formulation of our products are off-the-shelf and thus readily available. No ingredient has a lead time greater than two weeks. Other than minimum case volume requirements per production run for most co-packers, we do not typically have annual minimum production commitments with our co-packers. Our co-packers may terminate their arrangements with us at any time, in which case we could experience disruptions in our ability to deliver products to our customers. We continually review our contract packing needs in light of regulatory compliance and logistical requirements and may add or change co-packers based on those needs.

Raw Materials

Substantially all of the raw materials used in the preparation, bottling and packaging of our products are purchased by us or by our contract manufacturers in accordance with our specifications. The raw materials used in the preparation and packaging of our products consist primarily of concentrate, natural flavors, stevia, pure cane sugar, bottles, labels, trays and enclosures. These raw materials are purchased from suppliers selected by us or by our contract manufacturers. We believe that we have adequate sources of raw materials, which are available from multiple suppliers.

Currently, we purchase our flavor concentrate from three flavor concentrate suppliers. Generally, all natural flavor suppliers own the proprietary rights to the flavors. In connection with the development of new products and flavors, independent suppliers bear a large portion of the expense for product development, thereby enabling us to develop new products and flavors at relatively low cost. We anticipate that for future flavors and additional products, we may purchase flavor concentrate from other flavor houses with the intention of developing other sources of flavor concentrate for each of our products. If we have to replace a flavor supplier, we could experience disruptions in our ability to deliver products to our customers, which could have a material adverse effect on our results of operations.

Quality Control

We are committed to building products that meet or exceed the quality standards set by the U.S. and Canadian governments. Our products are made from high quality all natural ingredients. We ensure that all of our products satisfy our quality standards. Contract manufacturers are selected and monitored by our own quality control representatives in an effort to assure adherence to our production procedures and quality standards. Samples of our products from each production run undertaken by each of our contract manufacturers are analyzed and categorized in a reference library. The manufacturing process steps include source selection, receipt and storage, filtration, disinfection, bottling, packaging, in-place sanitation, plant quality control and corporate policies affecting quality assurance. In addition, we ensure that each bottle is stamped with a production date, time, and plant code to quickly isolate problems should they arise.

For every run of product, our contract manufacturer undertakes extensive testing of product quality and packaging. This includes testing levels of sweetness, taste, product integrity, packaging and various regulatory cross checks. 

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For each product, the contract manufacturer must transmit all quality control test results to us for reference following each production run. Testing also includes microbiological checks and other tests to ensure the production facilities meet the standards and specifications of our quality assurance program. Water quality is monitored during production and at scheduled testing times to ensure compliance with beverage industry standards. The water used to produce our products is filtered and is also treated to reduce alkalinity. Flavors are pre-tested before shipment to contract manufacturers from the flavor manufacturer. We are committed to ongoing product improvement with a view toward ensuring the high quality of our product through a stringent contract packer selection and training program.

Regulation

The production and marketing of our proprietary beverages are subject to the rules and regulations of various federal, provincial, state and local health agencies, including in particular Health Canada, Agriculture and Agri-Food Canada (AAFC) and the U.S. Food and Drug Administration (FDA). The FDA and AAFC also regulate labeling of our products. From time to time, we may receive notifications of various technical labeling or ingredient reviews with respect to our licensed products. We believe that we have a compliance program in place to ensure compliance with production, marketing and labeling regulations.

Packagers of our beverage products presently offer non-refillable, recyclable containers in the U.S. and various other markets. Legal requirements have been enacted in jurisdictions in the U.S. and Canada requiring that deposits or certain eco-taxes or fees be charged for the sale, marketing and use of certain non-refillable beverage containers. The precise requirements imposed by these measures vary. Other beverage container related deposit, recycling, eco-tax and/or product stewardship proposals have been introduced in various jurisdictions in the U.S. and Canada. We anticipate that similar legislation or regulations may be proposed in the future at local, state and federal levels, both in the U.S. and Canada.

New Product Development

Our product philosophy will continue to be based on developing products in those segments of the market that offer the greatest chance of success such as health, wellness and natural refreshment and we will continue to seek out underserved market niches. We believe we can quickly respond, given our technical and marketing expertise, to changing market conditions with new and innovative products. We are committed to developing products that are distinct, meet a quantifiable need, are proprietary, lend themselves to at least a 30% gross profit, projects a quality and healthy image, and can be distributed through existing distribution channels. We are identifying brands of other companies with a view to acquiring them or taking on the exclusive distributorship of their products.

Future Trends

A number of powerful trends are driving the changes that the beverage industry is facing. These changes are predicted to fuel the growth of new categories and reshape old ones. These trends are:

Societal shift affecting health and wellness Increasingly, consumers are coming to view carbonated drinks, particularly those laden with sugar, caffeine and preservatives, with disfavor.  Indeed, much to the dismay of the beverage industry giants, carbonated drinks have become an object of considerable concern to the press and medical communities. Carbonated drinks are seen as a primary cause of the nation’s growing obesity and a contributing cause of cancer as recently reported in a number of major U.S. publications.

Emergence of new product categories - Carbonated drinks have historically dominated the soft drink industry.  Beginning in the 1990’s that began to change with the introduction of what was then styled “alternative beverages.”  Alternative beverages were viewed as a healthier alternative to carbonated drinks and quickly gained favor with the public and the attention of beverage manufacturers. The alternative beverage category continued to grow and, over time, contributed to the birth of a number of new categories including:  sports drinks, energy drinks, energy shots and nutraceuticals.

Aging Population - More than 78,000,000 Americans, who were born between 1943 and 1952, began to make their needs and desires known, profoundly influencing both the food and beverage industry and affecting everything from packaging and taste profiles to calories and contents.

RESULTS OF OPERATIONS

The discussion that follows is derived from our unaudited interim balance sheets as of March 31, 2012 and 2011 and the unaudited statements of operations for the three months ended March 31, 2012 (‘2012”) and 2011 (“2011”) and the unaudited statements of cash flows for the three months ended March 31, 2012 and 2011.

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Revenues, net

Prior to September 23, 2011 we were a development stage company as we had no operating revenues. Production of our Cabana™ 100% Natural Lemonade started on September 23, 2011and our first sale was October 2, 2011.  We had no revenues or operations during the quarter ended March 31, 2011 as production and sales had not begun.

Our revenues for 2012 were $377,000 (2011 - $nil) from 33,284 cases of Cabana 100% Natural Lemonade sold into its distribution system. This is over three times as many case sales as Q4 of 2011. We expect case sales to more than triple during Q2 of 2012 and expect a significant increase in sales in 2012 through a combination of additional DSD distributors, DTR distributors, re-orders and product awareness and product available to consumers through a full summer season. We also plan to recognize revenues from our Pulse® NutriPurpose™ beverages during quarter two of 2012.

We recognize revenue when delivery has occurred, the sales price is fixed and collectability is reasonably assured. Ownership and title of our products pass to customers upon delivery of the products to customers. We record revenues, net of sales discounts.

Cost of Sales

Our cost of sales for 2012 was $289,000 (2011 – $nil). Cost of sales includes raw materials, co-packing services, lab testing and cost to deliver our product. We expect all cost variables to decrease as we source raw materials at a lower cost because of volume discounts; ship our product within a 500 mile radius of our co-packers and due to lower cost glass from a mid-west supplier.

Gross Profit

During 2012 our gross profit was $88,000 (23.3%) (2011 - $nil). Cost of our initial production runs was high due to: production techniques and variables we were testing and improving; higher than normal freight costs; higher raw material costs due to low volume purchasing; high cost of glass. The freight costs were higher because we were shipping product all over America from one production facility. These costs will decrease as we produce from strategically located co-packing facilities and deliver product within a 500 mile radius. We expect gross profits to normalize at 30% in the near-term and 35% in the long-term. Gross profit, as a percentage of sales, will also increase as we have a higher weighting of sales through DSD, lower our raw material cost through higher volume purchasing, bring on additional lower cost co-packers and take delivery of glass from a Zuckerman Honickman.

Expenses

During 2012 we incurred $500,000 of operating expenses (2011 - $116,000). This increase in operating expenses for 2012 is primarily due to our acquisition of the Pulse assets, the development of Cabana™ 100% Natural Lemonade and the accompanying change in the operations of our business.

Our highest operating expense is salaries, commissions and benefits which totaled $143,000 in 2012 (2011 - $15,250). We expect to incur increasing costs in salaries, commissions and benefits as we hire regional and district managers and additional staff for the launch of Pulse® NutriPurpose™. Commissions are expected to form part of regional and district managers’ salaries once they reach certain base performance levels. We also plan to pay commissions to part-time and full-time brokers. During 2012 we relied heavily on our senior management and brokers to develop our distribution system and sell product into it.

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During 2012 we incurred:

  • $133,000 of shareholder and investor relations expenses (2011 - $9,000). This cost includes: $65,000 paid to NBT Communications pursuant to a Professional Services Agreement of which $50,000 was paid by issuing 100,000 shares at a fair value of $0.50 per share, $15,000 paid to our public relations and shareholder liaison, $48,000 paid for broker and investor relations programs and $5,000 for issuing news releases. We expect shareholder, broker, and investor and public relations costs to remain similar for the rest of 2012.
  • $51,000 (2011- $1,000) of office, insurance, rent and telephone expenses. The Company incurred $27,000 of office and delivery expenses, $12,000 of rent, $7,000 of insurance, $4,000 of telephone and $1,000 of bank charges. We expect office, rent and telephone to increase modestly in 2012 due to higher telephone costs associated with the hiring of regional and district managers. We expect office, insurance, rent and telephone to increase slightly for the rest of 2012 due to more insurance required and more telephone costs.
  • $48,000 (2011 - $80,000) of professional fees including: $8,000 of general corporate legal fees, $26,000 of audit fees, $7,000 of legal fees associated with distribution agreements and $7,000 of legal fees associated with patent and trademark protection. We do not expect professional fees to increase dramatically for the rest of 2012.
  • $34,000 (2011 - $nil) in travel including flights, accommodations, meals and automobile. This expense is expected to increase as we add to our team of regional, district and key account managers.
  • $26,000 (2011 - $nil) in promotions, advertising and slotting fees. This cost includes magazine advertising, shipping samples to retailers and distributors, slotting fees and promotions and promotion allowances for distributors and various sales tools such as sell sheets, shelf strips and door decals. We expect this expense to increase to 6.5% of sales for the next twelve months and then settle at 5% of sales thereafter.
  • $26,000 (2011 - $nil) of advisory and director fees. Our independent director was paid $5,000 and our Advisory Board members were paid $21,000 in 2012 (2011 - $nil). This expense is expected to increase as we appoint additional independent board members.
  • $18,000 (2011 - $nil) of consulting fees. This expense is expected to increase as we take on business consultants in the future.
  • $15,000 (2011 - $nil) in tradeshows which includes booth costs, sampling at booths, flight , accommodations and meals and various other tradeshow costs.  We expect this expense to increase moderately over the next year due to launching our flagship product Pulse® NutriPurpose™ in June, 2012.
  • regulatory fees of $4,000 (2011 - $10,000). These costs include transfer agent, updating of our corporate manual and other regulatory costs of being a public company. We expect these costs to increase once we complete our goal of a senior stock exchange listing.
  • $4,000 in amortization and depreciation (2011 – nil). We expect an increase in 2012 due to a full year of depreciation and assets being put into use.

Other Income

During 2012 we received interest income of $2,000 (2011 - $nil) from a loan we made to a related party in December 2010. We expect to receive this level of interest income during the remainder of 2012 through to 2014. During 2012 we recorded $11,000 of forgiveness of debt (2011 - $36,000).

Net Loss

During 2012 we incurred a net loss of $399,000 (2011 - $80,000). This increase in net loss for 2012 is due to our acquisition of the Pulse assets, the development of Cabana™ 100% Natural Lemonade and the accompanying change in our business. We expect net earnings for fiscal 2012 due to increased sales for our products, and increased gross profit, while keeping operating expenses at a modest level. We expect net earnings on a monthly basis starting in July, 2012.

LIQUIDITY AND CAPITAL RESOURCES

Overview

During 2012 we increased our cash position from $88,000 as at December 31, 2011 to $319,000 as of March 31, 2012.

As at March 31, 2012, we had working capital of $694,000 ($322,000 as at December 31, 2011) which included cash of $319,000, accounts receivable of $206,000, inventories of $337,000 (including finished product of 7,461 cases costing $55,000, glass bottles of $135,000 and raw materials and supplies of $143,000) and prepaid expenses of $66,000. We have no debt other than accounts payable of $217,000 and accrued liabilities of $21,000. We have no long-term debt.

Subsequent to March 31, 2012, we received $96,000 pursuant to our $0.30 Unit private placement which has increased our working capital surplus. We also produced 38,435 cases in our two co-packing facilities during April 2012.

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Cash Used in Operating Activities

During 2012 we used $63,000 (2011 - $392,000) in investing activities. We spent $64,000 on capital expenditures, $60,000 for molds for our Cabana glass bottle and $4,000 for Canadian Cabana labels offset by $1,000 we received from our related party loan. In 2011 we spent $100,000 acquiring the Pulse assets from Health Beverage LLC and $20,000 on our website. During 2011 we loaned $50,000 to Catalyst Development (a related party) pursuant to a Letter Agreement (total loaned to date was $200,000) of which $1,000 was repaid during 2012.

Cash Used in Investing Activities

During 2012, we received $671,000 and issued 2,236,666 common shares pursuant to our $0.30 Unit private placement. Each $0.30 Unit consisted of one share and one five year share purchase warrant to acquire one share at $0.45 per share expiring in 2017. We paid a total of $17,100 as finders’ fees associated with this offering. During 2011 we received $1,025,000 pursuant to a private placement and issued 1,025,000 shares at $1.00 per share.

Cash Provided by Financing Activities

During 2012, we received $671,000 and issued 2,236,666 common shares pursuant to our $0.30 Unit private placement. Each $0.30 Unit consisted of one share and one five year share purchase warrant to acquire one share at $0.45 per share expiring in 2017. We paid a total of $17,100 as finders’ fees associated with this offering. During 2011 we received $1,025,000 pursuant to a private placement and issued 1,025,000 shares at $1.00 per share. We also repaid $65,000 in short-term loans.

Additional Capital

While we have raised the capital necessary to meet our working capital and financing needs in the past and in the short-term, additional financing of $1,500,000 is required to finance the growth of our domestic and international distribution network, to continue to build our products, to launch our Pulse brand and for working capital. Management believes this additional capital will provide us the opportunity to be operationally cash flow positive and profitable over the next twelve months. Our inability to generate sufficient liquidity from operations or in raise sufficient capital resources on terms acceptable to us, this could have a material adverse effect on our business, results of operations, liquidity and financial condition. Our independent auditors have stated in their Audit Report dated March 16, 2012, included in our Annual Report on Form 10-K for our year ended December 31, 2011, that we suffered start-up losses and are dependent upon the sale of our securities or obtaining debt financing to meet our obligations and sustain our operations, which raises substantial doubt about our ability to continue as a going concern. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty.

There can be no assurance that future financing will be available to us, or if available, on terms acceptable to us. If financing is not available on satisfactory terms, we may be unable to continue, develop or expand our operations. Additional equity financing could result in additional dilution to our existing shareholders.

OFF BALANCE-SHEET ARRANGEMENTS

We have not had, and at March 31, 2012, do not have, any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our discussion and analysis of our financial condition and results of operations are based upon our financial statements that have been prepared in accordance with generally accepted accounting principles in the United States of America ("US GAAP"). This preparation requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities. US GAAP provides the framework from which to make these estimates, assumption and disclosures. We choose accounting policies within US GAAP that management believes are appropriate to accurately and fairly report our operating results and financial position in a consistent manner. Management regularly assesses these policies in light of current and forecasted economic conditions. While there are a number of significant accounting policies affecting our financial statements, we believe the following critical accounting policies involve the most complex, difficult and subjective estimates and judgments:

  • Revenue Recognition;
  • Stock Based Compensation; and
  • Use of Estimates.

Revenue Recognition

We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable and collectability is reasonably assured. Ownership and title of our products pass to customers upon delivery of the products to customers. Certain of our distributors may also perform a separate function as a co-packer on our behalf. In such cases, ownership of, and title to our products that are co-packed on our behalf by those co-packers who are also distributors, passes to such distributors when we are notified by them that they have taken transfer or possession of the relevant portion of our finished goods. Net sales have been determined after deduction of discounts and other allowances in accordance with ASC 605-50.

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Stock Based Compensation

We account for stock-based compensation in accordance with the provisions of SFAS No. 123(R), “Share Based Payments”. We measure the cost of employee services in exchange for an award of equity instruments based on the grant-date fair value. Pursuant to a Special Meeting of Shareholders of the Company, held on July 29, 2011, our shareholders approved our 2011 Equity Incentive Plan (“The 2011 Plan"). A total of 4,500,000 common shares are reserved under The 2011 Plan. The 2011 Plan authorizes our Board of Directors to grant options, restricted stock awards, performance stock awards and stock appreciation rights. As of March 31, 2012 there were no stock options issued pursuant to The 2011 Plan.

Use of Estimates

The preparation of financial statements in accordance with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses in the reporting period. We regularly evaluate estimates and assumptions related to the useful life and recoverability of long-lived assets, stock-based compensation, and deferred income tax asset valuation allowances. We base our estimates and assumptions on current facts, historical experience and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by us may differ materially and adversely from our estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

There have been no recently issued Accounting Pronouncements that impact us.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not applicable.

ITEM 4. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

Robert Yates, who is both our chief executive officer and our chief financial officer, is responsible for establishing and maintaining our disclosure controls and procedures.  Disclosure controls and procedures are designed to ensure that information we are required to disclose in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and to ensure that information required to be disclosed by us in those reports is accumulated and communicated to the our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.  Our chief executive officer and chief financial officer evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of December 31, 2011. Based on that evaluation it was concluded that our disclosure controls and procedures were effective as of March 31, 2012.

Changes in internal controls

There were no changes in our internal controls over financial reporting that occurred during the quarter ended March 31, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

None.

ITEM 1A. RISK FACTORS.

Not applicable.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

On January 25, 2012 and March 5, 2012 we issued 213,887 Units at $0.30 per Unit (each a “$0.30 Unit”) to members of the advisory board and a director to settle $64,166 of fees owing. Each Unit consisted of one share of common stock and a five year warrant to purchase one share of common stock at an exercise price of $0.45. We relied upon Rule 506 of Regulation D and/or Regulation S of the Securities Act of 1933 and comparable exemptions for issuances to “accredited” investors under state securities law.

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On January 25, 2012, we issued 11,667 shares of common stock and on March 5, 2012 we issued 10,000 shares of common stock pursuant to an Advisory Board Agreement. We relied on an exemption from registration under the Securities Act provided by Rule 506.

Pursuant to a service agreement dated January 25, 2012, we issued 139,000 shares of common stock valued at $50,000.

We relied on an exemption from registration under the Securities Act provided by Rule 506.

We issued 2,570,000 $0.30 Units pursuant to subscription agreements with foreign accredited investors for cash proceeds of $771,000 of which $120,000 was received in December 2011. Each Unit consisted of one share of common stock and a five year warrant to purchase one share of common stock at an exercise price of $0.45. We relied upon Rule 506 of Regulation D and/or Regulation S of the Securities Act. The Units were issued to a number of foreign investors who are “accredited investors,” based upon representation made by such investors. We paid a total of $17,100 as finders’ fees associated with this offering.

In March, 2012 we issued 66,666 $0.30 Units pursuant to subscription agreements with two officer/directors for cash proceeds of $20,000. Each Unit consisted of one share of common stock and a five year warrant to purchase one share of common stock at an exercise price of $0.45. We relied upon Rule 506 of Regulation D and/or Regulation S of the Securities Act and comparable exemptions for issuances to “accredited” investors under state securities laws.

ITEM 3. DEFAULT UPON SENIOR SECURITIES.

None.

ITEM 4.

Not applicable.

ITEM 5. OTHER INFORMATION.

None.

ITEM 6. EXHIBITS.

The following documents are included herein:

Exhibit No. Document Description
31.1 Certification of Principal Executive Officer pursuant Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of Principal Financial Officer pursuant Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification of Chief Executive Officer and Chief Financial Officer pursuant Section 906 of the Sarbanes-Oxley Act of 2002

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

  THE PULSE BEVERAGE CORPORATION
Date: May 15, 2012 BY: /s/ Robert Yates
    Robert Yates
    Principal Executive, Financial, and Accounting Officer