PPBV Purple Beverage Company Inc (CE)

 

---

---

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-QSB

x  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2008

o  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to _______

PURPLE BEVERAGE COMPANY, INC.

(Exact name of registrant as specified in Charter)

 

Nevada		000-52450		01-0670370
(State or other jurisdiction of incorporation or organization)		(Commission File No.)		(IRS Employee Identification No.)

450 East Las Olas Blvd., Suite 830

Fort Lauderdale, Florida 33301

(Address of Principal Executive Offices)

 

(954) 462-8757

(Issuer Telephone number)

 

  (Former name or former address, if changed since last report)

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  x No  o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 60,801,449 shares of common stock issued and outstanding at August 13, 2008.

Transitional Small Business Disclosure Format: Yes  o No x

 

 

---

---

 

PURPLE BEVERAGE COMPANY, INC.

FORM 10-QSB

QUARTERLY PERIOD ENDED JUNE, 2008

INDEX

 

A Note About Forward Looking Statements	1
PART I – FINANCIAL INFORMATION
Item 1 – Financial Statements
Balance Sheet (Unaudited) – June 30, 2008	F-1
Statement of Operations (Unaudited) – For the three and nine months ended June 30, 2008	F-2
Statement of Cash Flows (Unaudited) – For the three and nine months ended June 30, 2008	F-3
Notes to Unaudited Financial Statements	F-4
Item 2 – Management's Discussion and Analysis or Plan of Operation	2
Item 4 – Controls and Procedures	7
PART II – OTHER INFORMATION
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds	9
Item 6 – Exhibits	9
Signatures	13

A Note About Forward-Looking Statements

This Quarterly Report on Form 10-QSB contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 that are based on management's current expectations. These statements may be identified by their use of words like “plans,” “expect,” “aim,” “believe,” “projects,” “anticipate,” “intend,” “estimate,” “will,” “should,” “could” and other expressions that indicate future events and trends. All statements that address expectations or projections about the future, including statements about our business strategy, expenditures, and financial results, are forward-looking statements. We believe that the expectations reflected in such forward-looking statements are accurate. However, we cannot assure you that such expectations will occur.

Actual results could differ materially from those in the forward looking statements due to a number of uncertainties including, but not limited to, those discussed in Management’s Discussion and Analysis of or Plan of Operation. Factors that could cause future results to differ from these expectations include general economic conditions; further changes in our business direction or strategy; competitive factors; market uncertainties; and an inability to attract, develop, or retain consulting or managerial agents or independent contractors. As a result, the identification and interpretation of data and other information and their use in developing and selecting assumptions from and among reasonable alternatives requires the exercise of judgment. To the extent that the assumed events do not occur, the outcome may vary substantially from anticipated or projected results, and accordingly, no opinion is expressed on the achievability of those forward-looking statements. No assurance can be given that any of the assumptions relating to the forward-looking statements specified in the following information are accurate, and we assume no obligation to update any such forward-looking statements. You should not unduly rely on these forward-looking statements, which speak only as of the date of this Quarterly Report. Except as required by law, we are not obligated to release publicly any revisions to these forward-looking statements to reflect events or circumstances occurring after the date of this report or to reflect the occurrence of unanticipated events.

PART I – FINANCIAL INFORMATION

Item 1 – Financial Statements

NOTE 8 - STOCKHOLDERS’ EQUITY

Common Stock

At the effective time of the Merger, the stockholders of Venture exchanged their securities for 35,851,548 shares of the Company’s restricted common stock, representing approximately 68% of the common stock of the Company at that time. The Company had 10,993,125 outstanding shares of common stock immediately preceding the merger. Additionally, upon the closing of the Merger, two former stockholders of Red sold their interest in Red in exchange for $60,000 in cash and all the historical operating assets of Red pursuant to a stock purchase agreement entered into December 12, 2007.

In October 2007, the Company completed a private placement to accredited investors and received proceeds of $630,000 from the sale of units consisting in the aggregate of 1,260,000 shares of its common stock and warrants to purchase 1,260,000 shares of common stock. The Company’s founder contributed 1,260,000 shares owned by him to the Company in connection with this private placement. The warrants are exercisable at $2.00 per share for a term of five years.

In November 2007, the Company issued 550,712 shares of common stock for advertising and promotional services in connection with a three-year agreement. The Company’s founder contributed 183,565 shares owned by him to the Company in connection with this agreement. The Company valued these common shares at the fair market value on the date of grant at $.50 per share or $275,356 based on the recent selling price of the Company’s common stock, which has been recognized as advertising expense.

In December 2007, the Company agreed to issue 100,000 shares of common stock for advertising and promotional services in connection with a one year agreement. The Company valued these common shares at the fair market value on the date of grant at $.50 per share or $50,000 based on the recent selling price of the Company’s common stock, which has been recognized as advertising expense.

In December 2007, the Company completed a private placement to accredited investors and received net proceeds of $2,745,550 from the sale of units consisting in the aggregate of 6,030,000 shares of its common stock and warrants to purchase 6,030,000 shares of common stock. The warrants are exercisable at $2.00 per share for a term of five years. Additionally, in connection with these private placements, the Company paid commissions to its placement agents of approximately $225,200 in cash, issued 281,500 shares of common stock, and granted 281,500 warrants exercisable at $2.00 per share for a term of five years, which have been allocated against paid-in-capital.

In December 2007, the Company amended the terms and provisions in connection with notes payable of two debt holders. Under the terms of the amended note agreements, the principal and accrued interest thereon will mature on March 31, 2008, and, in connection with such extension of terms, the Company issued an aggregate of 100,000 shares to such debt holders. The Company valued these common shares at the fair market value on the date of grant at $.50 per share or approximately $50,000 based on the recent selling price of the Company’s common stock, which has been recognized as interest expense. Further, as part of the amendments, the note became convertible at the option of the holders at a rate of $1.00 per share.

In December 2007, the Company obtained the approval of a majority of its stockholders to increase the authorized common shares from 50,000,000 to 412,500,000 shares of common stock at $0.001 par value.

In connection with the exercise of the warrants, the Company agreed to register for re-sale the exercised shares and 30% of the other shares of common stock issued to the exercising warrant holders in connection with the December 2007 private placement. The Company also agreed to register for re-sale of the 1,635,786 shares of common stock that the Company sold and issued in the private offering in March 2008.

Pursuant to a Registration Rights Agreement between the Company and the exercising warrant holders, and a separate, substantially similar Registration Rights Agreement between the Company and the eight issuees in the private offering, the Company agreed to file a re-sale registration statement with the Securities and Exchange Commission on or before May 2, 2008, and to use its best efforts to cause the registration statement to be declared effective on or before June 30, 2008. The Company filed such registration statement on May 2, 2008.

The Company agreed to pay to the exercising warrant holders and to the eight issuees in the private offering certain liquidated damages as follows: (a) if the registration statement is not filed timely, then, for each 30-day period of delinquency and pro rata for any portion thereof until the registration statement has been filed, the Company will pay to each exercising warrant holder and to each private offering issuee an amount equal to 1.5% of the exercise price paid by each exercising warrant holder and purchase price paid by such issuee, as relevant, and (b) if the required registration statement is not declared effective by the Securities and Exchange Commission on a timely basis, then, for each 30-day period of delinquency and pro rata for any portion thereof until the registration statement has been declared effective, the Company will pay to each exercising warrant holder and to each private offering issuee an amount equal to 1.5% of the aggregate exercise price paid by each exercising warrant holder and purchase price paid by such issuee, as relevant. Such payments shall be made to each such qualifying holder in cash. However, the Company need only make one such series of liquidated damages payments for any period in which the Company is liable both for a failure to file the registration statement timely and for a failure for it to have been declared effective timely. If the registration statement has been declared effective timely, even if it had not been filed timely, any liquidated damages otherwise due shall be automatically waived.

Common Stock Warrants

In October 2007, in connection with a private placement, the Company granted 1,260,000 purchase warrants to investors. The warrants are exercisable at $2.00 per common share and expire in five years.

In December 2007, in connection with a private placement, the Company granted 6,030,000 purchase warrants to investors. The warrants are exercisable at $2.00 per common share and expire in five years. In connection with these private placements, the Company paid commissions and granted 281,500 warrants to its placement agents. The warrants are exercisable at $2.00 per share for a term of five years, which have been allocated against paid-in-capital.

ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.

THE FOLLOWING PRESENTATION OF OUR MANAGEMENT'S DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL STATEMENTS AND OTHER FINANCIAL INFORMATION INCLUDED ELSEWHERE IN THIS REPORT. THIS DISCUSSION INCLUDES FORWARD-LOOKING STATEMENTS THAT INVOLVE RISK AND UNCERTAINTIES. ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THE FORWARD-LOOKING STATEMENTS.

Recent Events

 

Prior to December 12, 2007, we were a public shell company, as defined by the Securities and Exchange Commission, without material assets or activities that engaged in event planning between the years 2002 and 2005, the apparel industry from 2005 to 2006, and thereafter aimed to develop, produce, market and distribute low budget film and video productions. On December 12, 2007, we completed a reverse merger, pursuant to which a private company (Venture Beverage Company) merged with and into a wholly-owned subsidiary of ours, with the private company being the surviving company. In connection with this reverse merger, we discontinued our former business and succeeded to the business of Venture Beverage Company as our sole line of business. For financial reporting purposes, Venture Beverage Company, and not us, is considered the accounting acquiror. Accordingly, the historical financial statements presented and the discussion of financial condition and results of operations herein are those of Venture Beverage Company and do not include our historical financial results. All costs associated with the reverse merger, other than financing related costs in connection with the simultaneous sale of $3,015,000 of units consisting of common stock and warrants and the costs related to the repurchase of securities from two former stockholders, were expensed as incurred.

 

Overview

 

We develop, market, and distribute a unique beverage product that is positioned as a “better for you” beverage and is targeted to the growing category of “new age/functional” beverage consumers. We own the rights to the Purple brand, a new functional beverage that contains a high level of anti-oxidants that are found in seven different natural fruit juices that combine to make our product. We launched Purple in the summer of 2007.

 

Since our business began on May 8, 2007, we have not provided any historical comparative analysis below.

 

Critical Accounting Policies and Estimates

 

Use of Estimates. In preparing the financial statements, we are required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the statements of financial condition, revenues, and expenses for the period then ended. Actual results may differ significantly from those estimates. Significant estimates made by us include, but are not limited to, stock-based compensation, valuation of debt discounts, and useful life of property and equipment.

 

Accounts Receivable. We have a policy of reserving for uncollectible accounts based on its best estimate of the amount of probable credit losses in its existing accounts receivable. We periodically review our accounts receivable to determine whether an allowance is necessary based on an analysis of past due accounts and other factors that may indicate that the realization of an account may be in doubt. Account balances deemed to be uncollectible are charged to the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.

 

Inventories. Inventories are stated at the lower of cost or market utilizing the first-in, first-out method and consist of raw materials related to our products. We write down inventory for estimated obsolescence or unmarketable inventory based upon assumptions and estimates about future demand and market conditions. If actual market conditions are less favorable than those projected by us, additional inventory write-downs may be required.

 

Property and Equipment. Property and equipment are carried at cost. Depreciation and amortization are provided using the straight-line method over the estimated economic lives of the assets. The cost of repairs and maintenance is expensed as incurred; major replacements and improvements are capitalized. When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in income in the year of disposition.

 

Revenue Recognition. We record revenue when persuasive evidence of an arrangement exists, services have been rendered or product has been shipped, the sales price to the customer is fixed or determinable, and our ability to collect the receivable is reasonably assured. We do not ship product without receipt of an official order from the customer. The customer does not have the right to return the product except for matters related to manufacturing defects on our part. We regularly review our policies for sales allowances and, if deemed appropriate, we adjust those policies based on available, historical trends; net sales are inclusive of these estimated allowances. We primarily sell our product to distributors and recognize revenue upon shipment to them, as opposed to recognizing revenue upon their resale of the product to the ultimate customers. In limited cases where we retain ownership of the product after shipment to the distributor, we defer recognition of the revenue until such time as the product is sold to the ultimate customer and all other revenue recognition criteria have been satisfied.

 

Stock Based Compensation. We adopted Statement of Financial Accounting Standards No. 123 (revised 2004), Share Based Payment (“SFAS No. 123R”). SFAS No. 123R establishes the financial accounting and reporting standards for stock-based compensation plans. As required by SFAS No. 123R, we recognized the cost resulting from all stock-based payment transactions including shares issued under our stock option plans in the financial statements.

 

Non-Employee Stock-Based Compensation. The cost of stock based compensation awards issued to non-employees for services are recorded at either the fair value of the services rendered or the instruments issued in exchange for such services, whichever is more readily determinable, using the measurement date guidelines enumerated in Emerging Issues Task Force Issue (“EITF”) 96-18, “Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services” (“EITF 96-18”).

 

Recent Accounting Pronouncements

 

In July 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation (FIN) No. 48, “Accounting for Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109.” This interpretation provides guidance for recognizing and measuring uncertain tax positions, as defined in SFAS No. 109, “Accounting for Income Taxes.” FIN No. 48 prescribes a threshold condition that a tax position must meet for any of the benefits of an uncertain tax position to be recognized in the financial statements. Guidance is also provided regarding de-recognition, classification, and disclosure of uncertain tax positions. FIN No. 48 is effective for fiscal years beginning after December 15, 2006. We believe the adoption of this interpretation did not have an impact on our financial position, results of operations, or cash flows.

 

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (“FAS 157”). This Statement defines fair value as used in numerous accounting pronouncements, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosure related to the use of fair value measures in financial statements. FAS 157 is to be effective for our financial statements issued in 2008. We believe the adoption of this interpretation did not have an impact on our financial position, results of operations, or cash flows.

 

In September 2006, the SEC issued Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements when quantifying Misstatements in Current Year Financial Statements (“SAB 108”). SAB 108 requires companies to evaluate the materiality of identified unadjusted errors on each financial statement and related financial statement disclosures using both the rollover approach and the iron curtain approach, as those terms are defined in SAB 108. The rollover approach quantifies misstatements based on the amount of the error in the current year financial statement, whereas the iron curtain approach quantifies misstatements based on the effects of correcting the misstatement existing in the balance sheet at the end of the current year, irrespective of the misstatement’s year(s) of origin. Financial statements would require adjustment when either approach results in quantifying a misstatement that is material. Correcting prior year financial statements for immaterial errors would not require previously filed reports to be amended. If a company determines that an adjustment to prior year financial statements is required upon adoption of SAB 108 and does not elect to restate its previous financial statements, then it must recognize the cumulative effect of applying SAB 108 in fiscal 2006 beginning balances of the affected assets and liabilities with a corresponding adjustment to the fiscal 2006 opening balance in retained earnings. SAB 108 is effective for interim periods of the first fiscal year ending after November 15, 2006. We believe the adoption of SAB 108 did not have an impact on our financial statements.

 

In December 2006, FASB Staff Position No. EITF 00-19-2, “Accounting for Registration Payment Arrangements,” was issued. This Staff Position specifies that the contingent obligation to make future payments or otherwise transfer consideration under a registration payment arrangement, whether issued as a separate agreement or included as a provision of a financial instrument or other agreement, should be separately recognized and measured in accordance with SFAS No. 5, “Accounting for Contingencies.” We believe that our current accounting is consistent with this Staff Position.

 

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities, Including an Amendment of FASB Statement No. 115,” under which entities will now be permitted to measure many financial instruments and certain other assets and liabilities at fair value on an instrument-by-instrument basis. This Statement is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007. Early adoption is permitted as of the beginning of a fiscal year that begins on or before November 15, 2007, provided the entity also elects to apply the provisions of FAS 157. We believe the adoption of this interpretation did not have an impact on our financial position, results of operations, or cash flows.

 

In May 2007, the FASB issued FASB Staff Position No. FIN 48-1, “Definition of Settlement in FASB Interpretation No. 48 . ” This Staff Position provides guidance about how an enterprise should determine whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits. Under this Staff Position, a tax position could be effectively settled on completion of examination by a taxing authority if the entity does not intend to appeal or litigate the result and it is remote that the taxing authority would examine or re-examine the tax position. We do not expect that this interpretation will have a material impact on our financial position, results of operations, or cash flows.

 

In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations,” which replaces SFAS No. 141, “Business Combinations,” which, among other things, establishes principles and requirements for how an acquirer entity recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed (including intangibles), and any noncontrolling interests in the acquired entity. SFAS No. 141(R) applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. We are currently evaluating what impact, if any, the adoption of SFAS No. 141(R) will have on our financial statements.

 

In December 2007, the FASB issued SFAS No. 160, “ Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51.” SFAS No. 160 amends ARB 51 to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It also amends certain of ARB 51’s consolidation procedures for consistency with the requirements of SFAS No. 141(R). SFAS No. 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. We are currently evaluating what impact the adoption of SFAS No. 160 will have on our financial statements.

 

4

---

 

Operating Expenses. Total operating expenses for the three and nine months ended June 30, 2008, were $8,464,222 and $22,121,310, respectively, and consisted of the following:

		Three months ended  June 30, 2008			Nine months ended  June 30, 2008
Compensation expense and related taxes		$	2,843,723		$	7,223,366
Advertising and marketing			1,176,077			8,766,355
Professional and consulting fees			3,801,663			4,796,015
Other selling, general and administrative			642,759			1,335,574
Total		$	8,464,222		$	22,121,310

   

·

compensation expense and related taxes were attributable to salaries, benefits, and related taxes to our officers and employees. For the nine months ended June 30, 2008 , we recorded non-cash expenses of $4,737,700 related to stock-based compensation expense, which includes approximately $3,495,528 attributable to options granted to our chief executive officer and chief financial officer. Stock-based compensation - options represented approximately 21% of our total operating expenses for the nine months ended June 30, 2008. Under SFAS No. 123(R), which was effective January 1, 2006, companies are now required to measure the compensation costs of share-based compensation arrangements based on the grant date fair value and recognize the costs in the financial statements over the period during which employees are required to provide services. We anticipate that compensation expense will increase during the remainder of our current fiscal year as we continue to build the Purple brand, which will require additional market activation personnel and support staff.

 

·

advertising and marketing expenses represent our brand development and promotional expenses for our proprietary brand. These expenses include promotional spending at point of sale. For the nine months ended June 30, 2008, we issued 1,186,546 shares of common stock for advertising and promotional services valued at approximately $1,502,217. Additionally, we recorded non-cash expenses of $5,304,858 related to stock-based expense, primarily attributable to options granted in connection with endorsement agreements entered into during the nine months ended June 30, 2008. We anticipate that our advertising and marketing expenses, in both cash and equity components, will continue to increase for the remainder of our current fiscal year, subject to our ability to generate operating capital.

 

·

Professional and consulting fees represent expenses incurred for expenses related to accounting, legal, public relations and financial and business advisory services. For the nine months ended June 30, 2008, we recorded non-cash expenses related to profession and consulting services in the form of 54,000 stock options. We anticipate that our professional fees will continue to increase for the remainder of our current fiscal year as we continue to raise additional working capital and develop the Purple brand.

 

·

other selling, general and administrative expenses include rent expense, travel expense, office, supplies, telephone and communications expenses, and other expenses. We anticipate that these expenses will continue to increase during the remainder of our current fiscal year as we continue to grow our Purple brand.

    Loss from Operations. We reported a loss from operations of $8,452,827 and $22,112,730 for the three and nine months ended June 30, 2008, respectively.

 

Other Expenses. For the nine months ended June 30, 2008, interest expense amounted to $1,060,450 and $1,472,987, respectively. Of such amount, approximately $155,228 was attributable to amortization of the debt discount in connection with the issuance of the 12% notes payable, all of which was included in interest expense for the nine-month period ended June 30, 2008, and none of which was included in interest expense for the three-month period then ended. We recognized interest expense on notes payable amounting to approximately $11,000 and $62,000 during the respective three and nine months ended June 30, 2008. Additionally, we issued shares in connection with notes payable valued at $1,053,268 and warrants valued at $201,550 throughout the nine months ending June 30, 2008 – shares and warrants were valued based on the fair market values at the date of issuance.

 

Net Loss. We reported a net loss of $9,512,128 and $23,581,665 for the three and nine months ended June 30, 2008, respectively, which translates to basic and diluted net loss per common share of $0.16 during the three months ended June 30, 2008, and basic and diluted net loss per common share of $0.45 during the nine months ended June 30, 2008.

 

Liquidity and Capital Resources

 

Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate on an ongoing basis. At June 30, 3008, we had a cash balance of $8,709, a net decrease in cash of $61,181 during the quarter ended June 30, 2008, and negative working capital of $860,569. We have been funding our operations though the sale of our securities and short-term bridge notes.

In December 2007, we issued and sold an aggregate of 60.3 units of our securities to 31 investors for the aggregate price of $3,015,000 (“December 2007 Private Placement”). Each unit (“Unit”) consisted of 100,000 shares of our common stock and 100,000 warrants to purchase an equivalent number of shares of our common stock. The purchase price of each Unit was $50,000.

 

On March 11, 2008, we offered a temporary reduction in the exercise price of 50% of the warrants that we had granted as part of the December 2007 Private Placement. The per-share exercise price of the warrants was reduced from $2.00 to $1.25 from March 11 to April 2, 2008. 934,000 warrants were exercised, resulting in $1,167,500 of proceeds. At the request of certain warrant holders, we eliminated the 50% limit. In connection with the temporary reduction, the exercising warrant holders were granted an aggregate of 467,000 common stock purchase warrants, at an exercise price of $3.50, on the basis of one new warrant for each two original warrants exercised.

On April 2, 2008, we closed an additional private offering in which we raised approximately $2.275 million in net proceeds, in addition to the funds we received through the above-referenced exercise of warrants. In connection with this private offering, we issued 1,635,786 shares of our common stock at a per-share purchase price of $1.40 to eight investors, some of whom were parties to our December 2007 financing.

In June 2008, we received aggregate proceeds of $500,000 in consideration of a sixty-day unsecured promissory note in the same amount, with an interest rate of 18%, payable to one investor. We also issued such investor 100,000 shares of common stock, granted him 100,000 warrants to purchase an equivalent number of shares of our common stock at $2.00 per share, and granted him 100,000 warrants to purchase an equivalent number of shares of our common stock at $3.50 per share. Also, in July 2008, we received aggregate proceeds of $1,000,000 in consideration of a ninety-day unsecured promissory note in the same amount, with an interest rate of 11%, payable to another investor. We also issued such investor 200,000 shares of common stock and granted it 200,000 warrants to purchase an equivalent number of shares of our common stock at $2.00 per share. In connection with the latter loan and issuance of securities, we also issued 150,000 shares of our common stock as a finder’s fee to a third party. On August 11, 2008, we entered into a short-term bridge loan in the principle amount of $250,000, which shall mature on September 10, 2008, bears annual interest at 8%, and is unsecured.

 

Net cash flows used in operating activities for the nine months ended June 30, 2008, amounted to $7,275,434 and were primarily attributable to our net losses of $23,581,665, offset by stock-based expenses of $15,775,531, depreciation of $10,299, amortization of debt discount of $155,228, and changes in assets and liabilities of $365,173, which includes $(881,726) of accounts receivable, $(944,607) of inventory, $(377,497) of other current assets, $1,342,842 of accounts payable, $650,161 of accrued expenses, and $576,000 of deferred revenue. Net cash flows used in investing activities for the nine months ended June 30, 2008, amounted to $124,862 and were primarily attributable to the purchase of property and equipment. Net cash flows provided by financing activities were $7,339,115 for the nine months ended June 30, 2008. Further, for the nine months ended June 30, 2008, we received net proceeds from the sale of our common stock and exercise of warrants of $5,638,515 and $1,167,500, respectively. Additionally, we received proceeds from the issuance of a note payable of $1,593,000, and repaid $1,000,000 of principal and paid $60,000 in connection with a stock repurchase agreement upon the closing of our reverse merger on December 12, 2007.

We pay Mr. Farnsworth a salary of $225,000 per year and a monthly performance bonus equal to 6% of the net invoice price for all sales, at wholesale or retail, of Purple  during the corresponding month in accordance with our revenue recognition policies. Mr. Farnsworth’s bonus is based upon the sales of our product, whether at wholesale or retail, if such sales are recognized as revenue by us. Thus, in the case of our sale to one of our distributors that, in turn, re-sells the product to a retail store, which sell the product to a consumer, Mr. Farnsworth’s bonus is calculated on that sale. We allocate Mr. Farnsworth’s monthly 6% performance bonus to “other selling, general and administrative” (“SG&A”) expenses, which currently approximate our net sales on a quarterly basis. If we meet our internal projections for increasing our net revenues, as to which increases there can be no assurance, our SG&A expenses will decrease as a percentage thereof. However, those expenses will not decline as rapidly as they otherwise would due to the burden of the 6% monthly performance bonus. We believe that, if our net revenues increase according to our business plan, our gross margins will support the 6% monthly bonus, although not necessarily without a material adverse impact on our overall profitability.

We currently have no material commitments for capital expenditures. Other than our cash on hand ($249,361 as of August 13, 2008), we presently have no alternative source of operating capital. We may not have sufficient capital to fund the expansion of our operations and to provide capital necessary for our ongoing operations and obligations. We will need to raise significant additional capital to fund our operating expenses, pay our obligations, and grow our company. We do not presently have any firm commitments for any additional capital, and our financial condition may make our ability to secure this capital difficult. There are no assurances that we will be able to continue our business, and we may be forced to cease operations if we do not raise significant additional working capital, in which event investors could lose their entire investment in us.

Off Balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements.

ITEM 4. CONTROLS AND PROCEDURES

As required by Rule 13a-15 under the Securities Exchange Act of 1934, as of June 30, 2008, the end of the period covered by this report, our management, which is responsible for establishing and maintaining adequate internal control over financial reporting, concluded its evaluation of the effectiveness of the design and operation of our disclosure controls and procedures. Disclosure controls and procedures are designed to reasonably assure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, such as this report, is recorded, processed, summarized and reported within the time periods prescribed by SEC rules and regulations, and to reasonably assure that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within us have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management or board override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. The Certifications appearing immediately following the signatures section of this report are Certifications of our Chief Executive Officer and Chief Financial Officer. The Certifications are required in accordance with Section 302 of the Sarbanes-Oxley Act of 2002 (the Section 302 Certifications). This Item of this report is the information concerning the evaluation referred to in the Section 302 Certifications and this information should be read in conjunction with the Section 302 Certifications for a more complete understanding of the topics presented.

We carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and our principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based upon the evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective at the reasonable assurance level for timely gathering, analyzing and disclosing the information we are required to disclose in our reports filed under the Securities Exchange Act of 1934. Our management, which includes our Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures are effective to (i) give reasonable assurance that the information required to be disclosed by us in reports that we file 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 (ii) ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934 is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

There have been no changes in our internal control over financial reporting during our last fiscal quarter that have materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Part II - OTHER INFORMATION

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

Employees

 

In April 2008, we granted an aggregate of 966,000 five-year stock options to purchase common stock to certain employees at exercise prices ranging from $2.81 to $3.10 per share. These options vest and become exercisable as to (i) 322,000 shares in April 2009, (ii) an additional 322,000 shares in April 2010; and (iii) the remaining 366,000 shares in April 2011, assuming that such employees are employed by us as of such dates.

In May 2008, we granted an aggregate of 1,760,000 five-year stock options to purchase common stock to certain employees at exercise prices ranging from $2.50 to $2.70 per share. These options vest and become exercisable as to (i) 586,666 shares in May 2009, (ii) an additional 586,666 shares in May 2010; and (iii) the remaining 586,668 shares in May 2011, assuming that such employees are employed by us as of such dates.

In June 2008, we granted an aggregate of 770,000 five-year stock options to purchase common stock to certain employees at exercise prices ranging from $1.94 to $2.49 per share. These options vest and become exercisable as to (i) 256,666 shares in June 2009, (ii) an additional 256,666 shares in June 2010; and (iii) the remaining 256,668 shares in June 2011, assuming that such employees are employed by us as of such dates.

The foregoing grants were made in reliance on Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”). We believe that the exemption was available because (i) all offers were made in accordance with the provisions of the exemption, (ii) there were a limited number of offers made, (iii) no advertising or general solicitation was employed in the offerings, (iv) transfer of the options was restricted in accordance with the requirements of the Securities Act (including the legending of the option grant agreements representing the stock options) and in accordance with certain sale restriction provisions in the option agreements, (v) all offerees were financially sophisticated or advised by someone who had the requisite acumen, and (vi) all offerees were provided with the applicable disclosure materials or access thereto .

Securities Issued in Connection with Short-Term Debt Financing

In connection with certain short-term debt financing, in June 2008, we issued to a individual an aggregate of 100,000 shares of our common stock, 100,000 two-year “Series A” warrants to purchase shares of our common stock at $2.00 per share, which vested immediately, and 100,000 two-year “Series B” warrants to purchase shares of our common stock at $3.50 per share, which vested immediately.

In connection with an additional short-term debt financing, in July 2008, we issued to an entity 200,000 shares of our common stock and 200,000 two-year “Series A” warrants to purchase shares of our common stock at $2.00 per share, which vested immediately. In connection with such transaction, we also issued 150,000 shares of our common stock to a third-party as a finder’s fee.

The issuances were made in reliance on Rule 506 of Regulation D, as promulgated by the Securities and Exchange Commission under the Securities Act. We believe that the exemption was available because (i) no advertising or general solicitation was employed in offering the securities, (ii) the issuances of securities were made to three persons, each of whom was an accredited individual, and (iii) transfer of the securities was restricted in accordance with the requirements of the Securities Act of 1933 (including the legending of the warrant grant agreement representing the warrants granted, and the certificates representing the common stock issued, pursuant thereto.

ITEM 6. EXHIBITS

Exhibit No.		Description
2.1		Agreement and Plan of Merger by and among Red Carpet Entertainment, Inc., Venture Beverage Company, and Purple Acquisition Corp., dated December 12, 2007 (Incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K/A of the Company filed with the Securities and Exchange Commission on December 17, 2007 (the “December 8-K/A”)).

3.1		Composite Articles of Incorporation of the Company (Incorporated by reference to Exhibit 3.1 to the Registration Statement on Form S-1 of the Company filed with the Securities and Exchange Commission on May 2, 2008 (the “May S-1”)).
3.2		By-laws of Red Carpet Entertainment, Inc. (Incorporated by reference to Exhibit 3.2 to the Registration Statement on Form SB-2 of the Company filed with the Securities and Exchange Commission on December 28, 2006 (the “2006 SB-2”)).
10.1		Employment Agreement, dated as of December 12, 2007, between the Company and Theodore Farnsworth (Incorporated by reference to Exhibit 10.1 to the December 8-K/A).
10.2		Venture Beverage Company 2007 Incentive Plan (Incorporated by reference to Exhibit 10.2 to the December 8-K/A).
10.3		Form of Nonqualified Stock Option Award Agreement under the 2007 Incentive Plan (Incorporated by reference to Exhibit 10.3 to the December 8-K/A).
10.4		Form of Lock-Up Agreement, dated as of December 12, 2007, by and between the Company and each of certain stockholders (Incorporated by reference to Exhibit 10.4 to the December 8-K/A).
10.5		Form of Subscription Agreement, dated as of May 10, 2007, by and between Venture Beverage Company and certain stockholders (Incorporated by reference to Exhibit 10.5 to the December 8-K/A).
10.6		Form of Common Stock Purchase Warrant, dated between May 17 and October 24, 2007, issued by Venture Beverage Company to certain stockholders. (Incorporated by reference to Exhibit 10.6 to the December 8-K/A).
10.7		Form of Subscription Agreement, dated as of December 12, 2007, by and between the Company and certain stockholders (Incorporated by reference to Exhibit 10.7 to the December 8-K/A).
10.8		Form of Common Stock Purchase Warrant, dated as of December 12, 2007, issued by the Company to certain stockholders (Incorporated by reference to Exhibit 10.8 to the December 8-K/A).
10.9		Stock Repurchase Agreement, made and entered into as of December 12, 2007, by and between Red Carpet Entertainment, Inc. and Christopher Johnson and Lissa Johnson (Incorporated by reference to Exhibit 10.9 to the December 8-K/A).

10.10		Consulting Agreement, dated December 1, 2007, by and between the Company and Esquire Sports Marketing, L.L.C. (Incorporated by reference to Exhibit 10.10 to the Quarterly Report on Form 10-QSB of the Company filed with the Securities and Exchange Commission on February 14, 2008 (“February 10-QSB”)).
10.11		Agreement, dated January 18, 2008, by and between the Company and Esquire Sports Marketing, L.L.C. (Incorporated by reference to Exhibit 10.11 to the February 10-QSB).
10.12		Endorsement Agreement, entered into as of January 18, 2008 by and between the Company and Torii Hunter (Incorporated by reference to Exhibit 10.12 to the February 10-QSB).
10.13		Sublease Agreement, made as of January 22, 2008, by and between the Company and Fisher and Phillips, LLP (Incorporated by reference to Exhibit 10.13 to the February 10-QSB).
10.14		Promissory Note, dated March 11, 2008, issued by the Company to GRQ Consultants, Inc. in the principal sum of $1,000,000 (Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of the Company filed with the Securities and Exchange Commission on March 17, 2008).
10.15		Amendment to Subscription Agreement and to Common Stock Purchase Warrant to Purchase Shares of Common Stock of the Company, dated April 2, 2008, by and between the Company and certain persons, who were parties to the December 12, 2007, Subscription Agreement. (Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of the Company filed with the Securities and Exchange Commission on April 4, 2008 (the “April 8-K”)).
10.16		Common Stock Purchase Warrant, dated April 2, 2008, issued by the Company in favor of the exercising warrant holders. (Incorporated by reference to Exhibit 10.2 to the April 8-K).
10.17		Addendum to Subscription Agreement, dated April 2, 2008, by and between the Company and the parties thereto (Incorporated by reference to Exhibit 10.3 to the April 8-K).
10.18		Registration Rights Agreement, dated April 2, 2008, by and between the Company and the exercising warrant holders (Incorporated by reference to Exhibit 10.4 to the April 8-K).
10.19		Registration Rights Agreement, dated April 2, by and between the Company and the parties thereto (Incorporated by reference to Exhibit 10.5 to the April 8-K).
10.20		Agreement, dated March 25, 2008, by and between the Company and Esquire Sports Marketing, L.L.C. (Incorporated by reference to Exhibit 10.20 to the May S-1).

10.21		Endorsement Agreement, entered into as of March 25, 2008 by and between the Company and Mariano Rivera (Incorporated by reference to Exhibit 10.21 to the May S-1).
10.22		Employment Agreement, dated as of March 19, 2008, by and between the Company and Michael W. Wallace (Incorporated by reference to Exhibit 10.22 to the May S-1).
10.23		Option Award Agreement, effective March 25, 2008, representing a grant of a nonqualified stock option by the Company to Mariano Rivera (Incorporated by reference to Exhibit 10.23 to the May S-1).
10.24		Endorsement Agreement, dated November 1, 2007, by and between the Company and Chaka Kahn (Incorporated by reference to Exhibit 10.24 to the June S-1/A No. 2)
10.25		Purchasing Agreement between General Nutrition Distribution, LP and Venture Beverage Company dated December 12, 2007 (Incorporated by reference to Exhibit 10.25 to the June S-1/A No.2).
10.26**		Distribution Agreement between Crosset Company and Purple Beverage Company, Inc. dated January 24, 2008 (Incorporated by reference to Exhibit 10.26 to the July S-1/A No. 3).
10.27**		Distribution Agreement between Big Geyser, Inc. and Purple Beverage Company dated February 26, 2008 (Incorporated by reference to Exhibit 10.27 to the July S-1/A No. 3).
10.28**		Distribution Agreement between B & E Juice Co. and Purple Beverage Company, Inc. dated March 26, 2008 (Incorporated by reference to Exhibit 10.28 to the July S-1/A No. 3).
31.1*		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*		Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*		Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.1*		Press Release

 

* Filed herewith.

 

** Portions omitted pursuant to a request for confidential treatment.

SIGNATURES

In accorance with the requirements of the Exchange Act, the registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		PURPLE BEVERAGE COMPANY, INC.
		By: /s/ Theodore Farnsworth
August 14, 2008		Theodore Farnsworth
		Chief Executive Officer
		By: /s/ Michael Wallace
August 14, 2008		Michael Wallace
		Chief Financial Officer

 

 

---

---

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

____________________________________________________________

 

FORM 8-K

 

CURRENT REPORT

 

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

___________________________________________________________________

 

Date of Report (Date of earliest event reported): September 3, 2008

 

PURPLE BEVERAGE COMPANY, INC.

(Exact Name of Registrant as Specified in Charter)

 

	Nevada		000-52450		01-0670370
	(State or Other Jurisdiction of Incorporation)		(Commission File Number)		(IRS Employer Identification No.)

450 East Las Olas Blvd, Suite 830 Fort Lauderdale, Florida		33301
(Address of Principal Executive Offices)		(Zip Code)

Registrant’s telephone number, including area code: (954) 462-8757

 

(Former Name or Former Address, if Changed Since Last Report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

o

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

o

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

o

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

o

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

---

---

 

Item 7.01 Regulation FD Disclosure.

Pursuant to the subscription agreement (the “Subscription Agreement”) effective December 12, 2007, between Purple Beverage Company, Inc. (the “Company”) and the holders named therein (the “Holders”), the Company issued to the Holders shares of the Company’s common stock, and granted to the Holders a common stock purchase warrant (the “2007 Warrant”) that entitled the Holders to purchase a certain number of the Company’s common stock (the “2007 Underlying Shares”) at an exercise price of $2.00 per share.

The Company has authorized amendments to the Subscription Agreement and the 2007 Warrants, subject to receipt of approvals required under the Subscription Agreement. Upon receipt by the Company of the requisite consents as set forth in the Subscription Agreement and acceptance by the Company, the Company will take certain steps which will reduce to $0.40 per share the effective purchase price for shares of the Company’s common stock purchased under the Subscription Agreement and by certain other purchasers who are entitled to similar anti-dilution and price protection as the Holders, will grant to all Holders of unexercised 2007 Warrants, newly-issued restricted shares of the Company’s common stock in an amount equal to 15% of the number of 2007 Underlying Shares into which unexercised 2007 Warrants are currently exercisable and thereupon all unexercised 2007 Warrants will be cancelled other than 2007 Warrants exercisable for 3,681,650 shares of common stock registered for resale with the SEC during August 2008, and permit the transfer and assignment of 3,681,650 2007 registered Warrants with a revised exercise price of $0.40 per share.

For a full description of the amendments and other agreements referred to herein reference is made to Exhibits 10.4 and 10.5 the terms of which are hereby incorporated by reference.

 

Item 9.01   Financial Statements and Exhibits.

 

(d)

Exhibits

 

	Exhibit No.		Description
	10.1*		Form of Subscription Agreement, dated as of December 12, 2007.*
	10.2*		Form of Common Stock Purchase Warrant, dated as of December 12, 2007.*
	10.3**		Amendment to Subscription Agreement and to Common Stock Purchase Warrant to Purchase Shares of Purple Beverage Company, Inc., dated as of April 2, 2008
	10.4		Form of Amendment No. 2 to Subscription Agreement and to Common Stock Purchase Warrant to Purchase Shares of Purple Beverage Company, Inc.
	10.5		Form of Warrant Assignment Agreement

**	Previously filed as Exhibit 10.1 to Current Report on Form 8-K filed April 4, 2008

 

SIGNATURE

 

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

 

	PURPLE BEVERAGE COMPANY, INC.
Dated: September 3, 2008	By:	/s/ Theodore Farnsworth
		Name:  Theodore Farnsworth Title:     Chief Executive Officer

 

 

 

INDEX TO EXHIBITS

 

PURCHASE WARRANT TO PURCHASE SHARES OF COMMON STOCK OF PURPLE BEVERAGE COMPANY, INC.

 

This Amendment to the Subscription Agreement and to Common Stock Purchase Warrant to purchase shares of common stock, par value $0.001 per share (the “ Common Stock ”) of Purple Beverage Company, Inc. (this “ Amendment ”), is effective as of September __, 2008, by Purple Beverage Company, Inc., a Nevada corporation (the “ Company ”), and the undersigned holder (the “ Holder ”). The Company and Holder are, together, the “ Parties .”

 

RECITALS

 

WHEREAS, effective December 12, 2007, the Company and the Holder entered into that certain Subscription Agreement (the “ Subscription Agreement ”), pursuant to which the Company sold and issued to Holder certain Shares (as defined therein) and granted to Holder a Common Stock Purchase Warrant to purchase shares of Common Stock of the Company, which warrant was dated and issued as of December 12, 2007 (the “ 2007 Warrant ”), and entitled Holder, upon exercise thereof in accordance with the terms contained therein, to purchase up to that number of shares of Common Stock specified therein (the “ 2007 Underlying Shares ”) at an exercise price (the “Purchase Price” as defined in the 2007 Warrant) of $2.00 per share;

WHEREAS, the Company is seeking the consent of Holder and other purchasers who purchased Shares and 2007 Warrants under the Subscription Agreement which will permit the Company to seek to secure certain financing from the exercise of outstanding 2007 Warrants;

WHEREAS, the parties wish to amend certain terms contained in the Subscription Agreements and all of the 2007 Warrants, and is offering to reduce to $0.40 per share the effective purchase price for Shares purchased under the Subscription Agreements (and certain other shares purchased from the Company at $1.40 per share and at $1.25 per share) by issuance of additional shares of the Company to Holders at no cost, upon receipt of the required consents necessary to authorize this Amendment (the “ Excepted Transaction Shares ”);

  

WHEREAS, as a further inducement to consent to the requested actions by the Company, upon receipt of the required consents necessary to authorize this Amendment, the Company will: (i) adjust the exercise price of all unexercised 2007 Warrants to $0.40 per share; (ii) grant to the Holder of all 2007 Warrants, newly-issued restricted Common Stock (the “ Restricted Stock ”) in an amount equal to 15% of the number of 2007 Underlying Shares into which each unexercised 2007 Warrant is currently exercisable, and each unregistered 2007 Warrant shall thereupon be irrevocably forfeited and cancelled; and (iii) permit the transfer and assignment of registered 2007 Warrants with a revised exercise price of $0.40 per share;

 

NOW, THEREFORE, in consideration of the premises, the covenants made herein, and for such other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby agree as follows:

 

 

ARTICLE 1

AMENDMENTS

 

1.       Amendments to the Subscription Agreement .

 

1.1       Waiver of Certain Anti-dilution Protections . Notwithstanding anything to the contrary contained in the Subscription Agreement or the 2007 Warrants, none of the transactions contemplated by this Amendment, or the contemporaneous transfer, assignment or exercise of any 2007 Warrants, including without limitation, issuance of Excepted Transaction Shares, adjustment of the 2007 Warrant exercise price, forfeiture of 2007 Warrants, and issuance of Restricted Stock, shall result in the imposition or effectiveness of any anti-dilution protections, price protection, most favored nations protections or similar clauses, in favor of the Holder contained in the Subscription Agreement or 2007 Warrants, except as specifically provided in Article II hereof.

For the absence of doubt, the transactions contemplated herein shall constitute an “Excepted Issuance” as defined in the Subscription Agreement. Notwithstanding anything herein to the contrary, all anti-dilution protections, price protection and most favored nations protections or similar clauses shall continue in full force and effect following the date hereof and shall apply to any further issuances or transactions, other than as contemplated by this Amendment.

 

1.2       Waiver of Certain Offering Restrictions . Notwithstanding anything to the contrary contained in the Subscription Agreement or the 2007 Warrants, none of the transactions contemplated by this Amendment, including, without limitation, issuance of Excepted Transaction Shares, adjustment of the 2007 Warrant exercise price, forfeiture of 2007 Warrants, and issuance of Restricted Stock, including transfers and assignments of the registered 2007 Warrants, shall be deemed to be a violation of any of the offering or other restrictions imposed upon, or granted by, the Company and in favor of the Holder contained in the Subscription Agreement, including, without limitation, Section 9(r) of the Subscription Agreement.

1.3       Consent and Amendment of Warrant . The undersigned Holder (in each of the Holder’s capacity as Subscriber and as a Holder of 2007 Warrants for the purposes of such consent inasmuch as the separate consent is required for each of such purposes) hereby consents to the assignment of  2007 Warrants, the 2007 Underlying Shares of Common Stock of which have been registered for resale with the Securities and Exchange Commission, and all other transactions, amendments, modifications and waivers to the Subscription Agreement and 2007 Warrants as contemplated herein, and as follows:

 

(A)      The provisions of Section 4(o) of the Subscription Agreement and any and all references thereto in the 2007 Warrants, or any other document or agreement, as amended through the date hereof, are hereby deleted in their entirety solely with respect to any Restricted Stock, 2007 Warrants, as well as any similar or equivalent provisions relating to the Restricted Stock, 2007 Warrants, and the 2007 Underlying Shares and the provisions of such Section 4(o) shall be inapplicable to the Restricted Stock, 2007 Warrants and the 2007 Underlying Shares, which, unless such securities are registered,

 

shall for all purposes be subject to the restrictions of Rule 144 under the Securities Act of 1933, as amended;

 

(B)      the Subscription Agreement and each and every lockup agreement is hereby amended solely to eliminate any and all restrictions on the transfer, sale, assignment, exercise, or disposition of any 2007 Warrants and/or any 2007 Underlying Shares assigned; and further transfers of such 2007 Warrants or 2007 Underlying Shares, and the undersigned covenants and agrees not to take any action seeking in any way to restrict assignee of such 2007 Warrants from exercise of the 2007 Warrants or sale of 2007 Underlying Shares or otherwise effectuating the intent and purposes of any assignment;

 

(C)      upon approval of the Board of Directors, the Company may authorize and undertake a reverse stock split in such ratio, number or amount as the Board of Directors reasonably determines is necessary or appropriate in connection with satisfying the original listing standards then in effect for any national securities exchange; and

 

(D)      Section 12(a) of the Subscription Agreement (including, without limitation, Section 3.4 of the 2007 Warrant) shall be amended by adding to the definition of “Excepted Issuance” the following:

 

“For the purposes hereof, an Excepted Issuance shall include: (i) securities issued (including any warrants or other convertible securities) in connection with any registered offering by the Company (including on a best efforts or underwritten basis); (ii) issuance of any options or shares of Common Stock as commitment or consultant fees, additional consideration, interest, exercise fee, commissions, redemption payment or otherwise in connection with any warrant exercises or bridge loans to the Company approved by the Board of Directors, up to a maximum of 2,500,000 shares; (iii) all 2007 Incentive Plan awards; and (iv) all issuances of Common Stock authorized by the Company the effect of which shall result in the effective purchase price per Share of Common Stock to the Company sold pursuant to each Subscriber as a result thereof equal to $0.40 per share of Common Stock acquired prior to the date of this Amendment, the cancellation and forfeiture of Warrants and issuance of Common Stock thereupon in an amount equal to 15% of the shares of Common Stock underlying such outstanding Warrants immediately prior to such cancellation and forfeiture and adjustment of the exercise price of unexercised Warrants not cancelled (i.e., the unexercised Warrants that have bee registered with the SEC) to $0.40 per share.”

 

2.       Conditions Precedent . As a condition precedent to the effectiveness of the Amendment and the transactions contemplated herein, the effectiveness of this Amendment and the transactions contemplated hereby shall require the Holders holding not less than 70% of the

Shares and 2007 Underlying Shares shall have signed this amendment to their respective Subscription Agreement and 2007 Warrant (the “ Effective Date ”).

 

3.       Market Standoff . In connection with this Amendment, each Holder agrees that in the event the Company sells securities pursuant to an underwritten registered offering, including on a best efforts basis by a placement agent, the Holder shall not effect any public sale of securities of the Company during a customary period of time requested by the managing underwriter of such offering.

 

ARTICLE 2

ANTI-DILUTION ADJUSTMENT

 

1.       2007 Warrants; Restricted Stock Issuance . On the Effective Date, the Company shall issue to all Holders of 2007 Warrants (registered and unregistered), newly-issued shares of restricted Common Stock in an amount equal to 15% of the number of 2007 Underlying Shares into which each unexercised 2007 Warrant forfeited shall be exercisable, and each 2007 Warrant (other than 2007 Warrants exercised or exercisable for registered 2007 Underlying Shares) shall be forfeited and cancelled and of no further force or effect.

2.       2007 Warrants; Registered Shares . On the Effective Date, the exercise price of all 2007 Warrants, the 2007 Underlying Shares of which have been registered with the SEC, shall be $0.40 per share and such 2007 Warrants shall be the only 2007 Warrants that shall remain outstanding.

3.       Anti-Dilution Shares . On the Effective Date, the Company shall issue to all Subscribers, all Holders who previously exercised 2007 Warrants, and all purchasers of shares of Common Stock at $1.40 per share prior to the date hereof, such number of additional shares of Common Stock as shall result in the effective purchase price per share of Common Stock to the Company equal $0.40 per share of Common Stock.

ARTICLE 3

MISCELLANEOUS PROVISIONS

 

1.       Re-affirmation of Representations and Warranties . If the Holder consents to this Amendment, then the Holder hereby currently re-affirms herein all of the representations and warranties made by the Holder in favor of the Company in the Subscription Agreement as if made as of the date of this Amendment and the Company hereby re-affirms herein all of the representations and warranties initially made by the Company in favor of the Holder in the Subscription Agreement as of the date of the Subscription Agreement.

 

2.       Miscellaneous Provisions.

 

2.1       No Further Amendments . Except as amended by this Amendment, the Subscription Agreement and the 2007 Warrant remain unmodified and in full force and effect. In the event of any inconsistency between the provisions of either the Subscription Agreement or the 2007 Warrant and the provisions of this Amendment, the provisions of this Amendment shall

prevail. This Amendment may only be modified or amended by a written agreement executed by the Company, and consented to by Holder, with the same formalities and in the same manner as this Amendment.

 

2.2       Counterparts . This Amendment may be executed in one or more counterparts, each of which shall be deemed an original but all of which when taken together shall constitute one and the same instrument. Facsimiles or portable document files transmitted by e-mail containing original signatures shall be deemed for all purposes to be originally signed copies of the documents which are the subject of such facsimiles or files.

2.3       Binding on Successors . This Amendment shall be binding upon and shall inure to the benefit of the successors and permitted assigns of the Parties.

 

2.4       Entire Agreement . Each of the Subscription Agreement and the 2007 Warrant, as amended by this Amendment, contains the entire understanding between the Parties and supersedes any prior written or oral agreements between them respecting the subject matter contained herein. There are no representations, agreements, arrangements or understandings, oral or written, between the Parties relating to the subject matter hereof that are not fully expressed herein.

 

IN WITNESS WHEREOF, the Parties hereto have executed or have caused a duly authorized officer to execute this Amendment all effective as of the day and year first above written.

 

PURPLE BEVERAGE COMPANY, INC.
By:  ___________________________________________________
Theodore Farnsworth, Chief Executive Officer
HOLDER:
I hereby consent to the amendments set forth herein:
________________________________________________		September __, 2008
Name:
Title:

EXHIBIT 10.5

 

WARRANT ASSIGNMENT AGREEMENT

Item 1.01.

Entry into a Material Definitive Agreement.

Barry Honig Promissory Note

 

On September 5, 2008, we issued a Promissory Note in favor of Barry Honig (the “Honig Note”) in the principal amount of $250,000. The Honig Note bears interest on the unpaid principal balance at a rate of 5% per annum. All principal and accrued interest on the Honig Note is due and payable on the sooner of October 24, 2008, or within five days of our receipt of funds in excess $250,000. If we default on the Honig Note, we will be obligated to pay interest on amounts past due at the rate of 18% per annum.

Chelsea Development International LTD Promissory Notes

On August 8, 2008, we issued a Promissory Note in favor of Chelsea Development International LTD (the “Chelsea Note 1”) in the principal amount of $250,000. The Chelsea Note 1 bears interest on the unpaid principal balance at a rate of 8% per annum. All principal and accrued interest on the Chelsea Note 1 was due and payable on or prior to September 7, 2008.

On August 27, 2008, we issued a Promissory Note in favor of Chelsea Development International LTD (the “Chelsea Note 2”) in the principal amount of $250,000. The Chelsea Note 2 bears interest on the unpaid principal balance at a rate of 8% per annum. All principal and accrued interest on the Chelsea Note 2 is due and payable on or prior to September 26, 2008.

GS Holding LLC Promissory Note

On August 22, 2008, we issued a Promissory Note in favor of GS Holding LLC (the “GS Holding Note”) in the principal amount of $100,000. The GS Holding Note bears interest on the unpaid principal balance of 11% per annum. We are obligated to repay the GS Holding Note in monthly payments, with the first payment on September 22, 2008 and the final payment on June 22, 2009.

 

Michael Wallace Promissory Note

 

On August 14, 2008, we issued a Promissory Note in favor of Michael Wallace, our chief financial officer, (the “Wallace Note”) in the principal amount of $45,000. The Wallace Note bore interest on the unpaid principal balance at a rate of 2.54 % per annum. All principal and accrued interest on the Wallace Note was payable on demand. We repaid the Wallace Note on September 5, 2008.

 

Jay-2 Subscription Agreement

In addition, on July 16, 2008, we entered into a subscription agreement (the “Jay-2 Subscription Agreement”) with Jay-2 Investments, LLC (“Jay-2”) whereby Jay-2 subscribed to purchase our securities consisting of (a) a promissory note in the amount of $1,000,000 (the “Jay-2 Note”), (b) 200,000 shares (the “Jay-2 Shares”) of the our $0.001 par value common stock, and (c) a two-year warrant (the “A Warrant”) to purchase 200,000 shares of our common stock at an exercise price of $2.00 per share, all for an aggregate subscription price of $1,000,000. The J-2 Shares were valued at the 10-trading-day volume weighted average price, with the final such trading day being the day preceding the execution of the Jay-2 Subscription Agreement (but in no event valued at less than $2.00 per share.)

The foregoing is not a complete summary of the terms of the material agreements described in this Item 1.01, and reference is made to the complete text of all material agreements attached hereto as Exhibits 10.1-10.8.

Item 2.03.

Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.

The information disclosed in Item 1.01 is incorporated herein by reference.