UNITED
      STATES SECURITIES AND EXCHANGE COMMISSION


Washington,
      D.C. 20549





FORM
      10-KSB





ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15 (d) OF


THE
      SECURITIES EXCHANGE ACT OF 1934




For
      the
      fiscal year ended December 31, 2006




**BRAVO!
      BRANDS INC.**


(Name
      of
      Small Business Issuer in its Amended Charter)





Commission
      File Number 0-25039





Delaware
            
            62-1681831(State
                or other jurisdiction ofincorporation
                or organization )
            
            (I.R.S.
                Employer Identification
                No.)




11300
      US Highway 1, Suite 400, North Palm Beach, Florida 33408 USA




(Address
      of principal executive
      offices)                
(Zip Code)





Telephone
      number:                (561)
      625-1411




Securities
        registered under Section 12(b) of the Exchange Act:


None





Securities
      registered under Section 12(g) of the Exchange Act


Common
      Stock, $.001 par value


(Title
      of
      class)







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





Check
      if
      disclosure of delinquent filers in response to Item 405 of Regulation S-B is
      not
      contained in this form, and no disclosure will be contained, to the best of
      registrant's knowledge, in definitive proxy or information statements
      incorporated by reference in Part III of this Form 10-KSB or any amendment
      to
      this Form 10-KSB. o





The
      issuer's revenues for its most recent fiscal year were $14,661,852.





The
      aggregate market value of the voting stock held by non-affiliates of the issuer
      on March 12, 2007, based upon the $0.34 per share close price of such stock
      on
      that date, was $66,822,740 based upon 196,537,471 shares held by non-affiliates
      of the issuer. The total number of issuer's shares of common stock outstanding
      held by affiliates and non-affiliates as of March 12, 2007 was
      205,705,501.





Transitional
      Small Business Disclosure Format (check one): Yes oNo x




1




DOCUMENTS
      INCORPORATED BY REFERENCE: See Exhibits




FORWARD-LOOKING
      STATEMENTS





Statements
      that are not historical facts, including statements about our prospects and
      strategies and our expectations about growth contained in this report, are
      "forward-looking statements" within the meaning of Section 27A of the Securities
      Act of 1933, as amended, and Section 21E of the Securities Exchange Act of
      1934,
      as amended. These forward-looking statements represent our present expectations
      or beliefs concerning future events. We caution that such forward-looking
      statements involve known and unknown risks, uncertainties and other factors
      which may cause our actual results, performance or achievements to be materially
      different from any future results, performance or achievements expressed or
      implied by such forward-looking statements. Such factors include, among other
      things, the uncertainty as to our future profitability; the accuracy of our
      performance projections; and our ability to obtain financing on acceptable
      terms
      to finance our operations until profitability.




2




PART
      I


ITEM
      1 -
      DESCRIPTION OF BUSINESS





***The
      Company***





Bravo!
      Brands Inc. is a Delaware corporation formed on April 26, 1996. The Company
      recently changed its name from Bravo! Foods International Corp. We believe
      the
      new name more succinctly and accurately reflects our current business model
      and
      scope.





***Nature
      of Business***




We
      develop, brand, market, distribute and sell nutritious, flavored milk products
      throughout the United States, and, during the first half of 2006, in the United
      Kingdom. Our products are available through co-packing agreements with aseptic
      milk processors and are currently sold under our brand names Slammers® and
      Bravo!TM.





We
      have
      employed a co-branding strategy that builds on strong, iconic brands to build
      awareness and position for our Slammers® and BravoTM brands. Our focus is on
      brands that have a strong flavor profile and strong consumer following, which
      we
      then leverage to build our sales and brand positioning.




***The
      Business***





In
      the
      third quarter of 2001, we developed branded extended shelf life and aseptic,
      bacteria free, long life flavored milk products. The extended shelf life (“ESL”)
      product was sold in 16 ounce single serve plastic bottles and had to be
      refrigerated. The shelf life of this product was 90 days. In addition, we
      developed a line of aseptic packaged milks that did not require refrigeration
      and had a shelf life of 8 months. This product was packaged in an 11.2 ounce
      Tetra Pak PrismaTM sterile paper container. During early 2004 we were limited to
      Tetra Pak PrismaTM packaging for aseptic production and ESL processing, with
      which we distributed and marketed products through the cold distribution network
      and the ambient distribution network. The licensing agreement with Warner Bros.
      for Looney TunesTM trademarks, which commenced in the United States in 2000, was
      used for both our ESL and aseptic Prisma package designs. The Prisma packaged
      products were sold through channels where ambient distribution was advantageous.
      Commencing in February 2004, we used Marvel trademarks for Super Heroes® and
      Marvel Heroes® for the design and marketing of our sixteen ounce single serve
      milk with an extended shelf life. Both our ESL and aseptic product categories
      were produced at Jasper Products, LLC located in Joplin, Missouri.





Through
      the end of 2004, the majority of our products were shipped through traditional
      warehouses. The development of an ambient plastic bottle, however, allowed
      us to
      sell into the immediate consumption sales channel through the “tobacco and
      candy” distribution system in 2005. The benefits of this distribution were lower
      freight costs, wider distribution of a product with a six month shelf life
      and
      the ability to utilize the Direct Store Delivery (DSD) distribution
      network.





During
      the second half of 2004, we entered into a license agreement with Masterfoods
      USA, a division of Mars Incorporated. This agreement combined our “better for
      you” co-branding strategy with the brand recognition and appetite appeal of the
      Masterfoods product line. Beyond appetite appeal, our Masterfoods brands allowed
      us to differentiate between flavors in the same way chocolate candy can be
      differentiated, as well as creating one of the first milk and juice beverage
      combinations available in the marketplace. We also introduced our shelf-stable
      packaging with the Masterfoods agreement. In the first quarter of 2005, we
      began
      distribution of Masterfoods products.




3




On
      August
      31, 2005, we signed an exclusive, 10-year distribution agreement with Coca-Cola
      Enterprises Inc. (CCE), the world’s largest marketer, distributor and producer
      of bottle and can nonalcoholic beverages. This resulted in a termination of
      all
      prior relationships with our beverage brokers and independent distributors,
      which we formerly utilized for regional distribution across the United States.
      On November 1, 2005, CCE began distribution of Slammers® Milky Way®, Slammers® 3
      Musketeers®, Slammers® Strawberry and Orange Starburst® Slammers®, Vanilla and
      Chocolate PRO SlammersTM and Vanilla and Chocolate Slim Slammers®.





During
      the fourth quarter of 2005, we experienced record revenues from the initial
      CCE
      order, but due to limited capacity, we were unable to fully meet initial demand.
      In late 2005, we contracted with Jasper Products to triple production capacity,
      from 2.5 million bottles per month to 7.5 million bottles per month by July
      1,
      2006. This increase in production capacity was completed on schedule.





We
      continued to innovate and expand our product offering during 2006. This was
      accomplished primarily through new licensing agreements with General Mills® and
      Organic Valley® for co-branded single serve milk. With these new licenses, we
      have developed and marketed products including TRIX® Slammers®, COCOA PUFFS®
Slammers® and eight-ounce organic white milk, all in aseptic plastic bottles. We
      also introduced Bravo! BlendersTM in the New York and tri-state area, to be
      distributed by F&G Distributors of New York.





During
      early 2006, we began the development of a “snowman” shaped eight ounce bottle
      that provided the rigidity needed to be stacked for sale in vending machines.
      Given the potential of sales within the education channel, we developed and
      began production of the first aseptic eight-ounce vendible bottle with products
      that met the American Beverage Association (“ABA”) and Clinton Foundation
      established guidelines for lower calorie and nutritious beverages in schools.
      The eight-ounce Slammers® are available in an assortment of flavors and can fill
      vending machine slots traditionally occupied by twelve-ounce soda cans. We
      began
      shipment of our new eight-ounce vendible bottles to Coca-Cola Enterprises on
      October 31, 2006. The production and shipment of our fourteen-ounce vendible
      bottle is scheduled for first quarter 2007. In addition, we have developed
      a
      vendible twelve ounce bottle, which will be added in 2007 to accommodate the
      Clinton/ABA school guidelines that limit serving size in high schools to twelve
      ounces.





Master
      Distribution Agreement - Coca-Cola Enterprises





The
      appointment of Coca-Cola Enterprises as the exclusive distributor for our
      products was effective August 31, 2005, while distribution commenced on October
      31, 2005. The ten year agreement expires on August 15, 2015, and Coca-Cola
      Enterprises has the option to renew the Master Agreement for two subsequent
      periods of ten additional years. Concurrent with the execution of the
      agreements, we issued three-year warrants to Coca-Cola Enterprises for the
      right
      to purchase 30 million shares of our common stock at an exercise price of $0.36
      per share.





Under
      the
      terms of the agreement, Coca-Cola Enterprises is obligated to use all
      commercially reasonable efforts to solicit, procure and obtain orders for our
      products and merchandise and actively promote the sale of such products in
      the
      Territory, as defined in the agreement. Distribution in other Territory areas
      will be dependent upon, among other things, third-party licensing considerations
      and compliance with the regulatory requirements for the products in foreign
      countries.




4




We
      have
      agreed to provide the following:




·
            strategic
                direction of our products;


·
            maintain sales force education and
              support ·
            actively
                market and advertise our products and design and develop point of
                sale
                materials and advertising.




We
        are
        also responsible for handling:


·
            consumer
                inquiries;


·
            product
                development; and


·
            the
                manufacture and adequate supply of our products for distribution
                by
                Coca-Cola Enterprises.




Under
      the
      agreement, Coca-Cola Enterprises has the right of first refusal to distribute
      any new products developed by us, and the agreement establishes a process for
      the potential expansion of Coca-Cola Enterprises’ distribution of our products
      to new territories. Our “Allied” sales team distributes products not sold
      through Coca-Cola Enterprises. Either party may terminate the agreement for
      a
      material breach, insolvency or bankruptcy. Coca-Cola Enterprises may terminate
      the agreement (i) for change of control by our company; (ii) upon a material
      governmental regulatory enforcement action or threatened governmental action
      having a material adverse consumer or sales impact on our products; and (iii)
      upon twelve months notice after August 15, 2006.





Third
      Party Intellectual Property Licenses





All
      of
      our third party licensing agreements recognize that we will use third party
      production agreements (called co-packing arrangements) for the processing of
      flavored milk products and that our milk products will be produced and may
      be
      distributed directly by those processors.





Masterfoods
      USA





On
      September 21, 2004, we entered into a licensing agreement with Masterfoods
      USA,
      a division of Mars, Incorporated, for the use of Milky Way®, Starburst® and 3
      Musketeers® trademarks in connection with the manufacture, marketing and sale of
      single serve flavored milk drinks in the United States, its Possessions and
      Territories and US Military installations worldwide. On March 31, 2006, we
      reached an agreement with Masterfoods extending the U.S. license for an
      additional five years, ending December 31, 2012. In addition the agreement
      granted us the rights to the Dove Dark Chocolate and Dove Milk Chocolate brands.





Effective
      January 1, 2006, we signed two new seven year licensing agreements for Canada
      and Mexico with Masterfoods USA. The Canada licensing agreement provides use
      of
      Starburst® Slammers® Fruit & Crème Smoothies and 3 Musketeers® Slammers®
Chocolate Milk. The Mexico licensing agreement is for single serve Milky Way®
Slammers® Chocolate Milk and 3 Musketeers® Slammers® Chocolate Milk. Each
      agreement covers most trade channels including grocery, food service, Club
      Stores as well as schools with children over the age of 13, colleges and
      universities, vending machines, amusement parks and movie theaters.





We
      have
      agreed to pay a royalty based upon the total net sales of the licensed products
      sold and advance payments of certain agreed upon guaranteed royalties. Ownership
      of the licensed marks and the specific milk flavors to be utilized with the
      marks remains with Masterfoods. We have a right of first refusal for other
      milk
      beverage products utilizing the Masterfoods marks within the licensed
      territory.




5




General
      Mills





In
      February 2006, we signed a five year licensing agreement with General Mills
      Marketing, Inc. for a term extending through December 31, 2011. The agreement
      covered the production, distribution and marketing of General Mills trademarks
      including; TRIX Slammers®, COCOA PUFFS® Slammers® and WHEATIES®. In addition to
      these brands, the agreement covers LUCKY CHARMS®, COUNT CHOCULA®, BOOBERRY® and
      FRANKENBERRY®.





We
      have
      agreed to pay a royalty based upon the total net sales of the licensed products
      sold and advance payments of certain agreed upon guaranteed royalties. Ownership
      of the licensed marks and the specific milk flavors to be utilized with the
      marks remains with General Mills. We have a right of first refusal for other
      milk beverage products utilizing the General Mills marks within the licensed
      territory.





Organic
      Valley





In
      October 2006, we signed a licensing agreement and a separate organic milk supply
      agreement with Cooperative Regions of Organic Producer Pools (“CROPP”) to
      license, produce and sell its brand, Organic Valley®, in a new product line of
      aseptic packaged organic fluid milk products. Our agreement includes an
      Evergreen clause with automatic annual renewals and a twelve-month termination
      notice. We have launched eight-ounce Organic Valley 1% low fat milk and expect
      to introduce additional flavors such as 1% chocolate milk, vanilla and berry
      flavors in the near future.





Diabetes
      Research Institute





In
      November 2006, we extended our licensing agreement with Diabetes
      Research Institute to October 31, 2007. W e
      agreed
      to a base royalty and a variable royalty rate for the use of intellectual
      property, which consists of a logo plus design on the labels of our Slim
      SlammersTM, 3 Musketeers® and Bravo! BlendersTM product lines.





Marvel
      Enterprises, Inc.




On
      February 4, 2005, we entered into a two-year license agreement for the
      utilization of Marvel Heroes characters on our flavored milks in the United
      Kingdom and Ireland. In March 2005, we entered into a new one-year license
      agreement with Marvel Enterprises, Inc. to use its Super Heroes â properties to promote our branded milk products in the United States, Canada
      and
      Mexico. On February 4, 2005, we entered into a license agreement for the
      utilization of Marvel Heroes characters on our flavored milk bottles in the
      Middle East. This license will expire March 31, 2007.





We
      have
      not renewed these license agreements and have focused on new license agreements
      on food products that have a perceived taste, flavor or nutritional
      value.





In
      House Intellectual Property





In
      addition to our third-party licenses, we have developed and sell flavored milks
      bearing trademarks developed by us, including “Slammers®” “Pro SlammersTM”, “Slim
      Slammers®”, Bravo!TM and “BlendersTM”.





Production
      Contracts/Administration





Our
      operations in the United States, Mexico and Canada are run directly by Bravo!
      Brands Inc.




6




United
      States





Since
      2003, our milk products have been produced by Jasper Products, located in
      Joplin, Missouri. In addition to the production of our products, Jasper has
      provided the infra-structure necessary for our invoicing, shipping and
      collection activities. We anticipate the invoicing and collection
      responsibilities for these activities will be brought in house during 2007.





In
      September 2006, we executed a six-year non-exclusive production agreement with
      HP Hood LLC of Chelsea, Massachusetts, for the production of our products
      through 2012, with production commencing in the second quarter 2007. The
      contract specifies annual production volume of 70 million bottles.





United
      Kingdom & Middle East




In
      2006
      we ceased our international business to focus on fully developing our business
      in North America.





Canada





In
      August
      2006, we entered into an agreement with William Neilson Limited, a leading
      Canadian dairy, to produce our Slammer® Starburst® brands. The co-packing
      agreement covers the production of single-server shelf-stable products to be
      produced under the license agreement with Masterfoods for the Canadian Market.





Industry
      Trends





The
      flavored milk industry has grown from approximately $750 million in 1995 to
      $2.0
      billion in 2006. The single serve portion of this category is difficult to
      measure, since approximately 2/3 of the sales in the single serve milk industry
      are sold in immediate consumption channels or other channels that do not report
      readily available sell through data. For example, Wal-Mart has become the
      largest retailer in the USA for milk, selling an estimated 15% of total milk
      sales. Wal-Mart does not report sales for the industry data resources reported
      and analyzed by market watch companies such as A.C. Neilson or Information
      Resources Inc. Similarly, most convenience stores and “up-and-down-the-street”
retailers in the immediate consumption sales channels, as well as vending and
      schools, do not report sales data.





We
      have
      analyzed the industry using reports available from milk and beverage industry
      sources. These include the total, segmented and rate of growth sales that are
      reported, the immediate consumption sales rates for all consumables compared
      to
      retail grocery buying patterns and opinions of experts in the milk industry
      as
      to the relative size of reported versus non-reported sales. Based upon these
      reports and analysis, we believe the current size of the single serve flavored
      milk industry (packaging 16 oz. or smaller) is approximately $1.5 billion
      domestically. The industry grew at annual rates of between 2 and 10 percent
      during the last five years. We believe that this space is positioned for growth
      now and will continue to be in the immediate consumption channels such as
      vending, convenience stores and food service market segments. In addition,
      reduced fat flavored milk sales have grown 29% in the last five
      years.





Market
      Analysis





The
      flavored milk business is a relatively new category in the dairy field. The
      flavored “refreshment” segment is both the fastest growing and most profitable
      category in the industry and is receiving the most attention in the industry
      today. Pioneered by Nestle and Dean Foods, this segment is in demand both in
      the
      U.S. and internationally.




7




We
      estimate that although flavored milk currently amounts to only 8 to 10 percent
      of milk sales, it represents the majority of the growth in milk sales. With
      the
      total milk category exceeding $14.6 billion in 2004, the flavored milk segment
      was approximately $2.0 billion in 2006, with single serve flavored milk growing
      to approximately $1.2 billion for the same period. In the past ten years,
      selling more flavored milks has resulted in more sales of white milk as
      well.





The
      International Dairy Foods Association and Dairy Management Inc. have reported
      on
      studies suggesting that dairy products may help in weight loss efforts when
      coupled with a reduced calorie diet, based on data associating adequate calcium
      intake with lower body weight and reduced body fat. We continue to develop
      a
      similar niche in the single serve flavored milk business by utilizing strong,
      national branding as part of the promotion of our Slammers®, Pro SlammersTM, Slim
      Slammers® and Bravo! BlendersTM products. This niche has as its focus the
      increased demand for single serve, healthy and refreshing drinks.





In
      addition there has been major political movement within the beverage industry
      in
      an effort to address what has become a national epidemic of childhood obesity.
      In May 2006, the William J. Clinton Foundation and the American Beverage
      Association established guidelines for lower calorie and nutritious beverages
      in
      schools. Under the new guidelines, schools can sell only water, certain juices,
      milk and low calorie/no calorie soft drinks. The timeline for implementation
      of
      these guidelines is initially set at 75% implementation by the 2008-2009 school
      year and 100% by 2009-2010, with certain school districts already beginning
      the
      implementation. With our development of our eight-ounce vendible bottle, meeting
      the ABA guidelines and the removal of the majority of carbonated products from
      schools, the market is set for a rapid increase in single serve milk sales.





Market
      Segment Strategy





The
      Bravo! product model addresses a very clear and concise target market. We know
      from experience that the largest retailers of milk products are demanding new
      and more diverse refreshment drinks, specifically in the dairy area, in response
      to consumer interest and demand. To that end, we have and will continue to
      differentiate our products from those of our competitors through innovative
      product formulations and packaging designs, such as those implemented in our
      Slammers®, Pro SlammersTM and Bravo! BlendersTM fortified milk product lines and
      our Slim Slammers® and Slammers® 3 Musketeers® low calorie, no sugar added
      products.





Our
      Slammers® milk products have had promising results penetrating this arena as
      consumers continue to look for healthy alternatives to carbonated beverages.
      The
      positioning of our products as a better for you, fun and great tasting
      alternative to more traditional beverages at competitive prices, creates value
      for the producer and the retailer alike. This "profit orientation" for the
      trade
      puts old-fashioned milk products in a whole new light. The consumer is happy,
      the retailer is happy and the producer is able to take advantage of the value
      added by the brand and the resulting overall increase in milk
      sales.





We
      currently are implementing a very important “first-to-market” strategy that we
      feel will significantly reposition our brands and company. Until now, all single
      served flavored milk in plastic bottles required refrigeration for storage,
      distribution and shelf placement. Our co-packing agreements with Jasper Products
      and HP Hood allow our products to be shipped, warehoused and distributed at
      ambient temperatures.





The
      tactical advantage of distributing our milk products at ambient temperatures
      enables us to overcome a major entry barrier in our immediate consumption
      strategy. Most beverages are distributed ambient either through Direct Store
      Delivery (“DSD”) beverage distribution channels or warehouse “candy and tobacco”
distributors. Refrigerated milk was relegated to dairy direct-store-delivery
      systems that are controlled by either regional dairy processors or larger
      national dairy holding companies such as Dean Foods. We avoid the roadblock
      of
      being reliant upon our competition for chilled distribution since we are now
      in
      the unique position to use the more traditional distribution network that
      accommodates non-refrigerated beverages. Currently all of our products are
      produced in ambient “shelf stable” re-sealable plastic bottles. Most of our
      bottles are now fully vendible.




8




We
      have
      been and continue to pursue a strategic goal of placing Slammers® milks in
      elementary, middle and high schools through a-la-carte lunch programs and
      vending facilities in school cafeterias, and we are promoting our Slim
      Slammers®, 3 MusketeersTM and Blenders® milks as low calorie, non-sugar added
      alternatives to traditional soft drinks. Penetration of this market segment
      has
      been limited by logistic and economic concerns of school administrators in
      the
      push to remove traditional carbonated soft drinks from schools in favor of
      milk
      and milk based products.





Competition





Nestle
      pioneered the single serve extended shelf life plastic re-sealable bottle which
      has become the standard for this industry, and they currently enjoy a dominant
      market share. Dean Foods owns a number of regional single serve brands that
      are
      sold in this format, and they also have an exclusive license to produce Hershey
      brand flavored milk nationwide. Both the Nestle and Dean product lines, however,
      require refrigeration. Our analysis indicates that the Nestle’s Nesquik brand
      accounts for approximately 30-35 percent of the U.S. single serve milk category.
      The other competition comes from private label and regional dairy brands.





Employees





We
      currently have sixty-one employees, sixty of which are full time. The majority
      of the employees are sales representatives geographically dispersed throughout
      the United States and Canada.





ITEM
      2 -
      DESCRIPTION OF PROPERTY





Our
      corporate offices are located at 11300 US Highway 1, Suite 400, North Palm
      Beach, Florida. Commencing on January 1, 2007, a 10-year lease extension went
      into effect for our corporate offices, with minimum annual rent payments of
      $161,426.





ITEM
      3.
      LEGAL PROCEEDINGS





There
      currently are no material claims or lawsuits against us.





ITEM
      4.
      SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS




A
      special
      meeting of Shareholders was held on October 11, 2006 in North Palm Beach,
      Florida. The following is a summary of matters voted on by
      shareholders:





1.
            Increase
                authorized common shares from 300,000,000 to
                500,000,000.





2.
            Change
                name from Bravo! Foods International Corp. to Bravo! Brands
                Inc.





Shareholders
      approved both measures with affirmative votes in excess of 98% of the shares
      entitled to vote.





9




PART
      II





ITEM
      5.
      MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS





Common
      stock market price





The
      Company’s common stock is traded on the OTC Electronic Bulletin Board (ticker
      symbol BRVO.OB). The approximate number of record holders of the Company’s
      common stock at March 12, 2007 was 9,800.





The
      following quarterly quotations for common stock transactions on the OTC Bulletin
      Board reflect inter-dealer prices, without retail mark-up, markdown or
      commissions and may not represent actual transactions.





QUARTER
            
            HIGH
                BID PRICE
            
            LOW
                BID PRICE2005First
                Quarter
            
            $
            0.18
            
            $
            0.11Second
                Quarter
            
            $
            1.21
            
            $
            0.14Third
                Quarter
            
            $
            1.43
            
            $
            0.51Fourth
                Quarter
            
            $
            0.80
            
            $
            0.472006First
                Quarter
            
            $
            0.74
            
            $
            0.51Second
                Quarter
            
            $
            0.88
            
            $
            0.50Third
                Quarter
            
            $
            0.65
            
            $
            0.40Fourth
                Quarter
            
            $
            0.54
            
            $
            0.25




Dividends





We
      have
      not paid dividends on our common stock and do not anticipate paying dividends.
      Management intends to retain future earnings, if any, to finance working capital
      and to expand our operations.





The
      holders of common stock are entitled to receive, pro rata, such dividends and
      other distributions as and when declared by our board of directors out of the
      assets and funds legally available therefore. We do not expect to pay dividends
      to holders of our common stock in the foreseeable future.




10




Sale
      of unregistered securities





*Quarter
      Ended December 31, 2006*





In
      July
      2006 we sold $30 million four year senior convertible notes in a private sale
      to
      five accredited institutional investors. The Notes carried a 9% annual coupon,
      payable quarterly, and were convertible into shares of common stock at $0.70
      per
      share. We also issued five year Series A warrants to purchase 13,178,571 shares
      of common stock and Series B warrants to purchase 43,392,856 shares of common
      stock (exercisable only if we redeem the Notes, on a pro rata basis) at $0.73
      per share. Absent our exercise of our call option to redeem the Notes, the
      holders have no rights to exercise the Series B Warrants and receive common
      shares to which the contingent warrants are indexed.





On
      December 29, 2006, we entered into Amendment and Exchange Agreements with these
      investors. The investors agreed to waive their option to compel redemption,
      and
      we agreed to capitalize the $3,750,000 redemption premium with respect to the
      Investors’ right to compel redemption of the Notes. In connection with these
      amendments, we issued new amended Notes having an aggregate principal amount
      of
      $33,750,000 at a conversion price of $0.32. We also issued new five year Series
      A warrants to purchase 30,501,048 shares of common stock and new Series B
      warrants to purchase 105,468,750 shares of common stock (exercisable only if
      we
      redeem the Notes, on a pro rata basis) at exercise prices of $0.34 and $0.32,
      respectively, to replace the warrants previously issued in the financing
      transaction. On December 29, 2006, the closing market trading price of our
      common stock was $0.31 per share.





Securities
      authorized for issuance under equity compensation plans





The
      equity compensation reported in this section has been issued pursuant to
      individual compensation contracts and arrangements with employees, directors,
      consultants, advisors, vendors, suppliers, lenders and service providers. The
      equity is reported on an aggregate basis as of December 31, 2006. Our security
      holders have not approved the compensation contracts and arrangements  underlying the equity reported.


Compensation
                Plan Category
            
            Number
                of securities to be issued upon exercise of options, warrants and
                rights
            
            Weighted
                average price of outstanding options, warrants and rights
            
            Number
                of securities remaining for future issuance under equity compensation
                plansDirectors
                (former)
            
            
            244,554
            
            $
            0.71
            
            
            0
            
            
            individual
                plansEmployees
                (former)
            
            
            58,333
            
            $
            0.24
            
            
            0
            
            
            individual
                plansDirectors/Management
                & Employees
            
            
            9,050,868
            
            $
            0.24
            
            
            1,275,000
            
            
            2005
                Stock Option Incentive Plan(1)Consultants
            
            
            50,000
            
            $
            0.24
            
            
            0
            
            
            individual
                plansTotal
            
            
            9,403,755
            
            $
            0.31
            
            
            1,275,000





On
      April
      6, 2005, our Directors voted to adopt a Stock Option Incentive Plan for the
      grant of options to directors, employees and consultants for the purchase of
      up
      to 10,397,745 shares of our common stock. On May 12, 2005, the Board of
      Directors accepted and adopted the determination of the Compensation Committee
      to grant 8,922,745 of the authorized option to our employees, directors and
      certain consultants. The ten-year options vest over a period of eighteen months
      and have exercise prices varying from $0.20 per share to $0.30 per share, with
      a
      weighted average exercise price of $0.24 per share.





11





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





**EXECUTIVE
      LEVEL OVERVIEW**





*Our
      Business Model*




We
      develop, market, distribute and sell nutritious single serve flavored aseptic
      milk products throughout the United States using our Company owned Slammers® and
      Bravo!TM trademarked brands. Our aseptic (shelf stable) innovation offers several
      competitive advantages, including eliminating the need for refrigerated
      warehousing and trucking and offering real milk products with shelf lives of
      up
      to eight months. In order to create brand recognition, we have adopted a
      co-branding strategy and negotiated strategic license agreements with
      Masterfoods (Milky Way®, Starburst®, 3 Musketeers®, Dove®) General Mills (TrixTM,
      Cocoa PuffsTM) and Organic Valley® (organic milk). Our broad product offering
      targets several specific demographic groups and lifestyles. For instance, we
      have milk available for candy lovers of any age through our Milky Way®, 3
      Musketeers®, Dove®, and Starburst® flavored products. Our Slim-Slammers®, Bravo!
      BlendersTM and Organic Valley® milk products target health conscious adults, and
      our Cocoa Puffs® and Trix® flavored milk products focus on kids from ages 6 to
      12. Our products are primarily distributed through Coca Cola Enterprises Inc.
      (“CCE”). In the future, we plan to increase our revenues by significantly
      expanding our sales force, securing additional distribution channels and
      entering into new categories including sports, energy and coffee milk based
      beverages.




*Industry-Wide
      Factors Relevant to the Company*




While
      retail milk sales have been flat to slightly declining over the past five years,
      there have been growth niches within this industry. For instance, organic milk
      sales increased 77% from 1999 to 2004, and single serve flavored milk
      consumption doubled from 1997 to 2003, while flavored milk sales grew 10.2%
      in
      2004. Furthermore, reduced fat flavored milk sales increased 29% from 2002
      to
      2006. Our efforts in 2006 have focused on market segments that have exhibited
      this continued growth. These efforts are consistent with our overall business
      strategy of exploiting market trends with the quick development of new and
      innovative products.




*Summary
      of Certain Key Events during 2006 and 2005*




During
      2006, we expanded our annual production capacity from 30 million to 160 million
      bottles. This increase was accomplished by expanding our capacity at Jasper
      Products from 30 million to 90 million bottles annually and executing a supply
      agreement with HP Hood on September 19, 2006 for the production of an additional
      70 million bottles annually.





Other
      key
      accomplishments during 2006 include:




·
            Worked
                with our co-packers and bottle suppliers to develop new innovative
                packaging, including the first 8 ounce vendible bottle for Coca Cola
                and
                other vending machines and 12 ounce vendible bottles for high schools
                that
                meet the new American Beverage Association serving size
                guidelines


·
            Reduced
                average costs per 14 ounce bottle by 13%


·
            Established
                the Allied Brands sales channel to focus on expanding business beyond
                CCE


·
            Introduced
                an organic milk line through partnership with Organic Valley’s Cooperative
                Regions of Organic Producer Pools




12




·
            Signed
                licensing agreement with General Mills for use of the Cocoa Puffs®, Trix®,
                FrankenBerry®, BooBerry® and Wheaties® products that will introduce our
                Slammers® brand to a younger demographic


·
            Negotiated
                Masterfoods license to 2012 (five year extension) and broadened our
                co-branded offering to include Dove® Dark and Dove® Milk
                Chocolate


·
            Created
                Bravo’s first formalized and detailed three year Strategy and Financial
                Plan


·
            Added
                talent and resources across all departments to support company
                growth





During
      2006, like many early-stage organizations that often seek private-investment
      in
      public-enterprise type (PIPE) financings, we faced major challenges associated
      with our accounting and reporting for our financing arrangements. Unfortunately,
      issues raised by the Securities and Exchange Commission resulted in the
      restatement of the financial statements in our 2005 Annual Report. While we
      addressed the issues and made corrections to the satisfaction of the SEC,
      correcting our financial statements led to delays in our periodic SEC filings
      and registration statements related to the PIPE securities which, in turn,
      resulted in significant penalties that were paid to our investors. Such
      penalties have ceased to accrue, but contractual terms and conditions that
      could
      result in additional future penalties for non-filings, loss of effectiveness
      or
      suspension of trading remain. We have increased our internal financial
      department resources and have engaged highly-specialized consultants, where
      necessary, to be more responsive to the ever-increasing financial complexities
      with which, as an issuer, we have been and expect to continue to be confronted.





On
      August
      31, 2005, we entered into a Master Distribution Agreement (“MDA”) with CCE .
      The ten
      year exclusive MDA significantly expanded our distribution network. Under the
      terms of the MDA, CCE has the right of first refusal to distribute all of our
      new products. We currently are developing a secondary national distribution
      system for all other products that CCE does not carry.





In
      January 2005, we launched our Slammers® Starburst® line of Fruit & Cream
      Smoothies utilizing a “shelf stable” re-sealable plastic bottle for milk
      products that does not require refrigeration. Until that launch, all single
      served flavored milk in plastic bottles required refrigeration for storage,
      distribution, and shelf placement. The tactical advantage of distributing milk
      products ambient enables us to overcome a major entry barrier to reach the
      immediate consumption market. Refrigerated milk is relegated to the cold dairy
      direct-store-delivery systems that are controlled by either regional dairy
      processors or larger national dairy holding companies that carry their own
      brands of flavored milks. Shelf stable re-sealable plastic bottles allow us
      to
      use a more traditional distribution network that accommodates the
      non-refrigerated beverages. Also, milk products packaged in shelf stable
      re-sealable plastic bottles have significantly longer shelf life for storage,
      allowing us to ship in full truckloads resulting in decreased freight costs.
      We
      have converted all of our products to “shelf stable” re-sealable plastic
      bottles.





**DISCUSSION
      AND ANALYSIS**





This
      discussion and analysis of our consolidated financial condition and results
      of
      operations are based on our consolidated financial statements, which have been
      prepared in accordance with accounting principles that are generally accepted
      in
      the United States of America.





***Critical
      Accounting Estimates***





The
      preparation of financial statements in conformity with GAAP requires management
      to make estimates and assumptions that affect the reported amounts of assets
      and
      liabilities and disclosure of contingent assets and liabilities at the date
      of
      the financial statements and the reported amounts of revenues and expenses
      during the reporting period. The most critical estimates included in our
      financial statements are the following:





·
            Estimating
                the fair value of our complex derivative financial instruments that
                are
                required to be carried as liabilities at fair value pursuant to Statements
                on Financial Accounting Standards No. 133*Accounting
                for Derivative Financial Instruments and Hedging Activities (FAS
                133)*




13


·
            Estimating
                the future recoverability of our long-lived assets, consisting of
                property
                and equipment and intangible assets, pursuant to Statements on Financial
                Accounting Standards No. 144*Accounting
                for the Impairment or Disposal of Long-lived Assets (FAS
                144)*





We
      use
      all available information and appropriate techniques to develop our estimates.
      However, actual results could differ from our estimates.





***Derivative
      Financial Instruments***





We
      do not
      use derivative financial instruments to hedge exposures to cash-flow, market
      or
      foreign-currency risks. However, we frequently enter into certain other
      financial instruments and contracts, such as debt financing arrangements,
      redeemable preferred stock arrangements and freestanding warrants with features
      that are either (i) not afforded equity classification, (ii) embody risks not
      clearly and closely related to host contracts or (iii) may be net-cash settled
      by the counterparty to a financing transaction. As required by FAS 133, these
      instruments are required to be carried as derivative liabilities, at fair value,
      in our financial statements.





We
      estimate fair values of derivative financial instruments using various
      techniques (and combinations thereof) that are considered to be consistent
      with
      the objective measuring of fair values. In selecting the appropriate
      technique(s), we consider, among other factors, the nature of the instrument,
      the market risks that such instruments embody and the expected means of
      settlement. For less complex derivative instruments, such as free-standing
      warrants, we generally use the Black Scholes Merton option valuation technique,
      since it embodies all of the requisite assumptions (including trading
      volatility, estimated terms and risk free rates) necessary to fair value these
      instruments. For complex derivative instruments, such as embedded conversion
      options, we generally use the Flexible Monte Carlo valuation technique since
      it
      embodies all of the requisite assumptions (including credit risk, interest-rate
      risk and exercise/conversion behaviors) that are necessary to fair value these
      more complex instruments. For forward contracts that contingently require
      net-cash settlement as the principal means of settlement, we project and
      discount future cash flows applying probability-weightage to multiple possible
      outcomes. Estimating fair values of derivative financial instruments requires
      the development of significant and subjective estimates that may, and are likely
      to, change over the duration of the instrument with related changes in internal
      and external market factors. In addition, option-based techniques are highly
      volatile and sensitive to changes in our trading market price which has
      high-historical volatility. Since derivative financial instruments are initially
      and subsequently carried at fair values, our income will reflect the volatility
      in these estimate and assumption changes.





***Impairment
      of Long-Lived Assets***





Our
      long-lived assets consist principally of intangible assets, and to a much lesser
      extent, furniture and equipment. These balances represent approximately 65%
      of
      total assets at December 31, 2006. We evaluate the carrying value and
      recoverability of our long-lived assets when circumstances warrant such
      evaluation by applying the provisions of Financial Accounting Standard No.
      144, Accounting
      for the Impairment or Disposal of Long-Lived Assets (“FAS
      144”). FAS 144 requires that long-lived assets be reviewed for impairment
      whenever events or changes in circumstances indicate that the carrying amount
      of
      an asset may not be recoverable through the estimated undiscounted cash flows
      expected to result from the use and eventual disposition of the assets. Whenever
      any such impairment exists, an impairment loss will be recognized for the amount
      by which the carrying value exceeds the fair value.




14





*RESULTS
      OF OPERATIONS*





*Year
      Ended December 31, 2006 Compared to Year Ended December 31, 2005*





**Consolidated
      Revenues**





**2006**
            
            **2005**
            
            **$
                Change**
            
            **%
                Change****Revenues**
            
            $
            14,661,852
            
            $
            11,948,921
            
            $
            2,712,931
            
            
            22.7
            %





The
      increase in our revenues in 2006 compared to 2005 is the result of our Master
      Distribution Agreement with CCE, which went into effect in November 2005.
      Accordingly, we reported a full year of revenue from this contract in 2006,
      compared to only two months in 2005. Our agreement with CCE stipulates lower
      unit selling prices than are charged to other customers. CCE is a significant
      customer and contributed 78% and 34% of our revenues in 2006 and 2005,
      respectively. Prior to our MDA with CCE, we relied on wholesalers and
      independent resellers for distribution of our products. Following our execution
      of the Master Distribution Agreement, we have reduced our reliance on
      wholesalers and independent resellers to distribute our product and,
      accordingly, our revenues from these sources decreased from 66% in 2005 to
      22%
      in 2006. The loss of CCE as a customer, or the curtailment of business with
      CCE,
      would have a material adverse effect on our operations.





Revenues
      are net of industry-standard slotting fees and cash discounts of $563,070 and
      $487,221 in 2006 and 2005, respectively. Slotting fees, which totaled $463,256
      and $442,625 in 2006 and 2005, are common in the large store channel and
      represent cash payments made for rights to place our products on customer retail
      shelves for a stipulated period of time. A component of our growth plan includes
      increasing penetration in the large store channel. Therefore, we expect slotting
      fees to increase in the future.





We
      plan
      to increase our revenues during 2007 by reorganizing and augmenting our internal
      sales force, securing additional national distributors, expanding our product
      offering, increasing our volume per outlet and driving further penetration
      of
      our products into CCE’s current customer base.





Geographically,
      our revenues are dispersed 99% and 1% between the United States of America
      and
      internationally, respectively. We plan to develop opportunities to augment
      our
      international sales, in particular within Canada and Mexico, during 2007.




**Consolidated
      Product and Shipping Costs**





**2006**
            
            **%
                of Revenues**
            
            **2005**
            
            **%
                of Revenues**
            
            **$
                Change**
            
            **%
                Change****Product
                costs**
            
            $
            12,649,884
            
            
            86.3
            %
            $
            8,938,692
            
            
            74.8
            %
            $
            3,711,192
            
            
            41.5
            %**Shipping
                costs**
            
            
            1,530,297
            
            
            10.4
            %
            
            1,505,035
            
            
            12.6
            %
            
            25,262
            
            
            1.7
            %**Total**
            
            $
            14,180,181
            
            
            96.7
            %
            $
            10,443,727
            
            
            87.4
            %
            $
            3,736,454
            
            
            35.8
            %




15


Product
      and Shipping Costs





Product
      costs as a percentage of revenue increased 11.5% in 2006 primarily for three
      reasons. First, our average selling price per unit decreased compared with
      our
      average selling price in 2005 due to pricing concessions agreed to with CCE
      under our MDA. These pricing concessions were agreed to in anticipation of
      increased revenues generated through our relationship with CCE. As provided
      for
      in our agreement with CCE, we are increasing selling prices in early 2007.





Second,
      we sold certain products with remaining shelf life of less than what is allowed
      under the CCE agreement to other customers at a loss aggregating $440,000.
      These
      selling losses are attributed to contract implementation issues with CCE and
      are
      expected to be less material during 2007.





Finally,
      we recorded inventory obsolescence expense of $347,000 in 2006 compared to
      $0 in
      2005. The 2006 expense represents reserves established primarily for the
      remaining 14 ounce “Commodore” bottles, which have been replaced with the
      vendible “Snowman” bottles.





Our
      shipping cost decreased 2.2% as a percentage of revenues. With the increase
      in
      sales volume from our relationship with CCE, we were able to decrease our
      overall shipping costs. This was done by shipping full truck loads of our
      product in 2006 instead of partial truck loads in 2005.




**Consolidated
      Operating Expenses**





**2006**
            
            **%
                of Revenues**
            
            **2005**
            
            **%
                of Revenues**
            
            **$
                Change**
            
            **%
                Change****Marketing
                and Advertising**
            
            $
            7,467,605
            
            
            50.9
            %
            $
            1,564,665
            
            
            13.1
            %
            $
            5,902,940
            
            
            377.3
            %**Selling**
            
            
            11,859,652
            
            
            80.9
            %
            $
            5,900,211
            
            
            49.4
            %
            
            5,959,441
            
            
            101.0
            %**General
                and administrative**
            
            
            10,685,831
            
            
            72.9
            %
            
            7,263,284
            
            
            60.8
            %
            
            3,422,547
            
            
            47.1
            %**Product
                development**
            
            
            601,574
            
            
            4.1
            %
            
            636,342
            
            
            5.3
            %
            
            (34,768
            )
            
            (5.5
            )%**Non-recurring
                finder’s fee**
            
            
            -
            
            
            0.0
            %
            
            3,000,000
            
            
            25.1
            %
            
            (3,000,000
            )
            
            (100.0
            )%**Total**
            
            $
            30,614,662
            
            
            208.8
            %
            $
            18,364,502
            
            
            153.7
            %
            $
            12,250,160
            
            
            66.7
            %





Marketing
      Expense and Advertising:





During
      2006, we significantly increased our marketing budget by sponsorship of National
      Hot Rod Association (“NHRA”) pro stock race cars. We incurred approximately $3
      million in expenses surrounding our NHRA advertising during 2006, which included
      retail promotions, personal appearances and sales events. The remainder of
      the
      increase in marketing and advertising expenditures is attributed to the creation
      of Bravo!’s first two television commercials, point of sale spending, and radio
      commercials. This included approximately $2,000,000 in fourth quarter radio
      and
      television advertising aimed at boosting brand awareness in our strongest
      geographic markets. Investment in marketing and advertising is important as
      we
      continue to build brand recognition and generate consumer trial and loyalty,
      and
      we expect to continue this investment in 2007.


16





Selling
      Expense:





Our
      selling expenses in 2006 increased by approximately $6.0 million due primarily
      to the hiring of additional sales personnel, a national CCE sales campaign
      and
      the non-cash amortization of an intangible asset. During 2006, our sales force
      headcount increased from 3 to 17 personnel, resulting in $1.3 million
      incremental payroll expenses. We also spent approximately $1.5 million on a
      nationwide campaign aimed at educating, motivating, and building brand awareness
      of the Slammers products within the CCE sales force. Included in selling expense
      is the non-cash amortization of an intangible asset associated with the CCE
      agreement, with expense of $1.6 million and $532,000 for 2006 and 2005,
      respectively. Royalty and travel expenses also contributed to the overall
      increase in 2006 selling expenditures.





During
      2007, we plan to expand our sales force, which will be situated throughout
      the
      United States and Canada, from 17 to 112 personnel. The majority of these sales
      people will be tasked with working very closely with CCE sales personnel. Others
      will be focused exclusively on targeting customers outside of the CCE
      distribution network. Our sales force reorganization plan is a major component
      of our 2007 strategy. We believe that this investment will increase our sales
      by
      improving our penetration rates and increasing volume sold to existing
      customers. Due to the sales force expansion plan, we expect that total selling
      expenses will increase in 2007.





General
      and Administrative Expense:





There
      were two major new expenditures incurred in 2006 that drove our increase in
      general and administrative expenses. First, we incurred $2.8 million in unused
      capacity penalties as a result of our manufacturing agreement with Jasper
      Products. These expenditures were a necessary byproduct of our strategic plan
      for securing additional capacity in the limited FDA approved shelf-stable plant
      arena. At the time that increased capacity was secured, however, the need for
      extra capacity that we anticipated would exist from a ramp-up in sales, had
      not
      materialized. We expect these penalties to decrease in 2007, as our sales volume
      increases. Second, we recorded intangible assets in late 2005 and in 2006
      associated with our manufacturing agreements. The amortization expense for
      these
      intangible assets amounted to $611,000 in 2006 compared to $0 in
      2005.




As
      a
      percentage of total revenue, our general and administrative expense increased
      from 61% in 2005 to 73% in 2006.
      Total general and administrative expenses are expected to increase as we
      continue to build the company infrastructure. However, we expect that the
      expense as a percentage of revenue will be reduced due to revenue growth, cost
      cutting efforts and the refinement of business operations.




Product
      Development Expense:





Product
      development expense in both 2006 and 2005 relates to costs associated with
      package development. There was a slight decrease in expense in 2006 compared
      to
      2005 due to a more efficient utilization of our resources. Our focus continues
      to be the development of innovative new products while expanding our current
      product base.




Non-Recurring
      Finders’ Fee:





We
      recorded a $3,000,000 one time, non-recurring finder’s fee in connection with
      our execution of the MDA with CCE in 2005. We did not incur similar costs during
      2006 and do not expect to incur similar costs in the foreseeable future since
      our business opportunity with CCE is expected to be further developed over
      that
      period.




17





**Consolidated
      Other Income (Expense)**





**2006**
            
            **%
                of Revenues**
            
            **2005**
            
            **%
                of Revenues**
            
            **$
                Change**
            
            **%
                Change****Derivative
                income (expense)**
            
            $
            4,159,981
            
            
            28.4
            %
            $
            (60,823,574
            )
            
            509.0
            %
            $
            64,983,555
            
            
            (106.8
            )%**Interest
                expense**
            
            
            (3,245,198
            )
            
            22.1
            %
            
            (1,667,294
            )
            
            14.0
            %
            
            (1,577,904
            )
            
            94.6
            %**Liquidated
                damages**
            
            
            (6,472,000
            )
            
            44.1
            %
            
            (303,750
            )
            
            2.5
            %
            
            (6,168,250
            )
            
            2,030.7
            %**Legal
                settlement**
            
            
            (552,600
            )
            
            3.8
            %
            
            -
            
            
            0.0
            %
            
            (552,600
            )
            
            100.0
            %**Gain
                (loss) on extinguishment**
            
            
            (454,205
            )
            
            3.1
            %
            
            125,273
            
            
            1.0
            %
            
            (579,478
            )
            
            (462.6
            )%**Total**
            
            $
            (6,564,022
            )
            
            44.8
            %
            $
            (62,669,345
            )
            
            524.5
            %
            $
            56,105,323
            
            
            (89.5
            )%





Derivative
      Income/Expense





Derivative
      (income) expense arises from changes in the fair value of our derivative
      financial instruments and, in rare instances, day-one losses when the fair
      value
      of embedded and freestanding derivative financial instruments issued or included
      in financing transactions exceed the proceeds or other basis. Derivative
      financial instruments include freestanding warrants and compound embedded
      derivative features that have been bifurcated from debt and preferred stock
      financings. In addition, derivative financial instruments arose from the
      reclassification of other non-financing derivative and other contracts from
      stockholders’ equity because share settlement was presumed not to be within our
      control while certain variable share price indexed financing instruments were
      outstanding. We continue to review our derivative liabilities and the terms
      and
      conditions that give rise to their liability classification. During the fourth
      quarter of 2006, we reclassified approximately $19.5 million of our derivative
      liabilities to stockholders’ equity upon the amendment of terms or the
      conversion of instruments that had a ‘tainting’ impact. Accordingly, our
      derivative income and expense in future periods will not be affected by fair
      value changes arising from these reclassified financial
      instruments.





Changes
      in the fair value of compound derivatives indexed to our common stock are
      significantly affected by changes in our trading stock price and the credit
      risk
      associated with our financial instruments. The fair value of warrant derivatives
      is significantly affected by changes in our trading stock prices. The fair
      value
      of derivative financial instruments that are settled solely with cash fluctuate
      with changes in management’s weighted probability estimates following the
      financing inception and are generally attributable to the increasing probability
      of default events on debt and preferred stock financings. The fair value of
      the
      derivative instruments declined principally due to the decline in our common
      stock trading price. Since these instruments are measured at fair value, future
      changes in assumptions, arising from both internal factors and general market
      conditions, may cause further variation in the fair value of these instruments.
      Future changes in these underlying internal and external market conditions
      will
      have a continuing effect on derivative expense associated with our derivative
      financial instruments.





Our
      derivative income amounted to $4,159,981 for the year ended December 31, 2006,
      compared to derivative expense of $ 60,823, 574
      in
      the prior year. The magnitude
      of the derivative loss during the year ended December 31, 2005 when compared
      with the income for the year ended December 31, 2006 reflects the
      following:





During
      the year ended December 31, 2005, and specifically commencing in the second
      quarter, the trading price of our common stock reached significantly high levels
      relative to its trend. The trading price of our common stock significantly
      affects the fair value of our derivative financial instruments. To illustrate,
      our trading stock price at the end of the first quarter of 2005 was $0.15 and
      then increased to $0.93 by the end of the second quarter. Our trading stock
      price then declined to $0.61 and $0.59 at the end of the third and fourth
      quarters, respectively. However, the higher stock price had the effect of
      significantly increasing the fair value of our derivative liabilities and,
      accordingly, we were required to adjust the derivatives to these higher values
      with charges to our income. Furthermore, during the year ended December 31,
      2005, we entered into a $2,300,000 debt and warrant financing arrangement,
      more
      fully discussed in Note 7(b) in the accompanying financial statements. In
      connection with our accounting for this financing, we encountered the unusual
      circumstance of a day-one loss related to the recognition of derivative
      instruments arising from the arrangement. That means that the fair value of
      the
      bifurcated compound derivative and warrants exceeded the proceeds that we
      received from the arrangement, and we were required to record a loss to record
      the derivative financial instruments at fair value. The loss that we recorded
      amounted to $8,663,869. We did not enter into any other financing arrangements
      during the periods reported that reflected such day-one losses.




18





The
      most
      significant factor driving the $4,159,981 derivative income recognized during
      the year ended December 31, 2006 was the decline in our stock price during
      the
      year. To illustrate, the closing price of our common stock at the close of
      2006
      was $0.31, compared to $0.59 at the close of 2005, representing a 47% decline
      in
      the stock price. Partially offsetting the derivative income was a $3.6 million
      derivative expense associated with a December 2006 amendment to the July 2006
      $30 million convertible debt agreement. In the amendment, the investors agreed
      to waive their rights to exercise their default put in exchange for an increase
      in the face value of the financing agreement. This transaction is more fully
      discussed in Note 7(j) in the accompanying financial statements.





Interest
      Expense





The
      increase in interest expense in 2006 compared to 2005 was due to an increase
      in
      our debt balance. During 2006, we issued approximately $31.7 million in new
      debt
      financings. We also allocated proceeds from these financings to warrants and
      other features that required bifurcation from hybrid, convertible debt
      instruments. As a result, our debt is recorded at a discount, and we are
      required to amortize this discount through periodic charges to interest expense
      using the effective method. During 2006 and 2005, amortization of debt discounts
      amounted to approximately $1.9 million and $1.4 million respectively. Applying
      the effective method results in an increasing interest (or amortization) over
      the term of the debt. In addition, we issued $30.0 million of our total 2006
      indebtedness during July 2006. Accordingly, our interest expense will increase
      in future periods due to (i) increased discount amortization and (ii) the
      increased interest from our average debt balances being outstanding for longer
      periods.





Liquidated
      Damages





During
      2006, we recorded liquidated damages expense of $6,472,000 compared to $303,750
      in 2005. We have entered into registration rights agreements with certain
      investors that require us to file a registration statement covering underlying
      indexed shares, become effective on the registration statement, maintain
      effectiveness and, in some instances, maintain the listing of the underlying
      shares. Certain of these registration rights agreements require our payment
      of
      cash penalties to the investors in the event we do not achieve the requirements.
      We record our best estimate of liquidated damages penalties as liabilities
      and
      charges to our income when the cash penalties are probable and estimable.
      Effective February 2007, such penalties have ceased to accrue, but contractual
      terms and conditions that could result in additional future penalties for
      non-filings, loss of effectiveness or suspension of trading remain. We will
      evaluate our estimate of liquidated damages in future periods and adjust our
      estimates for changes, if any, in the facts and circumstances underlying their
      calculation.




19





Legal
      Settlement





During
      2006, we recorded a legal settlement with Marvel for $552,600 that provided
      solely for the extension of the terms of previously issued warrants. When we
      extend expired or otherwise expiring warrants, we are required to remeasure
      them
      at their fair value on the modification date. Our charge represents the fair
      value of the options using the Black-Scholes-Merton valuation
      technique.




Gain
      (loss) on extinguishment of debt




Debt
      extinguishment gains and losses arise from modifications that we make from
      time
      to time to our debt arrangements. Certain modifications required our
      re-measurement of the carrying value of the debt to fair value when the
      modification is deemed to be significant, which is determined based upon changes
      in cash flows or changes in the fair value of embedded conversion options.
      We
      may further modify other debt arrangements as explained under the discussion
      related to our derivative financial instruments. Each modification will require
      a determination whether an extinguishment occurred and, if so, an extinguishment
      gain or loss may require recognition.




**Consolidated
      Net Loss**





We
      reported a net loss in 2006 of $36,697,013 compared with a net loss of
      $79,528,653 in 2005. There were several factors that gave rise to our losses
      in
      2006 and 2005. First, we are currently expending funds for marketing programs,
      developing our administrative and operating infrastructure and developing new
      and existing sales channels. As a result, our current revenue volume has not
      been sufficient to recover all of our operating expenses. We anticipate that
      our
      operating expenses as a percentage of our sales will decrease in future periods
      as our revenues increase and our costs stabilize. In addition, we incurred
      a
      one-time $3,000,000 fee during 2005 related to the signing of the MDA
      with CCE. Finally, the overall magnitude of the 2005 net loss can be
      attributable largely to the fair value adjustments related to our derivative
      financial instruments of $60,823,574. See the discussion above about our
      derivative income (expense) for additional information.





**Consolidated
      Loss Applicable to Common Shareholders**





We
      reported a loss applicable to common shareholders in 2006 of $37,977,475
      compared with $80,850,670 in 2005. Loss applicable to common shareholders
      represents net loss as adjusted for preferred stock dividends and accretion
      of
      our redeemable preferred stock and our equity classified preferred stock to
      redemption values using the effective method. Many of our preferred stock series
      have cumulative dividend features, and we will continue to reflect preferred
      stock dividends in our loss applicable to common shareholders until the
      preferred stock is converted, if ever. In addition, many of our redeemable
      preferred stock series were initially discounted due to the allocation of
      financing proceeds to detachable warrants and embedded derivative financial
      instruments. We use the effective method to amortize these discounts. The use
      of
      the effective method involves the accretion of our discounted redeemable
      preferred stock to redemption values. Accretion is the change of present value
      of a financing instrument to its appropriate future value over the anticipated
      life of the instrument. This method causes accretion to increase over the
      redemption period of these instruments as the carrying values increase.
      Accordingly, accretions will increase in future periods until the preferred
      stock is fully accreted to redemption values or converted.





20




**Consolidated
      Loss per Common Share Applicable to Common Stockholders**





The
      Company’s basic loss per common share applicable to common stockholders in 2006
      was $(0.20) compared with a basic loss per common share applicable to common
      stockholders in 2005 of $(0.60). Because the Company experienced net losses
      in
      2006 and 2005, all potential common share conversions existing in our financial
      instruments would have an antidilutive impact on earnings per share; therefore,
      diluted loss per common share equals basic loss per common share for both years.





The
      weighted average common shares outstanding increased from 135,032,836 for the
      year ended 2005 to 192,450,151 for the year ended 2006. The increase is
      attributed primarily to conversions of our convertible debt and preferred
      instruments into common shares. Potential common stock conversions excluded
      from
      the computation of diluted earnings per share amounted to 195,933,793 and
      108,059,082 for 2006 and 2005, respectively.





**Consolidated
      Comprehensive Loss**





Comprehensive
      loss differs from net loss for 2006 and 2005 by $49,264 and ($30,759),
      respectively, which represents the effects of foreign currency translation
      on
      the financial statements of our subsidiaries denominated in foreign currencies.
      Our foreign operations are currently not significant. Increases in our foreign
      operations will likely increase the effects of foreign currency translation
      adjustments on our financial statements.





*LIQUIDITY
      AND CAPITAL RESOURCES*





We
      have
      yet to achieve profitability, and our ability to continue as a going concern
      will be dependent upon receiving additional third party financings to fund
      our
      business at least through the first eight months of 2007. Ultimately, our
      ability to continue is dependent upon the achievement of profitable
      operations. There is
      no assurance that further fun ding
      will
      be available at acceptable terms, if at all, or that we will be able to achieve
      profitability. These conditions raise substantial doubt about our ability to
      continue as a going concern. The
      accompanying financial statements do not reflect any adjustments that may result
      from the outcome of this uncertainty.





Working
      Capital Needs and Major Cash Expenditures




In
      2006,
      we experienced delays in filing our financial statements and registration
      statements due to errors in our historical accounting which we have corrected.
      As a result of our inability to make these filings timely, we incurred
      approximately $6.5 million in penalties, the majority of which we paid in cash
      to our investors during 2006 and January 2007. We also incurred approximately
      $1.4 million in outside accounting and legal fees during 2006 to remediate
      the
      underlying issues leading to the late filings. We are addressing the internal
      control weaknesses that resulted in the incurrence of these penalties, and
      we do
      not expect such material penalty expenditures in the future.




We
      currently have monthly working capital needs of approximately $1,500,000. This
      amount is however expected to increase in 2007, primarily due to the following
      factors:


·
            Principal
                payments related to our July 2006 convertible note (described below)
                commence in May 2007, at which time approximately $1.8 million in
                principal will become due every other month. In addition, approximately
                $750,000 in interest is payable to these investors each
                quarter.


·
            Our
                payroll, which currently approximates $400,000 monthly, is expected
                to
                double by late 2007, due largely to a planned major sales force
                expansion.





21




Material
      Covenants of Debt Obligations





On
      February 14, 2007, the Securities and Exchange Commission declared effective
      a
      Form SB-2 registration statement covering 60.55% of the securities in a July
      2006 transaction, as amended, pursuant
      to which we issued and sold $30 million senior convertible notes that are due
      in
      2010 and warrants that expire in July 2011. The
      senior notes are convertible into 105,468,750 shares of our common stock and
      the
      warrants can be exercised to purchase an additional 27,605,040 shares of our
      common stock. Of the securities underlying the notes and warrants, the February
      14, 2007 registration statement was limited to and registered 60.55% of the
      securities in the July 2006 transaction, as amended, consisting of 74.2% of
      the
      common stock issuable upon a conversion of the notes and 8.6% of the common
      stock issuable upon the exercise of the warrants. We anticipate filing an
      additional registration statement to cover the underlying shares of our common
      stock not covered by the February 14, 2007 effective statement, as soon as
      we
      have the legal ability to do so.





External
      Sources of Liquidity:





On
      November 28, 2005, we closed a funding transaction with 13 accredited
      institutional investors, for the issuance and sale of 40,500,000 shares of
      our
      common stock for a purchase price of $20,250,000. In addition, we issued
      five-year warrants for the purchase of an additional 15,187,500 shares of common
      stock at an exercise price of $0.80 per share. Our issuance of these securities
      was pursuant to an exemption to the registration requirements of Section 5
      of
      the Securities Act of 1933 for “transactions of the issuer not involving any
      public offering” provided in Section 4(2) of the Act and pursuant to a
      Regulation D offering. In connection with this financing, we issued common
      stock
      purchase warrants to purchase 1,012,500 shares of common stock at an exercise
      price of $.50 per share and 304,688 shares of common stock at an exercise price
      of $.80 per share to SG Cowen & Co., LLC, who acted as placement agent for
      this financing. On November 7, 2006, the Securities and Exchange Commission
      declared effective a Form SB-2 registration statement covering the November
      28,
      2005 transaction securities.




In
      July
      2006, the Company sold $30 million four year senior convertible notes (the
“July
      2006 Notes”) in a private sale to five accredited institutional investors. The
      July 2006 Notes carried a 9% annual coupon, payable quarterly, and were
      convertible into shares of common stock at $0.70 per share. We also issued
      five
      year Series A warrants to purchase 13,178,571 shares of common stock and Series
      B warrants to purchase 43,392,856 shares of common stock (exercisable only
      if
      the Company redeems the July 2006 Notes, on a pro rata basis) at $0.73 per
      share. Absent the Company’s exercise of its call option to redeem the July 2006
      Notes, the holders have no rights to exercise the Series B Warrants and receive
      common shares to which the contingent warrants are indexed.





On
      August
      31, 2006, the Company entered into Amendment Agreements with respect to the
      July
      2006 Notes, as a result of the Company’s delay in filing its second quarter Form
      10QSB. The Company issued new Amended and Restated Notes (the “Restated July
      2006 Notes”), at a reduced conversion price of $0.51 per share and granted the
      investors a “put” to compel the Company’s redemption of the Restated July 2006
      Notes through December 15, 2006.





On
      December 29, 2006, the Company entered into Amendment and Exchange Agreements
      with the July 2006 investors. The investors agreed to waive their option to
      compel redemption, and the Company agreed to capitalize the $3,750,000
      redemption premium with respect to the investors’ right to compel redemption of
      the Restated July 2006 Notes. In connection with these amendments, the Company
      issued new Restated July 2006 Notes having a conversion price of $0.32 and
      Series A and B Warrants having exercise prices of $0.34 and $0.32, respectively.
      On December 29, 2006, the closing market trading price of the Company’s common
      stock was $0.31 per share. On February 14, 2007, the Securities and Exchange
      Commission declared effective a Form SB-2 registration statement covering 60.55%
      of the securities in the July 2006 transaction, as amended.




22





On
      February 12, 2007, we obtained financing in the amount of $2,000,000 and issued
      promissory notes aggregating that principal amount to three accredited
      investors. The notes provide for rights of participation in a subsequent
      financing by us. We also issued five year warrants for 2,000,000 shares of
      our
      common stock at an exercise price of $0.34 per share in connection with this
      financing. The warrants and underlying common stock were issued pursuant to
      Regulation D.





On
      March
      15, 2007, we issued promissory notes to three accredited investors aggregating
      $625,000, and obtained financing from them in that principal amount.  The
      notes provide for interest at 12% per annum, a maturity date of July 12, 2007,
      rights of participation in a subsequent financing by us and the ability of
      the
      investors to convert the notes to common stock at $0.34 per share upon an event
      of default.  We also issued five year warrants for the purchase of 625,000
      shares of our common stock at an exercise price of $0.34 per share in connection
      with this financing.  The warrants and underlying common stock were issued
      pursuant to an exemption to Section 5 of the Securities Act of 1933, as amended,
      set forth in Section 4(2) of the Act and Regulation D, promulgated
      thereunder.





**Information
      about our cash flows**





**Cash
                provided by (used in):**
            
            **2006**
            
            **2005**
            
            **$
                Change**
            
            **%
                Change****Operating
                activities**
            
            $
            (27,226,081
            )
            $
            (9,301,078
            )
            $
            (17,925,003
            )
            
            192.7
            %**Investing
                activities**
            
            
            (1,327,339
            )
            
            (4,043,665
            )
            
            2,716,326
            
            
            (67.2
            )%**Financing
                activities**
            
            
            27,339,732
            
            
            18,209,600
            
            
            9,130,132
            
            
            50.1
            %





The
      net
      increase in cash used in operating activities is due to a number of factors.
      Our
      net loss decreased from $79,528,653 in 2005 to $36,697,013 in 2006. However,
      our
      net loss in 2005 included a non-cash derivative expense of $60,823,574, while
      our 2006 net loss included a non-cash derivative gain of $4,159,981. Changes
      in
      accounts receivable contributed to a decrease in cash used by operating
      activities of $2,393,108, as compared to contributing to an increase of
      $3,356,477 for 2005 for a difference of $5,749,585. Cash used by operating
      activities increased as a result of changes in inventory during 2006 by
      $2,113,721, compared to $379,489 for the same period in 2005. This was the
      result of our building inventory during 2006 in connection with the continued
      implementation of our MDA with CCE. The changes in accounts payable and accrued
      liabilities for the year ended December 31, 2006 contributed to a reduction
      in
      cash used by operating activities of $5,265,914, whereas such changes in 2005
      contributed to a decrease in cash used by operating activities of $7,294,548.
      Cash flows generated by our operating activities were inadequate to cover our
      cash disbursement needs for the year ended December 31, 2006, and we had to
      rely
      on private placement financing and new convertible debt financing to cover
      operating expenses.





Cash
      used
      in the year ended December 31, 2006 in our investing activities was $1,327,339
      for license and trademark costs and equipment purchases, compared to $4,043,665
      for the same period in 2005.





Net
      cash
      provided by our financing activities for the year ended December 31, 2006 was
      $27,339,732. Net cash provided by financing activities for the same period
      in
      2005 was $18,209,600, for a net increase of $9,130,132. The increase is
      attributed to proceeds received from convertible notes payable of $31,669,323
      in
      2006.





23




**EFFECTS
      OF INFLATION**





We
      believe that inflation has not had any material effect on our net sales and
      results of operations.





ITEM
      7.
–FINANCIAL
      STATEMENTS





The
      consolidated financial statements for the years ended December 31, 2006 and
      2005
      are contained on Pages F-1 to F-61 which follows.




24




**BRAVO!
      BRANDS INC. AND SUBSIDIARY**




**CONSOLIDATED
      FINANCIAL STATEMENTS**


**FOR
      THE YEARS ENDED DECEMBER 31, 2006 and 2005**





F-1


**BRAVO!
      BRANDS, INC. AND SUBSIDIARY**





**INDEX
      TO CONSOLIDATED FINANCIAL STATEMENTS**





Report
                of Independent Registered Public Accounting Firm
            
            F-3Consolidated
                Balance Sheets
            
            F-4
                to F-5Consolidated
                Statements of Operations and Comprehensive Loss
            
            F-6Consolidated
                Statements of Cash Flows
            
            F-7
              to F-8Consolidated
                Statements of Stockholders’ Deficit
            
            F-9Notes
                to Consolidated Financial Statements
            
            F-10
                to F-61





F-2





REPORT
      OF
      INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





To
      the
      Board of Directors and Shareholders


Bravo!
      Brands Inc.


North
      Palm Beach, Florida





We
      have
      audited the accompanying consolidated balance sheets of Bravo! Brands Inc.
      (formerly Bravo! Foods International Corp.) as of December 31, 2006 and 2005
      and
      the related consolidated statements of operations and comprehensive loss,
      stockholders' deficit and cash flows for the years then ended. These financial
      statements are the responsibility of the Company's management. Our
      responsibility is to express an opinion on these financial statements based
      on
      our audits.





We
      conducted our audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audits to obtain reasonable assurance about whether the
      financial statements are free of material misstatement. The Company is not
      required to have, nor were we engaged to perform, an audit of its internal
      control over financial reporting. Our audits included consideration of internal
      control over financial reporting as a basis for designing audit procedures
      that
      are appropriate in the circumstances, but not for the purpose of expressing
      an
      opinion on the effectiveness of the Company's internal control over financial
      reporting. Accordingly, we express no such opinion. An audit includes examining,
      on a test basis, evidence supporting the amounts and disclosures in the
      financial statements, assessing the accounting principles used and significant
      estimates made by management, as well as evaluating the overall financial
      statement presentation. We believe that our audits provide a reasonable basis
      for our opinion.





In
      our
      opinion, the financial statements referred to above present fairly, in all
      material respects, the financial position of Bravo! Brands Inc. as of December
      31, 2006 and 2005 and the results of its operations and its cash flows for
      the
      years then ended in conformity with accounting principles generally accepted
      in
      the United States of America.





The
      accompanying financial statements have been prepared assuming that the Company
      will continue as a going concern. As shown in the financial statements, the
      Company incurred a net loss of $36,697,013 for the year ended December 31,
      2006
      and as of that date had a working capital deficit of $54,378,517 and an
      accumulated deficit of $157,031,836. The Company is also delinquent in payment
      of certain debts. These conditions raise substantial doubt about their ability
      to continue as a going concern. Management's actions in regard to these matters
      are more fully described in Note 1. The financial statements do not include
      any
      adjustments relating to the recoverability and classification of recorded
      assets, or the amounts and classification of liabilities that might be necessary
      in the event the Company cannot continue in existence.








/s/
      Lazar
      Levine & Felix LLP





New
      York,
      New York


March
      28,
      2007





F-3






**BRAVO!
        BRANDS INC. AND SUBSIDIARY**
 
 **CONSOLIDATED
        BALANCE SHEETS**




December
                31,2006
            
            2005**Assets**Current
                assets:Cash
                and cash equivalents
            
            $
            3,783,562
            
            $
            4,947,986Accounts
                receivable, net of allowance for doubtful accounts of$140,000
                and $350,000 for 2006 and 2005, respectively
            
            
            965,733
            
            
            3,148,841Inventories,
                net of allowance for slow moving and obsolete inventory of $347,000
                and
                $0, respectively
            
            
            2,157,866
            
            
            391,145Prepaid
                expenses
            
            
            388,565
            
            
            973,299Total
                current assets
            
            
            7,295,726
            
            
            9,461,271Fixed
                assets
            
            
            1,211,556
            
            
            288,058Intangible
                assets, net
            
            
            18,537,612
            
            
            18,593,560Other
                assets
            
            
            3,332,856
            
            
            15,231**Total
                assets**
            
            $
            30,377,750
            
            $
            28,358,120




***See
      accompanying notes***




F-4




**BRAVO!
        BRANDS INC. AND SUBSIDIARY**
 
 **CONSOLIDATED
        BALANCE SHEETS**




December
                  312006
              
              2005**Liabilities,
                  Redeemable Preferred Stock and Stockholders’
                  Deficit**Current
                  liabilities:Accounts
                  payable
              
              $
              8,987,940
              
              $
              5,987,219Accrued
                  liabilities
              
              
              7,014,263
              
              
              4,872,277Notes
                  payable
              
              
              243,968
              
              
              937,743Convertible
                  notes payable
              
              
              25,486,990
              
              
              1,012,780Derivative
                  liabilities
              
              
              19,941,082
              
              
              35,939,235Total
                  current liabilities
              
              
              61,674,243
              
              
              48,749,254
 Non-current
                  notes payable
              
              
              67,500
              
              
              -**Commitments
                  and contingencies****Redeemable
                  preferred stock:**Series
                  F convertible, par value $0.001 per share, 200,000 shares designated
                  Convertible Preferred Stock, stated value $10.00 per share, 5,248
                  shares
                  issued and outstanding for 2005
              
              
              -
              
              
              52,480Series
                  H convertible, par value $0.001 per share, 350,000 shares designated,
                  7%
                  Cumulative Convertible Preferred Stock, stated value $10.00 per
                  share,
                  64,500 shares issued and outstanding for 2005
              
              
              -
              
              
              388,305Series
                  J, par value $0.001 per share, 500,000 shares designated, 8% Cumulative
                  Convertible Preferred Stock, stated value $10.00 per share, 200,000
                  shares
                  issued and outstanding for 2006 and 2005
              
              
              1,561,707
              
              
              871,043Series
                  K, par value $0.001 per share, 500,000 shares designated, 8% Cumulative
                  Convertible Preferred Stock, stated value $10.00 per share, 95,000
                  shares
                  issued and outstanding for 2006 and 2005
              
              
              837,769
              
              
              792,672**Total
                  redeemable preferred stock**
              
              
              2,399,476
              
              
              2,104,500**Stockholders’
                  Deficit****:**Preferred
                  stock, 5,000,000 shares authorized;Series
                  B convertible, par value $0.001 per share, 1,260,000 shares designated,
                  9%
                  Convertible Preferred Stock, stated value $1.00 per share, 107,440
                  shares
                  issued and outstanding for 2006 and 2005
              
              
              107,440
              
              
              107,440Series
                  H convertible, par value $0.001 per share, 350,000 shares designated,
                  7%
                  Cumulative Convertible Preferred Stock, stated value $10.00 per
                  share,
                  53,500 shares issued and outstanding for 2006
              
              
              535,000
              
              
              -Common
                  stock, par value $0.001 per share, 500,000,000 shares authorized,
                  202,429,528 and 184,253,753 shares issued and outstanding for 2006
                  and
                  2005, respectively
              
              
              202,430
              
              
              184,254Additional
                  paid-in capital
              
              
              122,414,992
              
              
              96,507,932Common
                  stock subscription receivable
              
              
              (10,000
              )
              
              (10,000
              )Accumulated
                  deficit
              
              
              (157,031,836
              )
              
              (119,254,501
              )Translation
                  adjustment
              
              
              18,505
              
              
              (30,759
              )**Total
                  stockholders’ deficit**
              
              
              (33,763,469
              )
              
              (22,495,634
              )**Total
                  liabilities, redeemable preferred stock and stockholders’
                  deficit**
              
              $
              30,377,750
              
              $
              28,358,120


***See
      accompanying notes***




F-5




**BRAVO!
        BRANDS INC. AND SUBSIDIARY**
 
 **CONSOLIDATED
        STATEMENTS OF OPERATIONS**
 **AND
        COMPREHENSIVE LOSS**


Years
                ended December 31,2006
            
            2005Revenues
            
            $
            14,661,852
            
            $
            11,948,921Product
                costs
            
            
            (12,649,884
            )
            
            (8,938,692
            )Shipping
                costs
            
            
            (1,530,297
            )
            
            (1,505,035
            )Gross
                margin
            
            
            481,671
            
            
            1,505,194Operating
                expenses:Marketing
                and advertising
            
            
            7,467,605
            
            
            1,564,665Selling
            
            
            11,859,652
            
            
            5,900,211General
                and administrative
            
            
            10,685,831
            
            
            7,263,284Product
                development
            
            
            601,574
            
            
            636,342Non-recurring
                finder’s fee
            
            
            -
            
            
            3,000,00030,614,662
            
            
            18,364,502Loss
                from operations
            
            
            (30,132,991
            )
            
            (16,859,308
            )Other
                income (expenses), net:Derivative
                income (expense)
            
            
            4,159,981
            
            
            (60,823,574
            )Interest
                income (expense), net
            
            
            (3,245,198
            )
            
            (1,667,294
            )Liquidated
                damages
            
            
            (6,472,000
            )
            
            (303,750
            )Legal
                settlement
            
            
            (552,600
            )
            
            -Gain
                (loss) on extinguishment of debt
            
            
            (454,205
            )
            
            125,273(6,564,022
            )
            
            (62,669,345
            )Loss
                before income taxes
            
            
            (36,697,013
            )
            
            (79,528,653
            )Provision
                for income taxes
            
            
            -
            
            
            -Net
                loss
            
            
            (36,697,013
            )
            
            (79,528,653
            )Adjustments
                to net loss to arrive at loss applicable to commonstockholders:Preferred
                stock dividends and accretion
            
            
            (1,280,462
            )
            
            (1,322,017
            )Loss
                applicable to common stockholders
            
            $
            (37,977,475
            )
            $
            (80,850,670
            )Basic
                and diluted loss per common share
            
            $
            (0.20
            )
            $
            (0.60
            )Weighted
                average number of common shares outstanding
            
            
            192,450,151
            
            
            135,032,836Comprehensive
                loss and its components consist of the following:Net
                loss
            
            $
            (36,697,013
            )
            $
            (79,528,653
            )Foreign
                currency translation adjustment
            
            
            49,264
            
            
            (30,759
            )Comprehensive
                loss
            
            $
            (36,647,749
            )
            $
            (79,559,412
            )





***See
      accompanying notes***




F-6




**BRAVO!
        BRANDS INC. AND SUBSIDIARY**
  **CONSOLIDATED
        STATEMENTS OF CASH FLOWS**
 **FOR
        THE YEARS ENDED DECEMBER 31, 2006 AND 2005**




Years
                ended December 31,2006
            
            2005Cash
                flows from operating activities:Net
                loss
            
            $
            (36,697,013
            )
            $
            (79,528,653
            )Adjustments
                to reconcile net loss to net cash used in operating
                activities:Depreciation
                and amortization
            
            
            3,345,404
            
            
            2,251,646Stock
                issuances for compensation
            
            
            1,372,000
            
            
            346,438Equity
                instruments issued and warrant costs for consulting
                expenses
            
            
            317,566
            
            
            1,472,261Stock
                compensation expense
            
            
            444,779
            
            
            798,869Legal
                settlement for Marvel warrants
            
            
            552,600
            
            
            -Bad
                debt expense
            
            
            (210,000
            )
            
            259,604Inventory
                obsolescence
            
            
            347,000
            
            
            -(Gain)
                loss on debt extinguishment
            
            
            454,205
            
            
            (125,273
            )Derivative
                (gain) expense, net
            
            
            (4,159,981
            )
            
            60,823,574Amortization
                of debt discount
            
            
            1,880,046
            
            
            1,428,638Loss
                on disposal of fixed assets
            
            
            3,542
            
            
            -Increase
                (decrease) in cash from changes in:Accounts
                receivable
            
            
            2,393,108
            
            
            (3,356,477
            )Inventories
            
            
            (2,113,721
            )
            
            (379,489
            )Prepaid
                expenses and other assets
            
            
            (421,530
            )
            
            (586,764
            )Accounts
                payable and accrued expenses
            
            
            5,265,914
            
            
            7,294,548Net
                cash used in operating activities
            
            
            (27,226,081
            )
            
            (9,301,078
            )Cash
                flows from investing activities:Licenses
                and trademark costs
            
            
            (278,240
            )
            
            (3,823,521
            )Purchase
                of equipment
            
            
            (1,049,099
            )
            
            (220,144
            )Net
                cash used in investing activities
            
            
            (1,327,339
            )
            
            (4,043,665
            )Cash
                flows from financing activities:Exercise
                of warrants
            
            
            625,000
            
            
            3,208,509Proceeds
                from convertible notes payable
            
            
            31,669,323
            
            
            2,850,000Proceeds
                from sale of common stock and warrants
            
            
            151,951
            
            
            20,690,000Payment
                of preferred stock dividends
            
            
            (87,866
            )
            
            -Payments
                for redemption of warrants
            
            
            -
            
            
            (5,900,000
            )Payment
                of note payable
            
            
            (2,295,598
            )
            
            (500,000
            )Registration
                and other costs of financing
            
            
            (2,723,078
            )
            
            (2,138,909
            )Net
                cash provided by financing activities
            
            
            27,339,732
            
            
            18,209,600Effect
                of changes in exchange rate on cash
            
            
            49,264
            
            
            (30,759
            )Net
                increase (decrease) in cash and cash equivalents
            
            
            (1,164,424
            )
            
            4,834,098Cash
                and cash equivalents, beginning of period
            
            
            4,947,986
            
            
            113,888Cash
                and cash equivalents, end of period
            
            $
            3,783,562
            
            $
            4,947,986




***See
      accompanying notes***




F-7


**BRAVO!
        BRANDS INC. AND SUBSIDIARY**
  **CONSOLIDATED
        STATEMENTS OF CASH FLOWS**
 **FOR
        THE YEARS ENDED DECEMBER 31, 2006 AND 2005**




**Supplemental
                Cash Flow Information**
            
            Years
                ended December 31,2006
            
            2005Cash
                paid during the year for interest
            
            $
            414,423
            
            $
            10,741Cash
                paid for taxes
            
            $
            -
            
            $
            -Non-cash
                investing and financing activities:Purchase
                of intangible assets with derivative warrants
            
            $
            2,488,354
            
            $
            15,960,531Conversion
                of notes payable and accrued interest
            
            $
            3,573,098
            
            $
            20,343,934Conversion
                of redeemable preferred stock and related dividends
            
            $
            152,480
            
            $
            2,644,326Reclassification
                of derivative warrants
            
            $
            19,547,072
            
            $
            35,230,018




***See
      accompanying notes***




F-8




**BRAVO!
        BRANDS INC. AND SUBSIDIARY**
  **CONSOLIDATED
        STATEMENTS OF STOCKHOLDERS’ DEFICIT**
 **FOR
        THE YEARS ENDED DECEMBER 31 2006 AND 2005**


Common
              
              
              AccumulatedAdditional
              
              
              
              
              
              
              Stock
              
              
              OtherPreferred
                  Stock
              
              
              Common
                  Stock
              
              
              Paid
                  In
              
              
              Accumulated
              
              
              
              Subscription
              
              
              ComprehensiveShares
              
              
              Amount
              
              
              Shares
              
              
              Amount
              
              
              Capital
              
              
              Deficit
              
              
              
              Receivable
              
              
              Loss
              
              
              Total**Balance,
                  December 31, 2004**
              
              
              107,440
              
              $
              107,440
              
              
              57,793,501
              
              $
              57,791
              
              $
              21,387,210
              
              $
              (38,716,131
              )
              
              $
              -
              
              $
              -
              
              
              (17,163,690
              )Conversion
                    of redeemable preferred stock and dividends
              
              
              -
              
              
              -
              
              
              9,245,352
              
              
              9,247
              
              
              2,659,079
              
              
              (24,000
              )
              
              
              -
              
              
              -
              
              
              2,644,326Conversion
                  of notes payable
              
              
              -
              
              
              -
              
              
              41,248,858
              
              
              41,249
              
              
              20,302,685
              
              
              -
              
              
              
              -
              
              
              -
              
              
              20,343,934Exercise
                  of warrants
              
              
              -
              
              
              -
              
              
              32,474,792
              
              
              32,475
              
              
              38,406,052
              
              
              -
              
              
              
              -
              
              
              -
              
              
              38,438,527Private
                  placement financing
              
              
              -
              
              
              -
              
              
              40,950,000
              
              
              40,950
              
              
              20,649,050
              
              
              -
              
              
              
              -
              
              
              -
              
              
              20,690,000Common
                    stock subscribed but not paid
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              
              (10,000
              )
              
              -
              
              
              (10,000
              )Financing
                  costs
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (2,138,909
              )
              
              -
              
              
              
              -
              
              
              -
              
              
              (2,138,909
              )Stock
                  issued for compensation
              
              
              -
              
              
              -
              
              
              2,541,250
              
              
              2,542
              
              
              343,896
              
              
              -
              
              
              
              -
              
              
              -
              
              
              346,438Stock
                  option expense
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              798,869
              
              
              -
              
              
              
              -
              
              
              -
              
              
              798,869Redemption
                  of warrants
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (5,900,000
              )
              
              
              
              
              
              -
              
              
              -
              
              
              (5,900,000
              )Accretion
                  of preferred stock
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (985,717
              )
              
              
              -
              
              
              -
              
              
              (985,717
              )Net
                  loss for 2005
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (79,528,653
              )
              
              
              -
              
              
              -
              
              
              (79,528,653
              )Translation
                  adjustment
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              
              -
              
              
              (30,759
              )
              
              (30,759
              )**Balance,
                  December 31, 2005**
              
              
              107,440
              
              
              107,440
              
              
              184,253,753
              
              
              184,254
              
              
              96,507,932
              
              
              (119,254,501
              )
              
              
              (10,000
              )
              
              (30,759
              )
              
              (22,495,634
              )Conversion
                    of redeemable preferred stock
              
              
              -
              
              
              -
              
              
              436,527
              
              
              437
              
              
              152,043
              
              
              -
              
              
              
              -
              
              
              -
              
              
              152,480Exercise
                  of warrants
              
              
              -
              
              
              -
              
              
              9,752,145
              
              
              9,753
              
              
              615,247
              
              
              -
              
              
              
              -
              
              
              -
              
              
              625,000Conversion
                  of notes payable
              
              
              -
              
              
              -
              
              
              6,164,662
              
              
              6,164
              
              
              3,566,934
              
              
              -
              
              
              
              -
              
              
              -
              
              
              3,573,098Private
                  placement financing
              
              
              -
              
              
              -
              
              
              279,199
              
              
              279
              
              
              151,672
              
              
              -
              
              
              
              -
              
              
              -
              
              
              151,951Stock
                  issued for compensation
              
              
              -
              
              
              -
              
              
              1,750,000
              
              
              1,750
              
              
              1,370,250
              
              
              -
              
              
              
              -
              
              
              -
              
              
              1,372,000Warrants
                    issued for royalty agreement
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              104,299
              
              
              -
              
              
              
              -
              
              
              -
              
              
              104,299Other
              
              
              -
              
              
              -
              
              
              (206,758
              )
              
              (207
              )
              
              207
              
              
              -
              
              
              
              -
              
              
              -
              
              
              -Financing
                  costs
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (45,443
              )
              
              -
              
              
              
              -
              
              
              -
              
              
              (45,443
              )Stock
                  option expense
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              444,779
              
              
              -
              
              
              
              -
              
              
              -
              
              
              444,779Change
                  in derivative liability
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              19,547,072
              
              
              -
              
              
              
              -
              
              
              -
              
              
              19,547,072Payment
                  of preferred stock dividends
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (87,866
              )
              
              
              -
              
              
              -
              
              
              (87,866
              )Accretion
                  of preferred stock
              
              
              53,500
              
              
              535,000
              
              
              -
              
              
              -
              
              
              -
              
              
              (992,456
              )
              
              
              -
              
              
              -
              
              
              (457,456
              )Net
                  loss for 2006
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (36,697,013
              )
              
              
              -
              
              
              -
              
              
              (36,697,013
              )Translation
                  adjustment
              
              
              
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              
              -
              
              
              49,264
              
              
              49,264**Balance,
                  December 31, 2006**
              
              
              160,940
              
              $
              642,440
              
              
              202,429,528
              
              $
              202,430
              
              $
              122,414,992
              
              $
              (157,031,836
              )
              
              $
              (10,000
              )
              $
              18,505
              
              $
              (33,763,469
              )




***See
      accompanying notes***




F-9




**BRAVO!
      BRANDS INC. AND SUBSIDIARY**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE YEARS ENDED DECEMBER 31, 2006 AND 2005**




**Note
      1 -Nature of Business, Liquidity and Management’s Plans and Significant
      Accounting Policies**





**Nature
      of Business:**





Bravo!
      Brands Inc., a Delaware corporation, and subsidiary (“the Company”) is engaged
      in the sale of flavored milk products, primarily in the United States. In the
      future, the Company plans to expand its distribution throughout various
      international markets.





**Liquidity
      and Management’s Plans:**





As
      reflected in the accompanying consolidated financial statements, the Company
      has
      continued to incur operating losses and negative cash flows from operations
      and
      has a significant working
      capital deficiency at December 31, 2006. The Company has been
      dependent upon third party financing as it executes its business model and
      plans. In
      addition, during 2006 the Company incurred significant penalties to its
      investors as a result of its inability to complete its SEC filings on a timely
      basis. Finally, the Company’s revenues are concentrated with one major customer.
      The loss of this customer or curtailment in business with this customer could
      have a material adverse affect on the Company’s business. These
      conditions raise substantial doubt about the Company’s ability to continue as a
      going concern.





The
      Company plans to increase its sales, primarily by significantly increasing
      its
      sales force, partnering with a second national distributor/customer and by
      broadening its product offerings. The Company’s margins are expected to improve
      due to increased sales, unit price escalations and a major focus on cost
      containment measures. However, the Company expects to be dependent on third
      party financing at least through the first eight months of 2007. Ultimately,
      the
      Company’s ability to continue as a going concern is dependent upon the
      achievement of profitable operations. There is
      no assurance that further fun ding
      will
      be available at acceptable terms, if at all, or that the Company will be able
      to
      achieve profitability.





The
      accompanying financial statements do not reflect any adjustments that may result
      from the outcome of this uncertainty.





**Significant
      Accounting Policies:**





Use
      of
      Estimates





The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States of America requires management to make
      estimates and assumptions that affect the reported amounts of assets and
      liabilities and disclosure of contingent assets and liabilities at the date
      of
      the financial statements and the reported amounts of revenues and expenses
      during the reporting period. The most significant estimates included in the
      Company’s financial statements are the following:





·
            Estimating
                the fair value of the Company’s financial instruments that are required to
                be carried at fair value.




·
            Estimating
                the recoverability of the Company’s long-lived
                assets.




·
            Estimating
                future bad debts on accounts receivable that is carried at net realizable
                values.




·
            Estimating
                the Company’s reserve for unsalable and obsolete inventories that are
                carried at lower of cost or market.





The
      Company uses all available information and appropriate techniques to develop
      its
      estimates. However, actual results could differ from the Company’s estimates.




F-10


**BRAVO!
        BRANDS INC. AND SUBSIDIARY**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE YEARS ENDED DECEMBER 31, 2006 AND 2005**




Business
      Segment and Geographic Information





The
      Company operates in one dominant industry segment that it has defined as the
      single serve flavored milk industry. While
      the
      Company’s international business is expected to grow in the future, it currently
      contributes less than 2% of the Company’s revenues, and the Company has no
      physical assets outside of the United States. The Company currently has one
      customer in the United States that provided 78% and 34% of its revenue during
      the years ended December 31, 2006 and 2005, respectively.





Revenue
      Recognition





Revenues
      are recognized pursuant to formal revenue arrangements with the Company’s
      customers, at contracted prices, when the Company’s product is delivered to
      their premises and collectibility is reasonably assured. The Company extends
      merchantability warranties to its customers on its products but otherwise does
      not afford its customers with rights of return. Warranty costs have historically
      been insignificant.





The
      Company’s revenue arrangements often provide for industry-standard slotting fees
      where the Company makes cash payments to the respective customer to obtain
      rights to place the Company’s products on their retail shelves for a stipulated
      period of time. The Company also engages in other promotional discount programs
      in order to enhance its sales activities. The Company believes its participation
      in these arrangements is essential to ensuring continued volume and revenue
      growth in the competitive marketplace. These payments, discounts and allowances
      are recorded as reductions to the Company’s reported revenue. Unamortized
      slotting fees are recorded in prepaid expenses.





Principles
      of Consolidation





The
      Company’s consolidated financial statements include the accounts of Bravo!
      Brands Inc. and its wholly-owned subsidiary Bravo! Brands (UK) Ltd. All material
      intercompany balances and transactions have been eliminated. Cumulative
      translation adjustments that the Company makes to reflect the accounts of Bravo!
      Brands (UK) Ltd. in United States Dollars are recorded as a component of other
      comprehensive income (loss) and stockholders’ deficit. Foreign currency
      transaction gains and losses are reported as a component of other income
      (expense).





Shipping
      and Handling Costs





Shipping
      and handling costs incurred to deliver products to the Company’s customers are
      included as a component of cost of sales. These costs amounted to $1,530,297
      and
      $1,505,035 for the years ended December 31, 2006 and 2005,
      respectively.





Marketing
      and Advertising Costs





Marketing
      and advertising costs, which are expensed as incurred, aggregated $7,467,605
      and
      $1,564,665 for the years ended December 31, 2006 and 2005,
      respectively.





Cash
      and Cash Equivalents





The
      Company considers all highly liquid investments purchased with a remaining
      maturity of three months or less to be cash equivalents. The Company maintains,
      at times, deposits in federally insured financial institutions in excess of
      federally insured limits.  Management attempts to monitor the soundness of
      the financial institution and believes the Company’s risk is
      negligible.




F-11


**BRAVO!
        BRANDS INC. AND SUBSIDIARY**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE YEARS ENDED DECEMBER 31, 2006 AND 2005**




Accounts
      Receivable





The
      Company’s accounts receivable are exposed to credit risk. During the normal
      course of business, the Company extends unsecured credit to its customers with
      normal and traditional trade terms. Typically credit terms require payments
      to
      be made by the thirtieth day following the sale. The Company regularly evaluates
      and monitors the creditworthiness of each customer. The Company provides an
      allowance for doubtful accounts based on its continuing evaluation of its
      customers’ credit risk and its overall collection history. As of December 31,
      2006 and 2005, the allowance of doubtful accounts aggregated $140,000 and
      $350,000, respectively.





In
      addition, the Company’s accounts receivable are concentrated with one customer
      that represents 70% of the Company’s gross accounts receivable balances at
      December 31, 2006 and 2005, respectively. Approximately 3% of the Company’s
      gross accounts receivable at December 31, 2006 are due from international
      customers.





Inventories





Inventories,
      which consist primarily of finished goods, are stated at the lower of cost
      on
      the first in, first-out method or market. Further, the Company’s inventories are
      perishable. Accordingly, the Company estimates and records lower-of-cost or
      market and unsalable-inventory reserves based upon a combination of the
      Company’s historical experience and on a specific identification basis. As of
      December 31, 2006 and 2005, the reserve for inventory obsolescence was $347,000
      and $0, respectively.





Fixed
      Assets





Fixed
      assets are stated at cost. Depreciation is computed using the straight-line
      method over a period of seven years for furniture, five years for equipment,
      vehicles, and IT hardware, and three years for purchased software. Maintenance,
      repairs and minor renewals are charged directly to expenses as incurred.
      Additions and betterments to property and equipment are capitalized. When assets
      are disposed of, the related cost and accumulated depreciation thereon are
      removed from the accounts, and any resulting gain or loss is included in the
      statement of operations.





Intangible
      Assets





The
      Company’s intangible assets, which are recorded at cost, consist primarily of
      the unamortized cost basis of warrants issued in connection with the Company’s
      distribution agreement with Coca-Cola Enterprises (“CCE”). Also
      included are warrants issued to H.P. Hood (“Hood”), a producer, and Organic
      Valley, a licensor, as well
      as a cash payment made to Jasper Products, LLC to secure additional capacity.
      These assets are being amortized on a straight line basis over estimated useful
      lives, which range from three to ten years.





Impairment
      of Long-Lived Assets





The
      Company evaluates the carrying value and recoverability of its long-lived assets
      when circumstances warrant such evaluation by applying the provisions of
      Financial Accounting Standard No. 144, Accounting
      for the Impairment or Disposal of Long-Lived Assets (“FAS
      144”). FAS 144 requires that long-lived assets be reviewed for impairment
      whenever events or changes in circumstances indicate that the carrying amount
      of
      an asset may not be recoverable through the estimated undiscounted cash flows
      expected to result from the use and eventual disposition of the assets. Whenever
      any such impairment exists, an impairment loss will be recognized for the amount
      by which the carrying value exceeds the fair value.




F-12


**BRAVO!
        BRANDS INC. AND SUBSIDIARY**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE YEARS ENDED DECEMBER 31, 2006 AND 2005**





Financial
      Instruments





Financial
      instruments, as defined in Financial Accounting Standard No. 107 Disclosures
      about Fair Value of Financial Instruments (FAS
      107), consist of cash, evidence of ownership in an entity and contracts that
      both (i) impose on one entity a contractual obligation to deliver cash or
      another financial instrument to a second entity, or to exchange other financial
      instruments on potentially unfavorable terms with the second entity, and (ii)
      conveys to that second entity a contractual right (a) to receive cash or another
      financial instrument from the first entity, or (b) to exchange other financial
      instruments on potentially favorable terms with the first entity. Accordingly,
      the Company’s financial instruments consist of cash and cash equivalents,
      accounts receivable, accounts payable, accrued liabilities, notes payable,
      derivative financial instruments, convertible debt and redeemable preferred
      stock that the Company has concluded is more akin to debt than
      equity.





The
      Company carries cash and cash equivalents, accounts receivable, accounts payable
      and accrued liabilities at historical costs; their respective estimated fair
      values approximate carrying values due to their current nature. The Company
      also
      carries notes payable, convertible debt and redeemable preferred stock at
      historical cost; however, fair values of debt instruments and redeemable
      preferred stock are estimated for disclosure purposes (below) based upon the
      present value of the estimated cash flows at market interest rates applicable
      to
      similar instruments.





As
      of
      December 31, 2006, estimated fair values and respective carrying values of
      the
      Company’s notes payable, convertible debt and redeemable preferred stock are as
      follows:





Instrument
            
            Note
            
            Fair
                Value
            
            Carrying
                Value$187,743
                Note Payable
            
            
            6
                (b
            )
            $
            187,743
            
            $
            187,743$123,725
                Note Payable
            
            
            6
                (c
            )
            
            123,725
            
            
            123,725$600,000
                Convertible Note Payable
            
            
            7
                (c
            )
            
            501,000
            
            
            450,000$30,000,000
                Convertible Note Payable
            
            
            7
                (j
            )
            
            23,716,000
            
            
            25,036,990Series
                H Preferred Stock
            
            
            9
                (a
            )
            
            535,000
            
            
            535,000Series
                J Preferred Stock
            
            
            9
                (b
            )
            
            1,857,000
            
            
            1,561,707Series
                K Preferred Stock
            
            
            9
                (c
            )
            
            733,000
            
            
            837,769




F-13




**BRAVO!
        BRANDS INC. AND SUBSIDIARY**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE YEARS ENDED DECEMBER 31, 2006 AND 2005**





As
      of
      December 31, 2005, estimated fair values and respective carrying values of
      the
      Company’s notes payable, convertible debt and redeemable preferred stock were as
      follows:





Instrument
            
            Fair
                Value
            
            Carrying
                Value$750,000
                Note Payable
            
            $
            750,000
            
            $
            750,000$187,743
                Note Payable
            
            
            187,743
            
            
            187,743$200,000
                Convertible Note Payable
            
            
            190,000
            
            
            187,934$
                15,000 Convertible Note Payable
            
            
            13,300
            
            
            1,620$600,000
                Convertible Notes Payable
            
            
            668,000
            
            
            600,000$
                6,250 Convertible Note Payable
            
            
            6,375
            
            
            5,188$
                25,000 Convertible Note Payable
            
            
            25,500
            
            
            30,278$187,760
                Convertible Note Payable
            
            
            187,760
            
            
            187,760Series
                F Preferred Stock
            
            
            46,000
            
            
            52,480Series
                H Preferred Stock
            
            
            535,000
            
            
            388,305Series
                J Preferred Stock
            
            
            1,731,000
            
            
            871,043Series
                K Preferred Stock
            
            
            881,000
            
            
            792,672





Derivative
      financial instruments, as defined in Financial Accounting Standard No. 133, Accounting
      for Derivative Financial Instruments and Hedging Activities (FAS
      133), consist of financial instruments or other contracts that contain a
      notional amount and one or more underlying (e.g. interest rate, security price
      or other variable), require no initial net investment and permit net settlement.
      Derivative financial instruments may be free-standing or embedded in other
      financial instruments. Further, derivative financial instruments are initially,
      and subsequently, measured at fair value and recorded as liabilities or, in
      rare
      instances, assets.





The
      Company generally does not use derivative financial instruments to hedge
      exposures to cash-flow, market or foreign-currency risks. However, the Company
      has entered into certain other financial instruments and contracts, such as
      debt
      financing arrangements, redeemable preferred stock arrangements and freestanding
      warrants with features that are either (i) not afforded equity classification,
      (ii) embody risks not clearly and closely related to host contracts, or (iii)
      may be net-cash settled by the counterparty. As required by FAS 133, these
      instruments are required to be carried as derivative liabilities, at fair value,
      in the Company’s financial statements.





The
      following table summarizes the effects on the Company’s income (loss) associated
      with changes in the fair values of its derivative financial instruments by
      type
      of financing for the years ended December 31, 2006 and 2005:





Derivative
                income (expense):
            
            2006
            
            2005Convertible
                note and warrant financings
            
            $
            (9,581,790
            )
            $
            (42,172,053
            )Preferred
                stock and warrant financings
            
            
            4,083,139
            
            
            (11,314,733
            )Other
                warrants and derivative contracts
            
            
            9,658,632
            
            
            (7,336,788
            )**Total
                Derivative Income (Expense)**
            
            **$**
            **4,159,981**
            
            **$**
            **(60,823,574**
            **)**





Additional
      information related to individual financings can be found in notes 7 through
      9.




F-14





**BRAVO!
      BRANDS INC. AND SUBSIDIARY**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE YEARS ENDED DECEMBER 31, 2006 AND 2005**





The
      following table summarizes the number of common shares indexed to the derivative
      financial instruments as of December 31, 2006:





Financing
                or other contractual arrangement:
            
            Note
            
            Conversion
              Features
            
            Warrants
            
            TotalJune
                2004 $600,000 Convertible Note Financing
            
            
            7(c
            )
            
            3,075,000
            
            
            -
            
            
            3,
                075,000May
                2006 $2,500,000 Note Financing
            
            
            7(i
            )
            
            -
            
            
            900,000
            
            
            900,000July
                2006 $30,000,000 Convertible Note Financing
            
            
            7(j
            )
            
            105,468,750
            
            
            27,605,040
            
            
            133,073,790Series
                H Convertible Preferred Stock (a)
            
            
            9(a
            )
            
            -
            
            
            500,000
            
            
            500,000Series
                J Convertible Preferred Stock
            
            
            9(b
            )
            
            28,000,000
            
            
            -
            
            
            28,000,000**Total
                Common Shares Indexed**
            
            
            
            
            
            **136,543,750**
            
            
            **29,005,040**
            
            
            **165,548,790**





(a)
            As
                more fully described in Note 6(a) this instrument was afforded the
                conventional convertible exemption, which means the Company did not
                have
                to bifurcate the embedded conversion feature. However, the Company
                was
                required to bifurcate certain other embedded derivatives as discussed
                in
                the note. Although the conversion feature did not require derivative
                accounting, the Company is required to also consider the 1,312,500
                common
                shares into which this instrument is convertible into determining
                whether
                the Company has sufficient authorized and unissued common shares
                for all
                of the Company’s share-settled
                obligations.





During
      October 2006, the Financial Accounting Standards Board exposed for public
      comment FASB Staff Position 00-19(b), Accounting
      for Registration Payment Arrangements ,
      which,
      if promulgated in its current form would amend Financial Accounting Standard
      No.
      133 Accounting
      for Derivative Financial Instruments and Hedging Activities .
      Generally, the proposed amendment will provide for the exclusion of registration
      payments, such as the liquidated damages that the Company has incurred, from
      the
      consideration of classification of financial instruments. Rather, such
      registration payments would be accounted for pursuant to Financial Accounting
      Standard No. 5 Accounting
      for Contingencies ,
      which
      is the Company’s current accounting practice. That is, all registration payments
      will require recognition when they are both probable and reasonably estimable.
      The Company’s current financial arrangements result in liability classification
      because of registration payments and variable-priced instruments that cause
      share settlement of all of the Company’s derivative instruments to be beyond its
      control. Until the Company can amend or redeem the variable-indexed instruments,
      the Company will not receive the benefit of equity classification. Upon
      amendment or redemption, substantially all of the Company’s derivative financial
      instruments will be reclassified to stockholders’ equity at their adjusted fair
      value, and the Company will no longer be required to reflect fair value changes
      in its earnings.





Share-Based
      Payments





Effective
      January 1, 2005, the Company adopted Financial Accounting Standards No. 123(R), Share-Based
      Payments (FAS123R). Under the fair value method, the Company recognizes compensation
      expense for all share-based payments granted after January 1, 2005, as well
      as
      all share-based payments granted prior to, but not yet vested, as of January
      1,
      2005, in accordance with SFAS No. 123. Under the fair value recognition
      provisions of FAS 123(R), the Company recognizes share-based compensation
      expense, net of an estimated forfeiture rate, over the requisite service period
      of the award. Prior to the adoption of FAS 123 and FAS 123(R), the Company
      accounted for share-based payments under Accounting Principles Board Opinion
      No.
      25 Accounting
      for Stock Issued to Employees and the
      disclosure provisions of SFAS No. 123. For further information regarding the
      adoption of SFAS No. 123(R), see Note 10 to the consolidated financial
      statements.




F-15


**BRAVO!
        BRANDS INC. AND SUBSIDIARY**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE YEARS ENDED DECEMBER 31, 2006 AND 2005**


Income
      Taxes





The
      Company accounts for income taxes using the liability method, which requires
      an
      entity to recognize deferred tax liabilities and assets. Deferred income taxes
      are recognized based on the differences between the tax basis of assets and
      liabilities and their reported amounts in the financial statements that will
      result in taxable or deductible amounts in future years. Further, the effects
      of
      enacted tax laws or rate changes are included as part of deferred tax expense
      or
      benefit in the period that covers the enactment date. A valuation allowance
      is
      recognized if it is more likely than not that some portion, or all, of a
      deferred tax asset will not be realized.





Loss
      Per Common Share




The
      Company’s basic loss per common share is computed by dividing loss applicable to
      common stockholders by the weighted average number of common shares outstanding
      during the reporting period. Diluted loss per common share is computed similar
      to basic loss per common share except that diluted loss per common share
      includes dilutive common stock equivalents, using the treasury stock method,
      and
      assumes that the convertible debt instruments were converted into common stock
      upon issuance, if dilutive. For the years ended December 31, 2006 and 2005
      potential common shares arising from the Company’s stock options, stock
      warrants, convertible debt and convertible preferred stock amounting to
      195,933,793 and 108,059,082 shares, respectively, were not included in the
      computation of diluted loss per share because their effect was
      anti-dilutive.




Recent
      Accounting Pronouncements Affecting the Company:




*Statement
      of Financial Accounting Standard 157, Fair Value Measurements (“SFAS
      157”)*




On
      September 15, 2006, the Financial Accounting Standards Board issued a standard
      that provides enhanced guidance for using fair value to measure assets and
      liabilities. The standard applies whenever other standards require (or permit)
      assets or liabilities to be measured at fair value. The standard does not expand
      the use of fair value in any new circumstances. This Statement is effective
      for
      financial statements issued for fiscal years beginning after November 15, 2007,
      and interim periods within those fiscal years. Earlier application is
      encouraged, provided that the reporting entity has not yet issued financial
      statements for that fiscal year, including financial statements for an interim
      period within that fiscal year. The Company will adopt this pronouncement
      effective January 1, 2007. The Company is currently evaluating the impact of
      adopting this pronouncement on its financial statements.




*FASB
      Interpretation No. 48, Accounting for Uncertainty in Income
      Taxes*





In
      June 2006, the Financial Accounting Standards Board issued FASB
      Interpretation No. 48 , *Accounting
      for Uncertainty in Income Taxes—an interpretation of FASB Statement
      No. 109* ** (FIN 48),  which
      provides clarification related to the process associated with accounting for
      uncertain tax positions recognized in consolidated financial statements.
      FIN 48 prescribes a more-likely-than-not threshold for financial statement
      recognition and measurement of a tax position taken, or expected to be taken,
      in
      a tax return. FIN 48 also provides guidance related to, among other things,
      classification, accounting for interest and penalties associated with tax
      positions, and disclosure requirements. This Interpretation is effective for
      fiscal years beginning after December 15, 2006. The Company will adopt FIN
      48
      effective January 1, 2007.




F-16





**BRAVO!
      BRANDS INC. AND SUBSIDIARY**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE YEARS ENDED DECEMBER 31, 2006 AND 2005**





**Note
      2 - Fixed Assets**





The
      Company’s fixed assets are comprised of the following as of December 31, 2006
      and 2005:





2006
            
            2005Equipment
            
            $
            617,776
            
            $
            209,085Furniture
                and fixtures
            
            
            189,568
            
            
            189,068Automobiles
            
            
            255,327
            
            
            29,295Leasehold
                improvements
            
            
            -
            
            
            23,714Purchased
                software
            
            
            8,630
            
            
            3,2231,071,301
            
            
            454,385Less:
                accumulated depreciation
            
            
            (264,970
            )
            
            (166,327
            )806,331
            
            
            288,058Construction
                in Process
            
            
            405,225
            
            
            -**Total
                Fixed Assets**
            
            $
            1,211,556
            
            $
            288,058





Depreciation
      expense aggregated $122,058 and $43,292 for 2006 and 2005,
      respectively.





**Note
      3 - Intangible Assets**





The
      Company’s intangible assets consist primarily of the unamortized costs of
      warrants issued in connection with the Company’s Master Distribution Agreement
      (“MDA”) with CCE. Also included are trademark expenditures, warrants issued to
      H.P. Hood and Organic Valley, in connection with manufacturing and licensing
      agreements, and a $2.7 million payment to Jasper Products, LLC for securing
      additional capacity. The useful lives of these assets range from three to ten
      years. The following table summarizes the components of the Company’s intangible
      assets as of December 31, 2006 and 2005:





2006
            
            2005CCE
                Distribution agreement
            
            $
            15,960,531
            
            $
            15,960,531Manufacturing
                agreement - Jasper
            
            
            2,700,000
            
            
            2,700,000Manufacturing
                agreement - H.P. Hood
            
            
            2,384,055
            
            
            -Licensing
                agreement - Organic Valley
            
            
            104,299
            
            
            -Trademark
                costs and other licenses
            
            
            237,916
            
            
            1,370,958Less
                accumulated amortization
            
            
            (2,849,189
            )
            
            (1,437,929
            )**Total
                Intangible Assets**
            
            **$**
            **18,537,612**
            
            **$**
            **18,593,560**





Amortization
      expense amounted to $2,822,543 and $1,411,004 for the years ended December
      31,
      2006 and 2005, respectively.





Estimated
      future amortization of the Company’s intangible assets for each of the next five
      years and thereafter is as follows as of December 31, 2006:





December
                31, 2007
            
            $
            2,637,651December
                31, 2008
            
            $
            2,637,651December
                31, 2009
            
            $
            2,637,154December
                31, 2010
            
            $
            2,484,598December
                31, 2011
            
            $
            2,038,943Thereafter
            
            $
            6,101,615





F-17


**BRAVO!
        BRANDS INC. AND SUBSIDIARY**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE YEARS ENDED DECEMBER 31, 2006 AND 2005**


**Note
      4 - Other Assets**





Other
      assets are comprised of the following as of December 31, 2006 and
      2005:





2006
            
            2005Deferred
                financing costs
            
            $
            2,311,363
            
            $
            -Deposits
            
            
            1,021,493
            
            
            15,231**Total
                Other Assets**
            
            $
            3,332,856
            
            $
            15,231





During
      2006, the Company sold $30 million four year convertible notes in a private
      sale. The costs associated with the sale are reflected as deferred financing
      costs and are being amortized over the term of the notes. Amortization expense
      for 2006 and accumulated amortization at December 31, 2006 totaled $400,802. Also
      included in the 2006 balance is a $1,000,000 escrow security deposit associated
      with the HP Hood manufacturing agreement. The deposit, contractually owed upon
      the signing of the agreement, and which will be paid once significant production
      commences, is to secure the Company’s obligations to purchase or pay for
      products or make any required penalty payments.





**Note
      5** ***-*** **Accrued Liabilities**





Accrued
      liabilities consist of the following as of December 31, 2006 and
      2005:





2006
            
            2005Investor
                relations liability (a)
            
            $
            -
            
            $
            1,545,565Production
                processor liability (b)
            
            
            850,628
            
            
            1,893,547Accrued
                payroll and related taxes
            
            
            542,741
            
            
            636,757Accrued
                interest
            
            
            893,706
            
            
            376,198Liquidated
                damages due to late registration (c)
            
            
            3,397,419
            
            
            303,750Radio
                advertising and promotion costs
            
            
            716,944
            
            
            -Other
                (d)
            
            
            612,825
            
            
            116,460**Total
                Accrued Liabilities**
            
            **$**
            **7,014,263**
            
            **$**
            **4,872,277**





(a)
      The
      Company entered into a contract with an investor relations firm during 2005
      that
      required payment in its equity securities. The liability at December 31, 2005
      represents the value of the shares, which were not issued until
      2006.





(b)
      Represents accruals for certain amounts owed to Jasper, the Company’s
      3 rd party
      production processor.





(c)
      Certain of the Company’s financing arrangements provide for penalties in the
      event of non-registration of securities underlying the financial instruments.
      Generally, these penalties are calculated as a percentage of the financing
      proceeds, usually between 1.0% and 3.0% each month. The Company records these
      liquidated damages when they are probable and estimable pursuant to FAS 5,
      “Accounting for Contingencies.”





(d)
      Represents primarily accruals for marketing, legal, and accounting
      fees.





F-18


**BRAVO!
        BRANDS INC. AND SUBSIDIARY**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE YEARS ENDED DECEMBER 31, 2006 AND 2005**





**Note
      6** ***-*** **Notes Payable**





Notes
      payable consist of the following as of December 31, 2006 and 2005:





2006
            
            2005Mid-Am
                Capital Note Payable (a)
            
            $
            0
            
            $
            750,000International
                Paper Note Payable (b)
            
            
            187,743
            
            
            187,743Notes
                Payable to GMAC (c)
            
            
            123,725
            
            
            -Total
                notes payable
            
            
            311,468
            
            
            937,743**Less
                current maturities**
            
            
            **243,968**
            
            
            **937,743****Long-term
                notes payable**
            
            **$**
            **67,500**
            
            **$**
            **-**





(a)
      On
      May 9, 2004 the Company received the proceeds of a $750,000 loan from Mid-Am
      Capital, payable September 3, 2004, with an annual interest rate of 8%. This
      loan was secured by a general security interest in all of the Company’s assets.
      The loan, which was delinquent at December 2005, was repaid in full during
      2006.





(b)
      In
      1999, the Company issued a promissory note to assume existing debt owed by
      its
      then Chinese joint venture subsidiary to a supplier, International Paper. The
      face value of that unsecured note was $282,637 at an annual interest rate of
      10.5%. The note originally required 23 monthly payments of $7,250 and a balloon
      payment of $159,862 due on July 15, 2000. During 2000, the Company negotiated
      an
      extension of this note to July 1, 2001. International Paper imposed a charge
      of
      $57,000 to renegotiate the note, which represents interest due through the
      extension date. The balance due on this note is $187,743 at December 31, 2006,
      all of which is delinquent. Interest accrued and unpaid as of December 31,
      2006
      and 2005 aggregated $109,470 and $88,790, respectively.





(c)
      In
      March 2006, the Company purchased eight vehicles that are used by its regional
      sales managers. This loan balance represents amounts payable to GMAC under
      36-month loan agreements. Annual interest rates are 1.5% (seven vehicles) and
      4.9% (one vehicle).





**Note
      7** ***-*** **Convertible Notes Payable**





Convertible
      debt carrying values consist of the following as of December 31, 2006 and
      2005:





2006
            
            2005$
                200,000 Convertible Note Payable, due November 2006 (a)
            
            $
            -
            
            $
            187,934$
                15,000 Convertible Note Payable, due May 2007 (b)
            
            
            —
            
            
            1,620$
                600,000 Convertible Note Payable, due December 2005 (c)
            
            
            450,000
            
            
            600,000$
                6,250 Convertible Note Payable, due April 30, 2006 (e)
            
            
            -
            
            
            5,188$
                25,000 Convertible Note Payable, due October 1, 2006 (f)
            
            
            -
            
            
            30,278$
                168,000 Convertible Note Payable, due December 1, 2006(g)
            
            
            -
            
            
            187,760$
                2,500,000 Convertible Note Payable, due November 2006 (i)
            
            
            -
            
            
            -$30,000,000
                Convertible Note Payable, due July 31, 2010 (j)
            
            
            25,036,990
            
            
            -**Total
                Convertible Notes Payable**
            
            **$**
            **25,486,990**
            
            **$**
            **1,012,780**





(a)
      $400,000 Convertible Note Financing





On
      November 20, 2003, the Company issued $400,000 of 8.0% convertible notes
      payable, due November 20, 2005 plus warrants to purchase 14,000,000 shares
      of
      the Company’s common stock with a strike prices ranging from $0.05 to $1.00 for
      a period of three years. In November 2005, the underlying note agreement was
      modified to extend the maturity date to November 2006. As of December 31, 2005,
      this note had an outstanding face value of $200,000, which was fully converted
      by September 30, 2006. The convertible notes were convertible into a variable
      number of the Company’s common shares based upon a variable conversion price of
      the lower of $0.05 or 75% of the closing market price near the conversion date.
      The holder had the option to redeem the convertible notes payable for cash
      at
      130% of the face value in the event of defaults and certain other contingent
      events, including events related to the common stock into which the instrument
      was convertible, registration and listing (and maintenance thereof) of the
      Company’s common stock and filing of reports with the Securities and Exchange
      Commission (the “Default Put”). In addition, the Company extended registration
      rights to the holder that required registration and continuing effectiveness
      thereof; the Company would be required to pay monthly liquidating damages of
      2.0% for defaults under this provision.




F-19


**BRAVO!
        BRANDS INC. AND SUBSIDIARY**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE YEARS ENDED DECEMBER 31, 2006 AND 2005**


In
      the
      Company’s evaluation of this instrument, the Company concluded that the
      conversion feature was not afforded the exemption as a conventional convertible
      instrument due to a variable conversion feature, and it did not otherwise meet
      the conditions for equity classification. Since equity classification is not
      available for the conversion feature, the Company was required to bifurcate
      the
      embedded conversion feature and carry it as a derivative liability, at fair
      value. The Company also concluded that the Default Put required bifurcation
      because, while puts on debt instruments are generally considered clearly and
      closely related to the host, the Default Put is indexed to certain events,
      noted
      above, that are not associated with debt instruments. The Company combined
      all
      embedded features that required bifurcation into one compound instrument that
      is
      carried as a component of derivative liabilities. The Company also determined
      that the warrants did not meet the conditions for equity classification because,
      as noted above, share settlement and maintenance of an effective registration
      statement are not within the Company’s control. Therefore, the warrants are also
      required to be carried as a derivative liability, at fair value.





The
      Company estimated the fair value of the compound derivative on the inception
      date, and subsequently, using the Monte Carlo valuation technique, because
      that
      technique embodies all of the assumptions (including credit risk, interest
      risk,
      stock price volatility and conversion estimates) that are necessary to fair
      value complex derivative instruments. The Company estimated the fair value
      of
      the warrants on the inception date, and subsequently, using the
      Black-Scholes-Merton valuation technique, because that technique embodies all
      of
      the assumptions (including volatility, expected terms, and risk free rates)
      that
      are necessary to fair value freestanding warrants. As a result of these
      estimates, the Company’s valuation model resulted in compound derivative
      balances associated with this financing arrangement of $-0- and $1,311,000
      as of
      December 31, 2006 and 2005, respectively. These amounts are included in
      Derivative Liabilities on the Company’s balance sheet. Warrants related to the
      financing were fully converted prior to December 31, 2005.





The
      following table illustrates fair value adjustments that the Company has recorded
      related to the derivative financial instruments associated with the $400,000
      convertible note financing.





Derivative
                income (expense)
            
            Year
                ended
              December
                31,
              2006
            
            Year
                ended
              December
                31,
              2005Compound
                derivative
            
            $
            (551,400
            )
            $
            (1,110,000
            )Warrant
                derivative
            
            $
            -
            
            $
            (5,842,900
            )





Changes
      in the fair value of the compound derivative and, therefore, derivative income
      (expense) related to the compound derivative is significantly affected by
      changes in the Company’s trading stock price and the credit risk associated with
      the Company’s financial instruments. The fair value of the warrant derivative is
      significantly affected by changes in the Company’s trading stock prices.




F-20






**BRAVO!
        BRANDS INC. AND SUBSIDIARY**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE YEARS ENDED DECEMBER 31, 2006 AND 2005**




The
      aforementioned allocations to the compound and warrant derivatives resulted
      in
      the discount in the carrying value of the notes to zero. This discount, along
      with related deferred finance costs and future interest payments, are amortized
      through periodic charges to interest expense using the effective method.
      Interest expense during the years ended December 31, 2006 and 2005 amounted
      to
      approximately $22,000 and $88,000, respectively.





As
      noted
      in the introductory paragraph of this section, the holders extended the notes
      one additional year to November 2006. This modification was accounted for as
      an
      extinguishment because the present value of the amended debt was significantly
      different than the present value immediately preceding the modification. As
      a
      result of the extinguishment, the existing debt carrying value was adjusted
      to
      fair value using projected cash flows at market rates for similar instruments.
      This extinguishment resulted in the Company’s recognition of a gain on
      extinguishment of $22,733 in the fourth fiscal quarter of the Company’s year
      ended December 31, 2005.





(b)
      $2,300,000 Convertible Note Financing:





On
      January 28, 2005, May 23, 2005 and August 18, 2005, the Company issued
      $1,150,000, $500,000 and $650,000, respectively of 8.0% convertible notes
      payable, due January 28, 2007 plus warrants to purchase 9,200,000, 4,000,000
      and
      5,200,000, respectively, shares of the Company’s common stock with a strike
      price of $0.129 for a period of five years. At December 31, 2005, this note
      had
      an outstanding face value of $15,000, which was fully converted by August 30,
      2006. The reduction in face value resulted from conversions to common stock.
      The
      convertible notes were convertible into a fixed number of the Company’s common
      shares based upon a conversion price of $0.125 with anti-dilution protection
      for
      sales of securities below the fixed conversion price. The Company had the option
      to redeem the convertible notes for cash at 120% of the face value. The holder
      had the option to redeem the convertible notes payable for cash at 120% of
      the
      face value in the event of defaults and certain other contingent events,
      including events related to the common stock into which the instrument was
      convertible, registration and listing (and maintenance thereof) of the Company’s
      common stock and filing of reports with the Securities and Exchange Commission
      (the “Default Put”).





In
      the
      Company’s evaluation of this instrument, the Company concluded that the
      conversion feature was not afforded the exemption as a conventional convertible
      instrument due to the anti-dilution protection; and it did not otherwise meet
      the conditions for equity classification. Since equity classification was not
      available for the conversion feature, the Company was required to bifurcate
      the
      embedded conversion feature and carry it as a derivative liability, at fair
      value. The Company also concluded that the Default Put required bifurcation
      because, while puts on debt instruments are generally considered clearly and
      closely related to the host, the Default Put is indexed to certain events,
      noted
      above, that are not associated with debt instruments. The Company combined
      all
      embedded features that required bifurcation into one compound instrument that
      is
      carried as a component of derivative liabilities. The Company also determined
      that the warrants did not meet the conditions for equity classification because
      these instruments did not meet all of the necessary criteria for equity
      classification. Therefore, the warrants were also required to be carried as
      a
      derivative liability, at fair value.





The
      Company estimated the fair value of the compound derivative on the inception
      dates, and subsequently, using the Monte Carlo valuation technique, because
      that
      technique embodies all of the assumptions (including credit risk, interest
      risk,
      stock price volatility and conversion estimates) that are necessary to fair
      value complex derivative instruments. The Company estimated the fair value
      of
      the warrants on the inception dates, and subsequently, using the
      Black-Scholes-Merton valuation technique, because that technique embodies all
      of
      the assumptions (including volatility, expected terms, and risk free rates)
      that
      are necessary to fair value freestanding warrants. As a result of these
      estimates, the Company’s valuation model resulted in compound derivative
      balances associated with this financing arrangement of $-0- and $4,867 as of
      December 31, 2006 and 2005, respectively.




F-21




**BRAVO!
        BRANDS INC. AND SUBSIDIARY**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE YEARS ENDED DECEMBER 31, 2006 AND 2005**




The
      following table illustrates fair value adjustments that the Company has recorded
      related to the derivative financial instruments associated with the $2,300,000
      convertible note financing:





Derivative
                income (expense)
            
            Year
                Ended
              December
                31, 2006
            
            Year
                Ended
              December
                31, 2005Compound
                derivative
            
            $
            (24,220
            )
            $
            (3,779,033
            )Warrant
                derivative
            
            $
            -
            
            $
            (17,141,306
            )





Changes
      in the fair value of the compound derivative and, therefore, derivative income
      (expense) related to the compound derivative is significantly affected by
      changes in the Company’s trading stock price and the credit risk associated with
      the Company’s financial instruments. The fair value of the warrant derivative is
      significantly affected by changes in the Company’s trading stock prices.





The
      aforementioned allocations to the compound and warrant derivatives resulted
      in
      the discount in the carrying value of the notes. This discount, along with
      related deferred finance costs and future interest payments, are amortized
      through periodic charges to interest expense using the effective method.
      Interest expense during the years ended December 31, 2006 and 2005 amounted
      to
      approximately $38,500 and $462,000, respectively.





(c)
      $600,000 Convertible Note Financing:





On
      June
      29, 2004, the Company issued $600,000 of 10.0% convertible notes payable, due
      December 31, 2005, plus warrants to purchase 2,000,000 and 5,000,000 shares
      of
      the Company’s common stock with strike prices of $0.25 and $1.00, respectively,
      for periods of five and two years, respectively. Net proceeds from this
      financing arrangement amounted to $500,000. As of December 31, 2006 and 2005,
      the outstanding principal balance on this note was $450,000 and $600,000,
      respectively. The reduction in principal was due to note conversions. As of
      December 31, 2006, this debt is past due and the outstanding carrying value
      of
      $450,000 does not include $51,000 of unpaid interest, which is being reflected
      in accrued liabilities. The convertible note is convertible into a fixed number
      of the Company’s common shares based upon a conversion price of $0.15 with
      anti-dilution protection for sales of securities below the fixed conversion
      price. The Company has the option to redeem the convertible notes for cash
      at
      120% of the face value. The holder has the option to redeem the convertible
      notes payable for cash at 130% of the face value in the event of defaults and
      certain other contingent events, including events related to the common stock
      into which the instrument is convertible, registration and listing (and
      maintenance thereof) of the Company’s common stock and filing of reports with
      the Securities and Exchange Commission (the “Default Put”). In addition, the
      Company extended registration rights to the holder that required registration
      and continuing effectiveness thereof; the Company is required to pay monthly
      liquidating damages of 2.0% for defaults under this provision.





In
      the
      Company’s evaluation of this instrument, the Company concluded that the
      conversion feature was not afforded the exemption as a conventional convertible
      instrument due to the anti-dilution protection; and it did not otherwise meet
      the conditions for equity classification. Since equity classification is not
      available for the conversion feature, the Company was required to bifurcate
      the
      embedded conversion feature and carry it as a derivative liability, at fair
      value. The Company also concluded that the Default Put required bifurcation
      because, while puts on debt instruments are generally considered clearly and
      closely related to the host, the Default Put is indexed to certain events,
      noted
      above, that are not associated with debt instruments. The Company combined
      all
      embedded features that required bifurcation into one compound instrument that
      is
      carried as a component of derivative liabilities. The Company also determined
      that the warrants did not meet the conditions for equity classification because
      these instruments did not meet all of the necessary criteria for equity
      classification. Therefore, the warrants are also required to be carried as
      a
      derivative liability, at fair value.




F-22




**BRAVO!
        BRANDS INC. AND SUBSIDIARY**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE YEARS ENDED DECEMBER 31, 2006 AND 2005**




The
      Company estimated the fair value of the compound derivative on the inception
      date, and subsequently, using the Monte Carlo valuation technique, because
      that
      technique embodies all of the assumptions (including credit risk, interest
      risk,
      stock price volatility and conversion estimates) that are necessary to fair
      value complex derivative instruments. The Company estimated the fair value
      of
      the warrants on the inception date, and subsequently, using the
      Black-Scholes-Merton valuation technique, because that technique embodies all
      of
      the assumptions (including volatility, expected terms, and risk free rates)
      that
      are necessary to fair value freestanding warrants. As a result of these
      estimates, the Company’s valuation model resulted in compound derivative
      balances associated with this financing arrangement of $454,267 and $153,700
      as
      of December 31, 2006 and 2005, respectively. These amounts are included in
      Derivative Liabilities on the Company’s balance sheet.




As
      of
      December 31, 2005, all warrants related to the financing had been converted.





The
      following table illustrates fair value adjustments that the Company has recorded
      related to the derivative financial instruments associated with the $600,000
      convertible note financing:





Derivative
                income (expense)
            
            Year
              Ended
              December
                31, 2006
            
            Year
              Ended
              December
                31, 2005Compound
                derivative
            
            
            ($
                300,567
            )
            
            ($
                125,867
            )Warrant
                derivative
            
            $
            -
            
            
            ($
                5,478,300
            )





An
      additional $72,598 in derivative expense was recognized during the year ended
      December 31, 2006 in connection with debt conversions.





Changes
      in the fair value of the compound derivative and, therefore, derivative income
      (expense) related to the compound derivative is significantly affected by
      changes in the Company’s trading stock price and the credit risk associated with
      its financial instruments. The fair value of the warrant derivative is
      significantly affected by changes in the Company’s trading stock prices. Future
      changes in these underlying market conditions will have a continuing effect
      on
      derivative income (expense) associated with these instruments.





The
      aforementioned allocations to the compound and warrant derivatives resulted
      in a
      discount in the carrying value of the notes. This discount, along with related
      deferred finance costs and future interest payments, are amortized through
      periodic charges to interest expense using the effective method. Interest
      expense during the year ended December 31, 2006 and 2005 amounted to
      approximately $-0- and $428,000, respectively.





(d)
      $240,000 Convertible Note Financing:





On
      December 22, 2004, the Company issued $240,000 of 10.0% convertible notes
      payable, due April 30, 2006, plus warrants to purchase 800,000 shares of its
      common stock at $0.15 for five years. Net proceeds from this financing
      arrangement amounted to $196,500. As of June 30, 2005, this debt had been fully
      converted. The convertible notes were convertible into a fixed number of the
      Company’s common shares based upon a conversion price of $0.10 with
      anti-dilution protection for sales of securities below the fixed conversion
      price. The Company had the option to redeem the convertible notes for cash
      at
      120% of the face value. The holder had the option to redeem the convertible
      notes payable for cash at 130% of the face value in the event of defaults and
      certain other contingent events, including events related to the common stock
      into which the instrument was convertible, registration and listing (and
      maintenance thereof) of the Company’s common stock and filing of reports with
      the Securities and Exchange Commission (the “Default Put”). In addition, the
      Company extended registration rights to the holder that required registration
      and continuing effectiveness thereof; the Company was required to pay monthly
      liquidating damages of 2.0% for defaults under this provision.




F-23


**BRAVO!
        BRANDS INC. AND SUBSIDIARY**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE YEARS ENDED DECEMBER 31, 2006 AND 2005**




In
      the
      Company’s evaluation of this instrument, the Company concluded that the
      conversion feature was not afforded the exemption as a conventional convertible
      instrument due to the anti-dilution protection, and it did not otherwise meet
      the conditions for equity classification. Since equity classification was not
      available for the conversion feature, the Company was required to bifurcate
      the
      embedded conversion feature and carry it as a derivative liability, at fair
      value. The Company also concluded that the Default Put required bifurcation
      because, while puts on debt instruments are generally considered clearly and
      closely related to the host, the Default Put was indexed to certain events,
      noted above, that are not associated with debt instruments. The Company combined
      all embedded features that required bifurcation into one compound instrument
      that is carried as a component of derivative liabilities. The Company also
      determined that the warrants did not meet the conditions for equity
      classification because these instruments did not meet all of the necessary
      criteria for equity classification. Therefore, the warrants were also required
      to be carried as a derivative liability, at fair value.





The
      Company estimated the fair value of the compound derivative on the inception
      date, and subsequently, using the Monte Carlo Valuation technique, because
      that
      technique embodies all of the assumptions (including credit risk, interest
      risk,
      stock price volatility and conversion estimates) that are necessary to fair
      value complex derivative instruments. These amounts are included in Derivative
      Liabilities on the Company’s balance sheet. The Company estimated the fair value
      of the warrants on the inception date, and subsequently, using the
      Black-Scholes-Merton valuation technique, because that technique embodies all
      of
      the assumptions (including volatility, expected terms, and risk free rates)
      that
      are necessary to fair value freestanding warrants. As of September 30, 2005
      all
      warrant liabilities related to the financing had been fully converted.





The
      following table illustrates fair value adjustments that the Company has recorded
      related to the derivative financial instruments associated with the $240,000
      convertible note financing:





Derivative
                income (expense)
            
            Year
              Ended
              December
                31, 2006
            
            Year
              Ended
              December
                31, 2005Compound
                derivative
            
            $
            -
            
            
            ($
                55,604
            )Warrant
                derivative
            
            $
            -
            
            $
            55,540




The
      aforementioned allocations to the compound and warrant derivatives resulted
      in
      the discount in the carrying value of the notes. This discount, along with
      related deferred finance costs and future interest payments, were amortized
      through periodic charges to interest expense using the effective method.
      Interest expense during the years ended December 31, 2006 and 2005 amounted
      to
      approximately $-0- and $66,781, respectively.




F-24




**BRAVO!
        BRANDS INC. AND SUBSIDIARY**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE YEARS ENDED DECEMBER 31, 2006 AND 2005**




(e)
      $693,000 Convertible Note Financing:





On
      October 29, 2004, the Company issued $693,000 of 10.0% convertible notes
      payable, due April 30, 2006, plus warrants to purchase 2,200,000 shares of
      the
      Company’s common stock at $0.15 for five years. Net proceeds from this financing
      arrangement amounted to $550,000. As of December 31, 2005, this debt had a
      face
      value of $6,250 outstanding which the amount had been fully converted by April
      30, 2006. The convertible notes were convertible into a fixed number of the
      Company’s common shares based upon a conversion price of $0.10 with
      anti-dilution protection for sales of securities below the fixed conversion
      price. The Company had the option to redeem the convertible notes for cash
      at
      120% of the face value. The holder had the option to redeem the convertible
      notes payable for cash at 130% of the face value in the event of defaults and
      certain other contingent events, including events related to the common stock
      into which the instrument was convertible, registration and listing (and
      maintenance thereof) of the Company’s common stock and filing of reports with
      the Securities and Exchange Commission (the “Default Put”). In addition, the
      Company extended registration rights to the holder that required registration
      and continuing effectiveness thereof; the Company was required to pay monthly
      liquidating damages of 2.0% for defaults under this provision.





In
      the
      Company’s evaluation of this instrument, the Company concluded that the
      conversion feature was not afforded the exemption as a conventional convertible
      instrument due to the anti-dilution protection, and it did not otherwise meet
      the conditions for equity classification. Since equity classification was not
      available for the conversion feature, the Company was required to bifurcate
      the
      embedded conversion feature and carry it as a derivative liability, at fair
      value. The Company also concluded that the Default Put required bifurcation
      because, while puts on debt instruments are generally considered clearly and
      closely related to the host, the Default Put is indexed to certain events,
      noted
      above, that are not associated with debt instruments. The Company combined
      all
      embedded features that required bifurcation into one compound instrument that
      is
      carried as a component of derivative liabilities. The Company also determined
      that the warrants did not meet the conditions for equity classification because
      these instruments did not meet all of the necessary criteria for equity
      classification. Therefore, the warrants were also required to be carried as
      a
      derivative liability, at fair value.





The
      Company estimated the fair value of the compound derivative on the inception
      date, and subsequently, using the Monte Carlo valuation technique, because
      that
      technique embodies all of the assumptions (including credit risk, interest
      risk,
      stock price volatility and conversion estimates) that are necessary to fair
      value complex derivative instruments. The Company estimated the fair value
      of
      the warrants on the inception date, and subsequently, using the
      Black-Scholes-Merton valuation technique, because that technique embodies all
      of
      the assumptions (including volatility, expected terms, and risk free rates)
      that
      are necessary to fair value freestanding warrants. As a result of these
      estimates, the Company’s valuation model resulted in compound derivative
      balances of $-0- and $42,878 as of December 31, 2006 and 2005, respectively.
      The
      Company’s valuation model resulted in warrant derivative balances from the
      convertible note financing of $-0- and $924,120 as of December 31, 2006 and
      2005, respectively. These amounts are included in Derivative Liabilities on
      the
      Company’s balance sheet.





The
      following table illustrates fair value adjustments that the Company has recorded
      related to the derivative financial instruments associated with the $693,000
      convertible note financing:





Derivative
                income (expense)
            
            Year
              Ended
              December
                31, 2006
            
            Year
              Ended
              December
                31, 2005Compound
                derivative
            
            
            ($
                6,144
            )
            
            ($
                2,610,699
            )Warrant
                derivative
            
            $
            -
            
            
            ($
                668,950
            )




F-25




**BRAVO!
        BRANDS INC. AND SUBSIDIARY**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE YEARS ENDED DECEMBER 31, 2006 AND 2005**


Changes
      in the fair value of the compound derivative and, therefore, derivative income
      (expense) related to the compound derivative is significantly affected by
      changes in the Company’s trading stock price and the credit risk associated with
      its financial instruments. The fair value of the warrant derivative is
      significantly affected by changes in the Company’s trading stock prices.





The
      aforementioned allocations to the compound and warrant derivatives resulted
      in
      the discount in the carrying value of the notes. This discount, along with
      related deferred finance costs and future interest payments, were amortized
      through periodic charges to interest expense using the effective method.
      Interest expense during the year ended December 31, 2006 and 2005 amounted
      to
      approximately $3,711 and $199,000, respectively.





(f)
      $660,000 Convertible Note Financing:





On
      April
      2, 2004, the Company issued $660,000 of 10.0% convertible notes payable, due
      October 1, 2005, plus warrants to purchase 3,000,000 shares of the Company’s
      common stock at $0.15 for five years. Net proceeds from this financing
      arrangement amounted to approximately $500,000. As of December 31, 2005, this
      debt had a face value of $25,000 outstanding which had been fully converted
      by
      June 30, 2006. The convertible notes were convertible into a fixed number of
      the
      Company’s common shares based upon a conversion price of $0.10 with
      anti-dilution protection for sales of securities below the fixed conversion
      price. The Company had the option to redeem the convertible notes for cash
      at
      120% of the face value. The holder had the option to redeem the convertible
      notes payable for cash at 130% of the face value in the event of defaults and
      certain other contingent events, including events related to the common stock
      into which the instrument is convertible, registration and listing (and
      maintenance thereof) of the Company’s common stock and filing of reports with
      the Securities and Exchange Commission (the “Default Put”). In addition, the
      Company extended registration rights to the holder that required registration
      and continuing effectiveness thereof; the Company was required to pay monthly
      liquidating damages of 2.0% for defaults under this provision.





In
      the
      Company’s evaluation of this instrument, the Company concluded that the
      conversion feature was not afforded the exemption as a conventional convertible
      instrument due to the anti-dilution protection, and it did not otherwise meet
      the conditions for equity classification. Since equity classification is not
      available for the conversion feature, the Company was required to bifurcate
      the
      embedded conversion feature and carry it as a derivative liability, at fair
      value. The Company also concluded that the Default Put required bifurcation
      because, while puts on debt instruments are generally considered clearly and
      closely related to the host, the Default Put is indexed to certain events,
      noted
      above, that are not associated with debt instruments. The Company combined
      all
      embedded features that required bifurcation into one compound instrument that
      is
      carried as a component of derivative liabilities. The Company also determined
      that the warrants did not meet the conditions for equity classification because
      these instruments did not meet all of the necessary criteria for equity
      classification. Therefore, the warrants are also required to be carried as
      a
      derivative liability, at fair value.





The
      Company estimated the fair value of the compound derivative on the inception
      date, and subsequently, using the Monte Carlo valuation technique, because
      that
      technique embodies all of the assumptions (including credit risk, interest
      risk,
      stock price volatility and conversion estimates) that are necessary to fair
      value complex derivative instruments. The Company estimated the fair value
      of
      the warrants on the inception date, and subsequently, using the
      Black-Scholes-Merton valuation technique, because that technique embodies all
      of
      the assumptions (including volatility, expected terms, and risk free rates)
      that
      are necessary to fair value freestanding warrants. As a result of these
      estimates, the Company’s valuation model resulted in compound derivative
      balances of $-0- and $159,250 as of December 31, 2006 and 2005, respectively.
      These amounts are included in Derivative Liabilities on the Company’s balance
      sheet. As of September 30, 2005, all warrants related to the financing had
      been
      fully converted.




F-26




**BRAVO!
        BRANDS INC. AND SUBSIDIARY**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE YEARS ENDED DECEMBER 31, 2006 AND 2005**




The
      following table illustrates fair value adjustments that the Company has recorded
      related to the derivative financial instruments associated with the $660,000
      convertible note financing:





Derivative
                income (expense)
            
            Year
              Ended
              December
                31, 2006
            
            Year
              Ended
              December
                31, 2005Compound
                derivative
            
            
            ($
                9,750
            )
            
            ($
                2,787,246
            )Warrant
                derivative
            
            $
            -
            
            $
            61,800





Changes
      in the fair value of the compound derivative and, therefore, derivative income
      (expense) related to the compound derivative is significantly affected by
      changes in the Company’s trading stock price and the credit risk associated with
      its financial instruments. The fair value of the warrant derivative is
      significantly affected by changes in the Company’s trading stock prices.





The
      aforementioned allocations to the compound and warrant derivatives resulted
      in
      the discount in the carrying value of the notes. This discount, along with
      related deferred finance costs and future interest payments, were amortized
      through periodic charges to interest expense using the effective method.
      Interest expense during the year ended December 31, 2006 and 2005 amounted
      to
      approximately $-0- and $74,000, respectively.





(g) $1,008,000
      Convertible Note Financing:





On
      June
      29, 2004, the Company issued $1,008,000 of 10.0% convertible notes payable,
      due
      April 30, 2006, plus warrants to purchase 3,200,000 and 8,000,000 shares of
      the
      Company’s common stock at $0.25 and $2.00, respectively, for a period of five
      years. Net proceeds from this financing arrangement amounted to $800,000. The
      Company had an outstanding balance of $-0- and $187,760 as of December 31,
      2006
      and 2005, respectively on this note. The convertible notes were convertible
      into
      a fixed number of the Company’s common shares based upon a conversion price of
      $0.15 with anti-dilution protection for sales of securities below the fixed
      conversion price. The Company had the option to redeem the convertible notes
      for
      cash at 120% of the face value. The holder has the option to redeem the
      convertible notes payable for cash at 130% of the face value in the event of
      defaults and certain other contingent events, including events related to the
      common stock into which the instrument is convertible, registration and listing
      (and maintenance thereof) of the Company’s common stock and filing of reports
      with the Securities and Exchange Commission (the “Default Put”). In addition,
      the Company extended registration rights to the holder that required
      registration and continuing effectiveness thereof; the Company is required
      to
      pay monthly liquidating damages of 2.0% for defaults under this
      provision.





In
      the
      Company’s evaluation of this instrument, the Company concluded that the
      conversion feature was not afforded the exemption as a conventional convertible
      instrument due to the anti-dilution protection, and it did not otherwise meet
      the conditions for equity classification. Since equity classification is not
      available for the conversion feature, the Company was required to bifurcate
      the
      embedded conversion feature and carry it as a derivative liability, at fair
      value. The Company also concluded that the Default Put required bifurcation
      because, while puts on debt instruments are generally considered clearly and
      closely related to the host, the Default Put is indexed to certain events,
      noted
      above, that are not associated with debt instruments. The Company combined
      all
      embedded features that required bifurcation into one compound instrument that
      is
      carried as a component of derivative liabilities. The Company also determined
      that the warrants did not meet the conditions for equity classification because
      these instruments did not meet all of the necessary criteria for equity
      classification. Therefore, the warrants are also required to be carried as
      a
      derivative liability, at fair value.




F-27




**BRAVO!
        BRANDS INC. AND SUBSIDIARY**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE YEARS ENDED DECEMBER 31, 2006 AND 2005**




The
      Company estimated the fair value of the compound derivative on the inception
      date, and subsequently, using the Monte Carlo valuation technique, because
      that
      technique embodies all of the assumptions (including credit risk, interest
      risk,
      stock price volatility and conversion estimates) that are necessary to fair
      value complex derivative instruments. The fair value of the compound derivatives
      amounted to $0 and $564,735 as of December 31, 2006 and 2005, respectively.
      The
      Company estimated the fair value of the warrants on the inception date, and
      subsequently, using the Black-Scholes-Merton valuation technique, because that
      technique embodies all of the assumptions (including volatility, expected terms,
      and risk free rates) that are necessary to fair value freestanding warrants.
      These amounts are included in Derivative Liabilities on the Company’s balance
      sheet. As of December 31, 2005, all warrants related to the financing had been
      fully converted.





The
      following table illustrates fair value adjustments that the Company has recorded
      related to the derivative financial instruments associated with the $1,008,000
      convertible note financing:





Derivative
                income (expense)
            
            Year
              Ended
              December
                31, 2006
            
            Year
              Ended
              December
                31, 2005Compound
                derivative
            
            
            ($
                16,251
            )
            
            ($
                185,979
            )Warrant
                derivative
            
            
            -
            
            
            ($
                1,661,859
            )





Changes
      in the fair value of the compound derivative and, therefore, derivative income
      (expense) related to the compound derivative is significantly affected by
      changes in the Company’s trading stock price and the credit risk associated with
      its financial instruments. The fair value of the warrant derivative is
      significantly affected by changes in the Company’s trading stock prices. Future
      changes in these underlying market conditions will have a continuing effect
      on
      derivative income (expense) associated with these instruments.





The
      aforementioned allocations to the compound and warrant derivatives resulted
      in
      the discount in the carrying value of the notes. This discount, along with
      related deferred finance costs and future interest payments, were amortized
      through periodic charges to interest expense using the effective method.
      Interest expense during the year ended December 31, 2006 and 2005 amounted
      to
      approximately $0 and $383,000, respectively.





(h)
      $360,000 Convertible Note Financing :





On
      April
      21, 2005, the Company issued $360,000, nine-month-term, 10% convertible notes
      payable, due October 31, 2005. Net proceeds for this financing transaction
      amounted to $277,488. The notes were convertible into shares of common stock
      at
      a fixed conversion rate of $0.20, with anti-dilution protection for sales of
      securities below the fixed conversion price. The holder converted the notes
      on
      September 30, 2005. The Company had the option to redeem the notes payable
      for
      cash at 120% of the face value. The holder had the option to redeem the
      convertible notes payable for cash at 130% of the face value in the event of
      defaults and certain other contingent events, including events related to the
      common stock into which the instrument is convertible, registration and listing
      (and maintenance thereof) of the Company’s common stock and filing of reports
      with the Securities and Exchange Commission (the “Default Put”).




F-28




**BRAVO!
        BRANDS INC. AND SUBSIDIARY**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE YEARS ENDED DECEMBER 31, 2006 AND 2005**


In
      the
      Company’s evaluation of this instrument, the Company concluded that the
      conversion feature was not afforded the exemption as a conventional convertible
      instrument due to the anti-dilution protection afforded the holder, and it
      did
      not otherwise meet the conditions for equity classification. Therefore, the
      Company was required to bifurcate the embedded conversion feature and carry
      it
      as a derivative liability. The Company also concluded that the Default Put
      required bifurcation because, while puts on debt instruments are generally
      considered clearly and closely related to the host, the Default Put is indexed
      to certain events, noted above, that are not associated with debt instruments.
      The Company combined all embedded features that required bifurcation into one
      compound instrument that was carried as a component of derivative liabilities
      through the date of conversion.





The
      Company allocated the initial proceeds from the financing first to the compound
      derivative instrument in the amount of $113,925 and the balance to the debt
      host
      instrument. The Company estimated the fair value of the compound derivative
      on
      the inception date, and subsequently, using the Monte Carlo valuation technique,
      because that technique embodies all of the assumptions (including credit risk,
      interest risk, stock price volatility and conversion estimates) that are
      necessary to fair value complex derivative instruments.





The
      following table illustrates fair value adjustments that the Company has recorded
      related to the compound derivative arising from the $360,000 convertible notes
      payable.





Derivative
                income (expense)
            
            Year
              Ended
              December
                31, 2006
            
            Year
              Ended
              December
                31, 2005Compound
                derivative
            
            $
            -
            
            
            ($
                841,650
            )





Changes
      in the fair value of the compound derivative and, therefore, derivative income
      (expense) related to the compound derivative is significantly affected by
      changes in the Company’s trading stock price and the credit risk associated with
      its financial instruments. Since the instrument was converted on September
      30,
      2005, there will be no future charges or credits to derivative income (expense)
      associated with this instrument.





The
      above
      allocations resulted in a discount to the carrying value of the notes amounting
      to approximately $173,925. This discount, along with related deferred finance
      costs and future interest payments, was amortized through periodic charges
      to
      interest expense using the effective method. Interest expense during the years
      ended December 31, 2006 and 2005 amounted to approximately $-0- and $163,000,
      respectively.





(i)
      $2,500,000 Note Payable, due November 12, 2006:





On
      May
      12, 2006, the Company issued $2,500,000 of six-month, 10% notes payable plus
      detachable warrants to purchase 1,500,000 shares of the Company’s common stock
      with a strike price of $0.80 for a period of five-years. Net proceeds from
      this
      financing transaction amounted to $2,235,000. The holder has the option to
      redeem the notes for cash in the event of default and certain other contingent
      events, including events related to the common stock into which the instrument
      is convertible, registration and listing (and maintenance thereof) of the
      Company’s common stock and filing of reports with the Securities and Exchange
      Commission (the “Default Put”). The Company evaluated the terms and conditions
      of the notes and warrants and determined that (i) the Default Put required
      bifurcation because it did not meet the “clearly and closely related” criteria
      of FAS 133, and (ii) the warrants did not meet all of the requisite conditions
      for equity classification under FAS 133. As a result, the net proceeds from
      the
      arrangement were first allocated to the Default Put ($87,146) and the warrants
      ($901,665) based upon their fair values, because these instruments are required
      to be initially and subsequently carried at fair values.




F-29




**BRAVO!
        BRANDS INC. AND SUBSIDIARY**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE YEARS ENDED DECEMBER 31, 2006 AND 2005**




On
      July
      26, 2006, $1,000,000 of the outstanding note balance was transferred to the
      new
      $30 million convertible note financing, and 600,000 of the warrants were
      cancelled for warrants attached to this new financing (See Note 7(j)). The
      terms
      of the exchange resulted in the treatment of the transaction as a debt
      extinguishment, resulting in a loss of $357,054. The remaining balance of
      $1,500,000 was repaid on July 31, 2006.





At
      December 31, 2006, there was a warrant liability for the remaining 900,000
      warrants of $234,000, which will continue to be recorded at fair value until
      the
      warrants are either exercised or expire.





The
      following table illustrates fair value adjustments that the Company has recorded
      related to the derivative financial instruments associated with the $2,500,000
      Note Payable.





Derivative
                income (expense):
            
            Year
              Ended
              December
                31, 2006
            
            Year
              Ended
              December
                31, 2005Default
                Put
            
            $
            220,295
            
            
            -Warrant
                derivative
            
            $
            (183,705
            )
            
            -





The
      Company estimated the fair value of the put on the inception date using a cash
      flow technique that involves probability weighting multiple outcomes. The
      Company estimated the warrant value using the Black Scholes-Merton valuation
      technique. Significant assumptions included in the Company’s valuation models
      are as follows:





Inception
            
            December
                31, 2006Trading
                value of common stock
            
            $
            0.75
            
            $
            0.31Warrant
                strike price
            
            $
            0.80
            
            $
            0.32Volatility
            
            
            133.00
            %
            
            87.88
            %Risk
                free rate
            
            
            5.08
            %
            
            5.02
            %Expected
                term
            
            
            Stated
                term
            
            
            Remaining
                termDiscount
                rate used for cash flows
            
            
            13.75
            %
            
            16.00
            %





The
      fair
      value of the warrants declined principally due to the decline in the Company’s
      common stock trading price. Since these instruments are measured at fair value,
      future changes in assumptions, arising from both internal factors and general
      market conditions, may cause further variation in the fair value of these
      instruments. Changes in fair values of derivative financial instruments are
      reflected as charges and credits to income.





The
      above
      allocations resulted in a discount to the carrying value of the notes amounting
      to approximately $1,246,000. This discount, along with related deferred finance
      costs and future interest payments were amortized through periodic charges
      to
      interest expense using the effective method until the date of the repayment
      and
      the debt exchange. Interest expense through July 31, 2006 amounted to
      approximately $351,000.




F-30


**BRAVO!
        BRANDS INC. AND SUBSIDIARY**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE YEARS ENDED DECEMBER 31, 2006 AND 2005**




(j) $30,000,000
      Convertible Note Financing:





On
      July
      26, 2006, the Company issued $30,000,000 of 9.0% convertible notes payable,
      due
      January 27, 2010, plus warrants to purchase 12,857,143 shares (“Series A
      Warrants”) of the Company’s common stock at $0.73, for a period of five years.
      Net proceeds from this financing arrangement amounted to approximately
      $27,500,000 (net of approximately $2,500,000 in financing costs). There was
      a
      $1,000,000 note balance related to the May 2006 financing that was exchanged
      for
      an equal amount of convertible notes from this financing (See Note 7(i) for
      the
      Company’s accounting for that exchange). The Company had a carrying value on
      this note of $25,036,990 as of December 31, 2006. The convertible notes were
      convertible into a fixed number of the Company’s common shares based upon a
      conversion price of $0.70 with anti-dilution protection for sales of securities
      below the fixed conversion price. The Company had the option to redeem the
      convertible notes for cash at an amount equal to the note balance plus accrued
      interest including the amount of unpaid interest that would have been paid
      through the third anniversary of the note. The holder has the option to redeem
      the convertible notes payable for cash at 125% of the face value in the event
      of
      default and certain other contingent events, including events related to the
      common stock into which the instrument is convertible, registration and listing
      (and maintenance thereof) of the Company’s common stock and filing of reports
      with the Securities and Exchange Commission (the “Default Put”). The Company had
      the option to redeem the notes payable at a date earlier than maturity (the
      “call option”). If the Company exercises the call option, the holders will have
      the right to exercise an additional 42,857,142 warrants and receive common
      shares to which the contingent warrants are indexed to (“Series B Warrants”).
      Absent the Company’s exercise of its call option to redeem the convertible
      notes, the holders have no rights to exercise the warrants and receive common
      shares to which the contingent warrants are indexed. The Company currently
      has
      no plans in the foreseeable future to exercise its call option. If the Company
      does exercise
      its call option, however, the number of its common shares that are issuable
      upon
      the exercise of the contingent warrants is limited to the number of its common
      shares underlying the convertible notes that have been redeemed. In
      addition, the Company extended registration rights to the holder that required
      registration and continuing effectiveness thereof; the Company is required
      to
      pay monthly liquidating damages of 3.0% for defaults under this
      provision.





In
      the
      Company’s evaluation of this instrument, the Company concluded that the
      conversion feature was not afforded the exemption as a conventional convertible
      instrument due to the anti-dilution protection, and it did not otherwise meet
      the conditions for equity classification. Since equity classification is not
      available for the conversion feature, the Company was required to bifurcate
      the
      embedded conversion feature and carry it as a derivative liability, at fair
      value. The Company also concluded that the Default Put required bifurcation
      because, while puts on debt instruments are generally considered clearly and
      closely related to the host, the Default Put is indexed to certain events,
      noted
      above, that are not associated with debt instruments. The Company combined
      all
      embedded features that required bifurcation into one compound instrument that
      is
      carried as a component of derivative liabilities. The Company also determined
      that the warrants did not meet the conditions for equity classification because
      these instruments did not meet all of the necessary criteria for equity
      classification. Therefore, the warrants are also required to be carried as
      a
      derivative liability, at fair value.





The
      Company estimated the fair value of the compound derivative on the inception
      date, and subsequently, using the Monte Carlo valuation technique, because
      that
      technique embodies all of the assumptions (including credit risk, interest
      risk,
      stock price volatility and conversion estimates) that are necessary to fair
      value complex derivative instruments. The Company estimated the fair value
      of
      the warrants on the inception date, and subsequently, using the
      Black-Scholes-Merton valuation technique, because that technique embodies all
      of
      the assumptions (including volatility, expected terms, and risk free rates)
      that
      are necessary to fair value freestanding warrants. These amounts are included
      in
      Derivative Liabilities on the Company’s balance sheet.




F-31


**BRAVO!
        BRANDS INC. AND SUBSIDIARY**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE YEARS ENDED DECEMBER 31, 2006 AND 2005**




On
      August
      31, 2006, the Company entered into Amendment Agreements in which the investors
      agreed to release the Company from events of default that occurred under the
      terms of the original July 26, 2006 financing. In exchange, Amended and Restated
      Notes were issued in which the conversion price on the $15,000,000 financing,
      which was held in escrow, was reduced from $0.70 to $0.51. In addition, the
      holder could require the Company to redeem any portion of the Amended and
      Restated Note in cash or common stock at 125% from October 10, 2006 through
      December 15, 2006. This debt modification was deemed to be a modification rather
      than a debt extinguishment since it did not rise to the requirements of EITF
      96-19 to be deemed a debt extinguishment. The change in the conversion price
      caused an additional embedded conversion feature liability of approximately
      $646,000 which was also recorded as a reduction in the carrying amount of the
      debt.





On
      December 29, 2006, the Company entered into Amendment Agreements in which the
      investors agreed to waive their rights to exercise their “Default Put” when an
      event of default occurred related to the registration and listing (and
      maintenance thereof) of the Company’s common stock and filing of reports with
      the Securities and Exchange Commission. In exchange, Amended and Restated Notes
      were issued which increased the original face value of the financing to
      $33,750,000. In connection therewith, the Company recorded derivative expense
      of
      approximately $3,610,000. In addition, the conversion price on $15,000,000
      of the financing was reduced from $0.70 to $0.32. The conversion price on the
      other $15,000,000 of the financing was reduced from $0.51 to $0.32 (this was
      the
      portion of the financing adjusted in August 2006). The conversion price for
      the
      Series A warrants were reduced from $0.73 to $0.34 and the conversion price
      for
      the Series B warrants were reduced from $0.70 to $0.32. Based on guidance from
      EITF 06-6, this debt modification was deemed to be a debt extinguishment. The
      extinguishment of debt resulted in a net loss of approximately $28,000 which
      was
      also recorded as an increase in the carrying amount of the debt.





The
      following table illustrates fair value adjustments that the Company has recorded
      related to the derivative financial instruments associated with the $33,750,000
      convertible note financing:





Derivative
                income (expense)
            
            Year
              Ended
              December
                31, 2006
            
            Year
              Ended
              December
                31, 2005Compound
                derivative
            
            
            ($
                8,709,026
            )
            $
            -Warrant
                derivative
            
            $
            144,757
            
            $
            -





Changes
      in the fair value of the compound derivative and, therefore, derivative income
      (expense) related to the compound derivative is significantly affected by
      changes in the Company’s trading stock price and the credit risk associated with
      its financial instruments. The fair value of the warrant derivative is
      significantly affected by changes in the Company’s trading stock prices. Future
      changes in these underlying market conditions will have a continuing effect
      on
      derivative income (expense) associated with these instruments.





The
      aforementioned allocations to the compound and warrant derivatives resulted
      in
      the discount in the carrying value of the notes. This discount, along with
      related deferred finance costs and future interest payments, were amortized
      through periodic charges to interest expense using the effective method.
      Interest expense during the year ended December 31, 2006 amounted to
      approximately $1,931,000.




F-32




**BRAVO!
        BRANDS INC. AND SUBSIDIARY**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE YEARS ENDED DECEMBER 31, 2006 AND 2005**




The
      Series A derivative warrant fair values are calculated using the
      Black-Scholes-Merton valuation technique. Significant assumptions as of December
      31, 2006, corresponding to the Series A warrants are as follows:





Series
                ATrading
                market price
            
            $
            0.31Strike
                price
            
            $
            0.34Volatility
            
            
            87.88
            %Risk-free
                rate
            
            
            5.02
            %Remaining
                term/life (years)
            
            
            4.50





The
      Company’s stock prices have been highly volatile. Future fair value changes are
      significantly influenced by the Company’s trading common stock prices. As
      previously discussed herein, changes in fair value of derivative financial
      instruments are reflected in earnings.





The
      fair
      value of the Series B contingent warrants is included as a component of the
      compound derivative figure.




F-33




**BRAVO!
      BRANDS INC. AND SUBSIDIARY**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE YEARS ENDED DECEMBER 31, 2006 AND 2005**




**Note
      8 - Derivative Liabilities**





The
      following table summarizes the components of derivative liabilities as of
      December 31, 2006 and December 31, 2005:




Note
            
            2006
            
            2005Compound
                derivative financial instruments that have been bifurcated from the
                following financing arrangements:$
                400,000 Convertible Note Financing
            
            
            7
            (a)
            $
            -
            
            $
            1,311,000$
                2,300,000 Convertible Note Financing
            
            
            7
            (b)
            
            -
            
            
            4,867$
                600,000 Convertible Note Financing
            
            
            7
            (c)
            
            454,267
            
            
            153,700$
                693,000 Convertible Note Financing
            
            
            7
            (e)
            
            -
            
            
            42,878$
                660,000 Convertible Note Financing
            
            
            7
            (f)
            
            -
            
            
            159,250$
                1,008,000 Convertible Note Financing
            
            
            7
            (g)
            
            -
            
            
            564,735$30,000,000
                Convertible Note Financing
            
            
            7
            (j)
            
            9,326,007
            
            
            -Series
                H Preferred Stock Financing
            
            
            9
            (a)
            
            -
            
            
            381,377Series
                J Preferred Stock Financing
            
            
            9
            (b)
            
            3,416,000
            
            
            5,628,000Series
                K Preferred Stock Financing
            
            
            9
            (c)
            
            139,565
            
            
            206,200Series
                F Preferred Stock Financing
            
            
            9
            (d)
            
            -
            
            
            25,632Freestanding
                derivative contracts arising from financing and other business
                arrangements:Warrants
                issued with $693,000 Convertible Notes
            
            
            7
            (e)
            
            -
            
            
            924,120Warrants
                issued with $2,500,000 Note Financing
            
            
            7
            (i)
            
            234,000
            
            
            -Warrants
                issued with $30,000,000 Convertible Notes
            
            
            7
            (j)
            
            6,371,243
            
            
            -Warrants
                issued with Series H Preferred Stock
            
            
            9
            (a)
            
            -
            
            
            1,264,109Warrants
                issued with Series D Preferred Stock
            
            
            9
            (d)
            
            -
            
            
            400,214Warrants
                issued with Series F Preferred Stock
            
            
            9
            (d)
            
            -
            
            
            563,096Other
                warrants
            
            
            11
            (b)
            
            -
            
            
            24,310,057**Total
                derivative liabilities**
            
            
            
            
            **$**
            **19,941,082**
            
            **$**
            **35,939,235**





See
      the
      notes referenced in the table for details of the origination and accounting
      for
      these derivative financial instruments. The Company estimates fair values of
      derivative financial instruments using various techniques (and combinations
      thereof) that are considered to be consistent with the objective of measuring
      fair values. In selecting the appropriate technique, the Company considers,
      among other factors, the nature of the instrument, the market risks that it
      embodies and the expected means of settlement. For less complex derivative
      instruments, such as free-standing warrants, the Company generally uses the
      Black-Scholes-Merton option valuation technique because it embodies all of
      the
      requisite assumptions (including trading volatility, estimated terms and risk
      free rates) necessary to fair value these instruments. For complex derivative
      instruments, such as embedded conversion options, the Company generally uses
      the
      Flexible Monte Carlo valuation technique because it embodies all of the
      requisite assumptions (including credit risk, interest-rate risk and
      exercise/conversion behaviors) that are necessary to fair value these more
      complex instruments. For forward contracts that contingently require net-cash
      settlement as the principal means of settlement, the Company projects and
      discounts future cash flows applying probability-weightage to multiple possible
      outcomes. Estimating fair values of derivative financial instruments requires
      the development of significant and subjective estimates that may, and are likely
      to, change over the duration of the instrument with related changes in internal
      and external market factors. In addition, option-based techniques are highly
      volatile and sensitive to changes in the trading market price of the Company’s
      common stock, which has a high-historical volatility. Since derivative financial
      instruments are initially and subsequently carried at fair values, the Company’s
      income will reflect the volatility in these estimate and assumption
      changes.




F-34




BRAVO!
        BRANDS INC. AND SUBSIDIARY
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 **FOR
        THE YEARS ENDED DECEMBER 31, 2006 AND 2005**
  **Note
        9** ***-*** **Preferred Stock**





The
      Company’s articles of incorporation authorize the issuance of 5,000,000 shares
      of preferred stock. The Company has designated this authorized preferred stock,
      as follows:





(a) Series
      H Preferred Stock :





The
      Company has designated 350,000 shares of its preferred stock as Series H
      Cumulative Convertible Preferred Stock with a stated and liquidation value
      of
      $10.00 per share. Series H Preferred Stock has cumulative dividend rights at
      7.0% of the stated amount, ranks senior to common stock and is non-voting.
      As of
      December 31, 2006 and 2005, the preferred stock balance was $535,000 and
      $388,305, respectively. The Series H preferred stock is convertible into the
      Company’s common stock at a fixed conversion price of $0.40 per common share.
      The Series H Preferred Stock is mandatorily redeemable for common stock on
      the
      fifth anniversary of its issuance. The Company has the option to redeem the
      Series H Preferred Stock for cash at 135% of the stated value. The holder has
      the option to redeem the Series H Preferred Stock for cash at 140% of the stated
      value in the event of defaults and certain other contingent events, including
      events related to the common stock into which the instrument is convertible,
      listing of the Company’s common stock and filing of reports with the Securities
      and Exchange Commission (the “Default Put”). However, the terms of an amended
      agreement that were ratified by investors on December 29, 2006, eliminated
      the
      holder’s option to redeem the Series H Preferred Stock in the event of default
      and other contingent events related to the common stock into which the
      instrument is convertible (the “Default Put”).





Initially,
      based upon the Company’s evaluation of the terms and conditions of the Series H
      Preferred Stock, the Company concluded that it was more akin to a debt
      instrument than an equity instrument, which meant that the Company’s accounting
      conclusions were based upon those related to a traditional debt security, and
      that it should be afforded the conventional convertible exemption regarding
      the
      embedded conversion feature because the conversion price was fixed. Therefore,
      the Company was not required to bifurcate the embedded conversion feature and
      carry it as a liability. However, the Company concluded that the Default Put
      required bifurcation because, while puts on debt-type instruments are generally
      considered clearly and closely related to the host, the Default Put is indexed
      to certain events, noted above, that are not associated with debt-type
      instruments. In addition, due to the default and contingent redemption features
      of the Series H Preferred Stock, the Company classified this instrument as
      redeemable preferred stock, outside of stockholders’ equity.





Based
      upon the Company’s evaluation of the terms and conditions of the Series H
      Preferred Stock subsequent to the Amended Agreements between the Company and
      investors, the Company concluded that it was more akin to equity rather than
      debt and thus has been reclassified to stockholders’ equity.





Between
      December 2001 and March 2002, the Company issued 175,500 shares of Series H
      Preferred Stock for cash of $1,755,000, plus warrants to purchase an aggregate
      of 4,387,500 shares of common stock at $0.50 for five years. As of December
      31,
      2006 and 31, 2005, shares of preferred stock outstanding were 53,500 and 64,500,
      respectively, and warrants outstanding were 500,000 and 4,387,500, respectively.
      The Company initially allocated $1,596,228 of the proceeds from the Series
      H
      Preferred financings to the warrants at their fair values because the warrants
      did not meet all of the conditions necessary for equity classification. However,
      due to amended agreements, the warrants currently meet all of the conditions
      necessary for equity classification and, accordingly, are carried as
      stockholders’ equity, at fair value.




F-35


BRAVO!
          BRANDS INC. AND SUBSIDIARY
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 **FOR
          THE YEARS ENDED DECEMBER 31, 2006 AND 2005**




The
      Company estimated the fair value of the derivative warrants on the inception
      date, and subsequently, using the Black-Scholes-Merton valuation technique.
      As a
      result of applying this technique, the Company’s valuation of the derivative
      warrants amounted to $325 and $1,264,109 as of December 31, 2006 and 2005,
      respectively. The Company estimated the fair value of the Default Puts on the
      inception date, and subsequently, using a cash flow technique that involves
      probability-weighting multiple outcomes at net present values. Since the Default
      Put was eliminated as a result of amended terms agreed to with the investors
      on
      December 29, 2006, the value has been reduced to $0. Significant assumptions
      underlying the probability-weighted outcomes included both the Company’s history
      of similar default events, all available information about the Company’s
      business plans that could give rise to or risk defaults and the imminence of
      impending or current defaults. As a result of these subjective estimates, the
      Company’s valuation model resulted in Default Put balances associated with the
      Series H Preferred Stock of $-0- and $381,377 as of December 31, 2006 and 2005,
      respectively. These amounts are included in Derivative Liabilities on the
      Company’s balance sheet. The following table illustrates fair value adjustments
      that the Company has recorded related to the Default Puts on the Series H
      Preferred Stock.





Derivative
                income (expense)
            
            Year
              Ended
              December
                31, 2006
            
            Year
              Ended
              December
                31, 2005Default
                Put
            
            $
            381,377
            
            
            ($
                224,451
            )Derivative
                Warrants
            
            $
            1,263,784
            
            
            ($
                887,896
            )





Derivative
      income (expense) related to the Default Put includes changes to the fair value
      arising from changes in the Company’s estimates about the probability of default
      events and amortization of the time-value element embedded in the Company’s
      calculations. Higher derivative expense in the year ended December 31, 2006,
      when compared to the same periods of 2005, reflected the increased probability
      that the Default Put would become exercisable because the Company would not
      timely file certain reports with the Securities and Exchange Commission. While
      the Default Put became exercisable at that time, the holders of the Series
      H
      Preferred Stock did not exercise their right prior to curing the event. However,
      due to the ratification of a new agreement by investors on December 29, 2006,
      the Default Put was eliminated from the terms of the original agreement.
      Therefore, the holders of the Series H Preferred Stock no longer have
      exercisable rights concerning the default events that were specified in the
      original agreement.





The
      discounts to the Series H Preferred Stock that resulted from the aforementioned
      allocations are being accreted through periodic charges to retained earnings
      using the effective method. The following table illustrates the components
      of
      preferred stock dividends and accretions for the years ended December 31, 2006
      and 2005:





Year
              Ended
              December
                31, 2006
            
            Year
              Ended
              December
                31, 2005Cumulative
                dividends at 7%
            
            $
            42,337
            
            $
            79,237Accretions
            
            
            256,695
            
            
            558,089$
            299,032
            
            $
            637,326





F-36




BRAVO!
        BRANDS INC. AND SUBSIDIARY
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
 **FOR
        THE YEARS ENDED DECEMBER 31, 2006 AND 2005**




As
      of
      December 31, 2006, $337,792 of cumulative dividends are in arrears on Series
      H
      Preferred Stock.





(b)
      Series J Preferred Stock :





The
      Company has designated 500,000 shares of its preferred stock as Series J
      Cumulative Convertible Preferred Stock with a stated and liquidation value
      of
      $10.00 per share. Series J Preferred Stock has cumulative dividend rights at
      8.0% of the stated amount, ranks senior to common stock and is non-voting.
      It is
      also convertible into the Company’s common stock at a conversion price of $0.20
      per common share. The Series J Preferred Stock is mandatorily redeemable for
      common stock on the fifth anniversary of its issuance. The Company has the
      option to redeem the Series J Preferred Stock for cash at 135% of the stated
      value. The holder has the option to redeem the Series J Preferred Stock for
      cash
      at 140% of the stated value in the event of defaults and certain other
      contingent events, including events related to the common stock into which
      the
      instrument is convertible, registration and listing (and maintenance thereof)
      of
      the Company’s common stock and filing of reports with the Securities and
      Exchange Commission (the “Default Put”).





Based
      upon the Company’s evaluation of the terms and conditions of the Series J
      Preferred Stock, the Company concluded that its features were more akin to
      a
      debt instrument than an equity instrument, which means that the Company’s
      accounting conclusions are generally based upon standards related to a
      traditional debt security. The Company’s evaluation concluded that the embedded
      conversion feature was not afforded the exemption as a conventional convertible
      instrument due to certain variability in the conversion price, and it further
      did not meet the conditions for equity classification. Therefore, the Company
      is
      required to bifurcate the embedded conversion feature and carry it as a
      liability. The Company also concluded that the Put required bifurcation because,
      while puts on debt-type instruments are generally considered clearly and closely
      related to the host, the Default Put is indexed to certain events, noted above,
      that are not associated with debt-type instruments. The Company combined all
      embedded features that required bifurcation into one compound instrument that
      is
      carried as a component of derivative liabilities. In addition, due to the
      default and contingent redemption features of the Series J Preferred Stock,
      the
      Company classified this instrument as redeemable preferred stock, outside of
      stockholders’ equity.





In
      September 2002, February 2003 and May 2003, the Company issued 100,000 shares,
      50,000 shares and 50,000 shares, respectively, of Series J Preferred Stock
      for
      cash of $2,000,000. The Company also issued warrants for an aggregate of
      14,000,000 shares of the Company’s common stock in connection with the financing
      arrangement. The warrants have terms of five years and an exercise price of
      $0.25. The Company initially allocated proceeds of $658,000 and $1,190,867
      from
      the financing arrangements to the compound derivative discussed above and to
      the
      warrants, respectively. Since these instruments did not meet the criteria for
      classification, they are required to be carried as derivative liabilities,
      at
      fair value.





The
      Company estimated the fair value of the compound derivative on the inception
      dates, and subsequently, using the Monte Carlo valuation technique, because
      that
      technique embodies all of the assumptions (including credit risk, interest
      risk,
      stock price volatility and conversion estimates) that are necessary to fair
      value complex derivative instruments. The Company estimated the fair value
      of
      the warrants on the inception dates, and subsequently, using the
      Black-Scholes-Merton valuation technique, because that technique embodies all
      of
      the assumptions (including volatility, expected terms, and risk free rates)
      that
      are necessary to fair value freestanding warrants. As a result of these
      estimates, the Company’s valuation model resulted in compound derivative
      balances associated with the Series J Preferred Stock of $3,416,000 and
      $5,628,000 as of December 31, 2006 and 2005, respectively. These amounts are
      included in Derivative Liabilities on the Company’s balance sheet.




F-37


BRAVO!
          BRANDS INC. AND SUBSIDIARY
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 **FOR
          THE YEARS ENDED DECEMBER 31, 2006 AND 2005**




The
      following table illustrates fair value adjustments that the Company has recorded
      related to the derivative financial instruments associated with the Series
      J
      Preferred Stock.





Derivative
                income (expense)
            
            Year
              Ended
              December
                31, 2006
            
            Year
              Ended
              December
                31, 2005Compound
                derivative
            
            $
            2,212,000
            
            
            ($
                4,900,000
            )Warrant
                derivative
            
            $
            -
            
            
            ($
                3,136,000
            )





Changes
      in the fair value of the compound derivative and, therefore, derivative income
      (expense) related to the compound derivative is significantly affected by
      changes in the Company’s trading stock price and the credit risk associated with
      its financial instruments. The fair value of the warrant derivative is
      significantly affected by changes in the Company’s trading stock prices. Future
      changes in these underlying market conditions will have a continuing effect
      on
      derivative income (expense) associated with these instruments.





The
      discounts to the Series J Preferred Stock that resulted from the aforementioned
      allocations are being accreted through periodic charges to retained earnings
      using the effective method. The following table illustrates the components
      of
      preferred stock dividends and accretions for the years ended December 31, 2006
      and 2005:





Year
              Ended
              December
                31, 2006
            
            Year
              Ended
              December
                31, 2005Cumulative
                dividends at 8%
            
            $
            160,000
            
            $
            160,000Accretions
            
            
            690,664
            
            
            385,218$
            850,664
            
            $
            545,218





As
      of
      December 31, 2006, $621,442 of cumulative dividends are in arrears on Series
      J
      Preferred Stock.





(c)
      Series K Preferred Stock :





The
      Company has designated 500,000 shares of the Company’s preferred stock as Series
      K Cumulative Convertible Preferred Stock with a stated and liquidation value
      of
      $10.00 per share. Series K Preferred Stock has cumulative dividend rights at
      8.0% of the stated amount, ranks senior to common stock and is non-voting.
      It is
      also convertible into the Company’s common stock at a fixed conversion price of
      $0.10 per common share. The Series K Preferred Stock is mandatorily redeemable
      for common stock on the fifth anniversary of its issuance. The Company has
      the
      option to redeem the Series K Preferred Stock for cash at 120% of the stated
      value. The holder has the option to redeem the Series K Preferred Stock for
      cash
      at 140% of the stated value in the event of defaults and certain other
      contingent events, including events related to the common stock into which
      the
      instrument is convertible, listing of the Company’s common stock and filing of
      reports with the Securities and Exchange Commission (the “Default Put”).





Based
      upon the Company’s evaluation of the terms and conditions of the Series K
      Preferred Stock, the Company concluded that it was more akin to a debt
      instrument than an equity instrument, which means that the Company’s accounting
      conclusions are based upon those related to a traditional debt security, and
      that it should be afforded the conventional convertible exemption regarding
      the
      embedded conversion feature because the conversion price is fixed. Therefore,
      the Company is not required to bifurcate the embedded conversion feature and
      carry it as a liability. However, the Company concluded that the Default Put
      required bifurcation because, while puts on debt-type instruments are generally
      considered clearly and closely related to the host, the Default Put is indexed
      to certain events, noted above, that are not associated with debt-type
      instruments. In addition, due to the default and contingent redemption features
      of the Series K Preferred Stock, the Company classified this instrument as
      redeemable preferred stock, outside of stockholders’ equity.




F-38


BRAVO!
          BRANDS INC. AND SUBSIDIARY
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 **FOR
          THE YEARS ENDED DECEMBER 31, 2006 AND 2005**




In
      March
      2004, the Company issued 80,000 shares of Series K Preferred Stock for cash
      of
      $800,000. In April 2004, the Company issued 15,000 shares of Series K Preferred
      Stock to extinguish debt with a carrying value of $150,000. At the time of
      these
      issuances, the trading market price of the Company’s common stock exceeded the
      fixed conversion price and, as a result, the Company allocated $160,000 and
      $60,000 from the March and April issuances, respectively, to stockholders’
equity which amount represented a beneficial conversion feature. In addition,
      the Company recorded a debt extinguishment loss of $60,000 in connection with
      the April exchange of Series K Preferred Stock for debt because the Company
      estimated that it had a fair value that exceeded the carrying value of the
      extinguished debt by that amount. Finally, the Company allocated approximately
      $59,000 and $11,000 to the Default Puts, representing fair values, in connection
      with the March and April issuances, respectively.





The
      Company estimated the fair value of the Default Puts on the inception dates,
      and
      subsequently, using a cash flow technique that involves probability-weighting
      multiple outcomes at net present values. Significant assumptions underlying
      the
      probability-weighted outcomes included both the Company’s history of similar
      default events, all available information about the Company’s business plans
      that could give rise to or risk defaults and the imminence of impending or
      current defaults. As a result of these subjective estimates, the Company’s
      valuation model resulted in Default Put balances associated with the Series
      K
      Preferred Stock of $139,565 and $206,200 as of December 31, 2006 and 2005,
      respectively. These amounts are included in Derivative Liabilities on the
      Company’s balance sheet. The following table illustrates fair value adjustments
      that the Company has recorded related to the Default Puts on the Series K
      Preferred Stock.





Year
              Ended
              December
                31, 2006
            
            Year
              Ended
              December
                31, 2005Derivative
                income (expense)
            
            $
            66,635
            
            
            ($
                132,556
            )




Derivative
      income (expense) related to the Default Put includes changes to the fair value
      arising from changes in the Company’s estimates about the probability of default
      events and amortization of the time-value element embedded in the Company’s
      calculations. Higher derivative expense in the year ended December 31, 2006,
      when compared to the same periods of 2005, reflected the increased probability
      that the Default Put would become exercisable because the Company would not
      timely file certain reports with the Securities and Exchange Commission. While
      the Default Put became exercisable at that time, the holders of the Series
      K
      Preferred Stock did not exercise their right prior to curing the event. There
      can be no assurances that the holders of the Series K Preferred Stock would
      not
      exercise their rights should further defaults arise.




F-39


BRAVO!
          BRANDS INC. AND SUBSIDIARY
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 **FOR
          THE YEARS ENDED DECEMBER 31, 2006 AND 2005**




The
      discounts to the Series K Preferred Stock that resulted from the aforementioned
      allocations are being accreted through periodic charges to retained earnings
      using the effective method. The following table illustrates the components
      of
      preferred stock dividends and accretions for the years ended December 31, 2006
      and 2005:





Year
              Ended
              December
                31, 2006
            
            Year
              Ended
              December
                31, 2005Cumulative
                dividends at 8%
            
            $
            76,000
            
            $
            76,000Accretions
            
            
            45,097
            
            
            42,407$
            121,097
            
            $
            118,407





As
      of
      December 31, 2006, $214,629 of cumulative dividends are in arrears on Series
      K
      Preferred Stock.





(d)
      Other Preferred Stock Designations and Financings :





Series
      B Preferred :
      The
      Company has designated 1,260,000 shares of its preferred stock as Series B
      Convertible Preferred Stock with a stated and liquidation value of $1.00 per
      share. Series B Preferred has cumulative dividend rights of 9.0%, ranks senior
      to common stock and has voting rights equal to the number of common shares
      into
      which it may be converted. Series B Preferred is convertible into common stock
      on a share for share basis. Based upon the Company’s evaluation of the terms and
      conditions of the Series B Preferred Stock, the Company has concluded that
      it
      meets all of the requirements for equity classification. The Company has 107,440
      shares of Series B Preferred outstanding as of December 31, 2006 and
      2005.





Series
      D Preferred :
      We have
      designated 165,000 shares of our preferred stock as Series D Cumulative
      Convertible Preferred Stock with a stated and liquidation value of $10 per
      share. Series D Preferred has cumulative dividend rights of 6.0%, ranks senior
      to common stock and is non-voting. There are no shares of Series D Preferred
      Stock outstanding during any of the periods presented. However, we continue
      to
      have 611,250 warrants outstanding that were issued in connection with the
      original Series D Preferred Stock Financing arrangement.





Series
      F Preferred :
      The
      Company has designated 200,000 shares of its preferred stock as Series F
      Convertible Preferred Stock with a stated and liquidation value of $10 per
      share. There were 5,248 shares of Series F Preferred Stock outstanding as of
      December 31, 2005. The shares were fully converted by September 30, 2006. Series
      F Preferred is non-voting and convertible into common stock at a variable
      conversion price equal to the lower of $0.60 or 75% of the trading prices near
      the conversion date. In addition, the holder had the option to redeem the
      convertible notes payable for cash at 125% of the face value in the event of
      defaults and certain other contingent events, including events related to the
      common stock into which the instrument is convertible, registration and listing
      (and maintenance thereof) of the Company’s common stock and filing of reports
      with the Securities and Exchange Commission (the “Default Put”). The Company
      concluded that the conversion feature was not afforded the exemption as a
      conventional convertible instrument due to a variable conversion feature, and
      it
      did not otherwise meet the conditions for equity classification. Since equity
      classification is not available for the conversion feature, the Company was
      required to bifurcate the embedded conversion feature and carry it as a
      derivative liability, at fair value. The Company also concluded that the Default
      Put required bifurcation because, while puts on debt-type instruments are
      generally considered clearly and closely related to the host, the Default Put
      is
      indexed to certain events, noted above, that are not associated with debt-type
      instruments. These two derivative features were combined into one compound
      derivative instrument. In addition, due to the default and contingent redemption
      features of the Series F Preferred Stock, the Company classified this instrument
      as redeemable preferred stock, outside of stockholders’ equity at December 31,
      2005.




F-40


BRAVO!
          BRANDS INC. AND SUBSIDIARY
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 **FOR
          THE YEARS ENDED DECEMBER 31, 2006 AND 2005**




The
      following table summarizes derivative income (expense) related to compound
      derivatives and freestanding warrant derivatives that arose in connection with
      the preferred stock transactions discussed above.





Year
              Ended
              December
                31, 2006
            
            Year
              Ended
              December
                31, 2005Derivative
                income (expense)
            
            $
            159,343
            
            
            ($
                2,033,830
            )





**Note
      10 - Share Based Payments**





On
      April
      6, 2005, the Company’s Board of Directors adopted an incentive share-based plan
      (the “2005 Stock Incentive Plan”) that provides for the grant of stock options
      for up to 10,397,745 shares of the Company’s common stock to its directors,
      officers, key employees, and consultants. On May 10, 2005, the Company’s Board
      of Directors adopted the recommendation of its Compensation Committee to grant
      options for 8,922,745 shares to the Company’s directors and key employees. As of
      December 31, 2006, there were 1,275,000 shares of common stock reserved for
      issuance under the Company’s stock option plan. Options granted under 2005 Stock
      Incentive Plan have a contractual life of 10 years and vest over two years
      in
      equal annual installments with the first third exercisable on the grant date,
      provided that the individual is continuously employed by the Company. The
      Company did not grant options during the year ended December 31,
      2006.





In
      years
      prior to 2005, the Company granted options for 650,000 shares to now former
      employees and options for 220,000 shares to now former directors, all which
      are
      fully vested and exercisable, under individual plans. Currently, there are
      no
      shares reserved for future issuance under these individual plans.





On
      January 1, 2006, the Company adopted Financial Accounting Standard 123 (revised
      2004), Share-Based
      Payments (“FAS
      123(R)”) which is a revision of FAS No. 123, using the modified prospective
      method. Under this method, compensation cost recognized for the year ended
      December 31, 2006 includes compensation cost for all share-based
      payments modified or granted prior to, but not yet vested, as of January 1,
      2006, based on the grant date fair value estimated in accordance with the
      original provisions of FAS No. 123. Compensation cost is being recognized on
      a
      straight-line basis over the requisite service period for the entire award
      in
      accordance with the provisions of FAS 123(R).




As
      the
      Company had previously adopted the fair-value provisions of FAS No. 123,
      effective January 1, 2005, the adoption of FAS 123(R) had a negligible impact
      on
      the Company’s earnings. The Company recorded compensation costs of $444,779 and
      $798,870 for the years ended 2006 and 2005, respectively. The Company recognized
      no tax benefit for share-based compensation arrangements due to the fact that
      it
      is in a cumulative loss position and recognized no tax benefits in its
      Consolidated Statement of Operations.




As
      required by FAS 123(R), the Company estimates forfeitures of employee stock
      options and recognizes compensation cost only for those awards expected to
      vest.
      Forfeiture rates are determined for two groups of employees - directors /
      officers and key employees based on historical experience. The Company adjusts
      estimated forfeitures to actual forfeiture experience as needed. The cumulative
      effect of adopting FAS 123(R) of $17,000, which represents estimated forfeitures
      for options outstanding at the date of adoption, was not material and therefore
      has been recorded as a reduction of the Company’s stock-based compensation costs
      in Selling and General and Administrative expenses rather than displayed
      separately as a cumulative change in accounting principle in the Consolidated
      Statement of Operations. The adoption of SFAS No. 123(R) had no effect on cash
      flow from operating activities or cash flow from financing activities for the
      year ended 2006.




F-41


BRAVO!
          BRANDS INC. AND SUBSIDIARY
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 **FOR
          THE YEARS ENDED DECEMBER 31, 2006 AND 2005**




The
      Company estimates the fair value of each stock option on the date of grant
      using
      a Black-Scholes-Merton (BSM) option-pricing formula, applying the following
      assumptions and amortize that value to expense over the option’s vesting period
      using the straight-line attribution approach:




**Year**
              
              **Year****ended**
              
              **ended****2006
                  ***
              
              **2005**Expected
                  Term (in years)
              
              
              n/a
              
              
              6Risk-free
                  rate
              
              
              n/a
              
              
              5.01
              %Expected
                  volatility
              
              
              n/a
              
              
              141
              %Expected
                  dividends
              
              
              n/a
              
              
              0
              %





*
      No
      options were granted during this period.




*Expected
      Term:* The
      expected term represents the period over which the share-based awards are
      expected to be outstanding. It has been determined as the midpoint between
      the
      vesting date and the end of the contractual term.





*Risk-Free
      Interest Rate:* The
      Company based the risk-free interest rate used in its assumptions on the implied
      yield currently available on U.S. Treasury zero-coupon issues with a remaining
      term equivalent to the stock option award’s expected term.





*Expected
      Volatility:* The
      volatility factor used in the Company’s assumptions is based on the historical
      price of its stock over the most recent period commensurate with the expected
      term of the stock option award.





*Expected
      Dividend Yield* :
      The
      Company does not intend to pay dividends on its common stock for the foreseeable
      future. Accordingly, the Company uses a dividend yield of zero in its
      assumptions.




F-42


BRAVO!
          BRANDS INC. AND SUBSIDIARY
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 **FOR
          THE YEARS ENDED DECEMBER 31, 2006 AND 2005**




A
      summary
      of option activity under the stock incentive plans for the two year period
      ended
      December 31, 2006 is presented below:




**Weighted-****Average****Weighted-**
              
              **Remaining****Average**
              
              **Contractual**
              
              **Aggregate****Exercise**
              
              **Term**
              
              **Intrinsic****Options**
              
              **Shares**
              
              **Price**
              
              **(in
                  years)**
              
              **Value**Outstanding
                  at December 31, 2004
              
              
              1,025,000
              
              $
              0.46Granted
              
              
              9,122,743
              
              $
              0.28Exercised
              
              
              -
              
              
              -Forfeited
              
              
              (547,321
              )
              $
              0.28Expired
              
              
              -
              
              
              -Outstanding
                  at December 31, 2005
              
              
              9,600,422
              
              $
              0.32Granted
              
              
              -
              
              
              -Exercised
              
              
              -
              
              
              -Forfeited
              
              
              (41,667
              )
              $
              0.25Expired
              
              
              (155,000
              )
              $
              0.75Outstanding
                  at December 31, 2006
              
              
              9,403,755
              
              $
              0.31
              
              
              8.36
              
              $
              548,194Vested
                  at Dec. 31, 2006 plus expected future vesting
              
              
              9,255,831
              
              $
              0.31
              
              
              8.36
              
              $
              538,796Exercisable
                  at December 31, 2006
              
              
              6,536,948
              
              $
              0.33
              
              
              8.36
              
              $
              366,185




No
      options were granted during the year ended December 31, 2006.  The
      weighted-average fair value of options granted during the year ended December
      31, 2005 was $0.15. There were no exercises of options during the year ended
      December 31, 2006 and the same period in 2005.





At
      December 31, 2006, the Company had $201,003 of total unrecognized compensation
      expense related to non-vested stock options, which is expected to be recognized
      over a weighted-average period of one year.





The
      following table summarized the status of the stock options outstanding and
      exercisable at December 31, 2006:


**2006**
              
              **2006****Options
                  Outstanding**
              
              **Options
                Exercisable****Weighted-****Average****Remaining**
              
              **Weighted-**
              
              
              
              **Weighted-****Range**
              
              **Number**
              
              **Contractual**
              
              **Average**
              
              **Number**
              
              **Average****of
                  Exercise**
              
              **of**
              
              **Term**
              
              **Exercise**
              
              **of**
              
              **Exercise****Prices**
              
              **Options**
              
              **(in
                  years)**
              
              **Price**
              
              **Options**
              
              **Price**$.20
                  to $.35
              
              
              8,433,755
              
              
              8.36
              
              $
              0.25
              
              
              5,633,615
              
              $
              0.25$.60
                  to $1.00
              
              
              970,000
              
              
              8.37
              
              $
              0.87
              
              
              903,333
              
              $
              0.899,403,755
              
              
              8.36
              
              $
              0.31
              
              
              6,536,948
              
              $
              0.33




F-43


BRAVO!
          BRANDS INC. AND SUBSIDIARY
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS
 **FOR
          THE YEARS ENDED DECEMBER 31, 2006 AND 2005**




The
      weighted-average exercise prices and weighted-average fair values of options
      granted during 2005 for which the exercise prices exceeded the market prices
      of
      the stock was $0.23 and $0.15, respectively. The weighted-average exercise
      price
      and weighted-average fair value of options granted during 2005 for which the
      exercise price equaled the market price of the stock was $0.61 and $0.56,
      respectively. There were no exercises of options during the years ended December
      31, 2005 and 2004.





In
      May
      2005, the Company extended the contractual life of fully vested options for
      770,000 shares held by two directors. As a result of that modification, the
      Company has recognized additional compensation expense of $104,000 for the
      second quarter of 2005.





Employee
      Benefit Plans





During
      2006, the Company implemented a deferred compensation plan to cover all eligible
      employees. The Company’s contributions to the plan are discretionary, but may
      not exceed 3% of each employee’s annual salary. Contributions to the plan for
      2006 were $83,707.





**Note
      11 - Stockholders’ Deficit**





(a)
      Convertible Preferred Stock





The
      Company has designated 1,260,000 shares of its preferred stock as Series B
      Convertible Preferred Stock. Series B Preferred accumulates dividends at the
      rate of 9% per annum, payable only upon liquidation or redemption, as a
      percentage of the stated value, out of the assets and available funds. Voting
      rights of the Series B Convertible Preferred stock are the same as the Company’s
      common stock. Series B Convertible Preferred stock is convertible anytime after
      December 31, 1997 to the Company’s common stock at the fixed ratio of one share
      of common stock for one share of Series B Convertible Preferred stock
      surrendered for conversion. As of December 31, 2006, there were 107,440 shares
      of Series B Preferred Stock issued and outstanding. The Company accounts for
      Series B Preferred Stock as perpetual preferred equity.




F-44




**BRAVO!
      BRANDS INC. AND SUBSIDIARY**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE YEARS ENDED DECEMBER 31, 2006 AND 2005**


(b) Common
      Stock Warrants





As
      of
      December 31, 2006, the Company had the following outstanding
      warrants:





Warrants
            
            Grant
                date
            
            Expiration
                date
            
            Warrants/
                Options Granted
            
            Exercise
                PriceSeries
                H Preferred Stock Financing
            
            
            1/30/2002
            
            
            1/30/2007
            
            
            375,000
            
            $
            0.500Series
                H Preferred Stock Financing
            
            
            2/15/2002
            
            
            2/14/2007
            
            
            125,000
            
            
            0.500Warrant
                to Licensor
            
            
            6/20/2005
            
            
            6/19/2007
            
            
            500,000
            
            
            0.050Warrant
                Consultant
            
            
            4/8/2005
            
            
            4/7/2007
            
            
            1,000,000
            
            
            0.250Warrant
                to Distributor
            
            
            8/30/2005
            
            
            8/29/2008
            
            
            30,000,000
            
            
            0.360November
                2005 Bridge Loan
            
            
            11/14/2005
            
            
            11/13/2010
            
            
            150,000
            
            
            0.710November
                2005 Common Stock Financing
            
            
            11/28/2005
            
            
            11/27/2010
            
            
            40,749,991
            
            
            0.320May
                2006 Financing
            
            
            5/12/2006
            
            
            5/11/2011
            
            
            900,000
            
            
            0.320July
                2006 Convertible Note Financing
            
            
            7/27/2006
            
            
            7/26/2011
            
            
            27,605,040
            
            
            0.340July
                2006 Convertible Note - Transfer Agent
            
            
            7/27/2006
            
            
            7/26/2011
            
            
            2,896,008
            
            
            0.340Warrant
                to Processor
            
            
            9/19/2006
            
            
            9/18/2012
            
            
            5,870,000
            
            
            0.730Warrant
                to Licensor
            
            
            10/25/2006
            
            
            10/24/2011
            
            
            300,000
            
            
            0.800Other
                Financings
            
            
            3/01/2002
            
            
            2/28/2007
            
            
            25,000
            
            
            0.400**Total
                Warrants**
            
            
            
            
            
            
            
            
            **110,496,039**




Derivative
      income (expense) associated with these other warrants for the years ended
      December 31, 2006 and 2005 are as follows:





Derivative
                income (expense)
            
            
            2006
            
            
            2005Warrant
                derivative
            
            $
            (
                9,659,214
            )
            $
            (7,336,788
            )




F-45


**BRAVO!
      BRANDS INC. AND SUBSIDIARY**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE YEARS ENDED DECEMBER 31, 2006 AND 2005**


Activity
      for the Company’s common stock warrants is presented below:





WeightedAverageShares
            
            PriceTotal
                warrants outstanding at December 31, 2004
            
            
            62,617,277
            
            $
            0.64Warrants
                granted
            
            
            66,329,688
            
            
            0.39Warrants
                exercised
            
            
            (32,873,601
            )
            
            (0.15
            )Warrants
                expired
            
            
            (3,331,667
            )
            
            (1.62
            )Warrants
                redeemed
            
            
            (32,000,000
            )
            
            (0.18
            )Total
                warrants outstanding at December 31, 2005
            
            
            60,741,697
            
            $
            0.44Warrants
                granted
            
            
            59,506,487
            
            
            0.36Warrants
                exercised
            
            
            (9,752,145
            )
            
            (0.06
            )**Total
                warrants outstanding at December 31, 2006**
            
            
            **110,496,039**
            
            $
            0.36





(c) Other
      Stockholders’ Equity Transactions





**Year
      2006**





On
      March
      31, 2006, the Company issued 1,500,000 shares of common stock underlying the
      Company’s June and October 2004 warrants for total proceeds of $150,000.





On
      April
      13, 2006, the Company issued 457,125 shares of common stock pursuant to a notice
      of conversion of premiums associated with the Company’s June 2004 convertible
      note. The common stock underlying this note was registered pursuant to a
      registration statement declared effective on April 18, 2005.





On
      April
      17, 2006, the Company, in a cashless transaction, issued 807,692 shares of
      common stock underlying the Company’s Series F Warrant for 1,000,000 warrants to
      an accredited investor. The shares of common stock underlying the Warrant were
      issued pursuant Regulation D.




On
      April
      21, 2006, the Company issued 196,078 shares of its common stock in a private
      placement, of $100,000, pursuant to Section 4(2) of the Securities Act of 1933,
      to an accredited investor.





On
      April
      28, 2006, the Company issued 437,500 shares of common stock to an accredited
      investor pursuant to notices of conversion of the Company’s April, June and
      October 2004 convertible notes. The common stock underlying these notes was
      registered pursuant to a registration statement declared effective on August
      3,
      2004 and April 18, 2005, respectively.





On
      April
      28, 2006 the Company issued 1,500,000 shares of common stock underlying its
      April 2004 Warrant for total proceeds of $150,000. The shares of common stock
      underlying the Warrant were registered pursuant to a registration statement
      declared effective on August 3, 2004.





F-46




**BRAVO!
      BRANDS INC. AND SUBSIDIARY**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE YEARS ENDED DECEMBER 31, 2006 AND 2005**




On
      May
      12, 2006, the Company issued $2,500,000, six-month-term, 10% notes payable
      plus
      detachable warrants to purchase 1,500,000 shares of its common stock with a
      strike price of $0.80 for a period of five-years. Net proceeds from this
      financing transaction amounted to $2,235,000. The holder has the option to
      redeem the notes for cash in the event of defaults and certain other contingent
      events, including events related to the common stock into which the instrument
      is convertible, registration and listing (and maintenance thereof) of the
      Company’s common stock and filing of reports with the Securities and Exchange
      Commission (the “Default Put”). The Company evaluated the terms and conditions
      of the notes and warrants and determined that (i) the Default Put required
      bifurcation because it did not meet the “clearly and closely related” criteria
      of FAS 133 and (ii) the warrants did not meet all of the requisite conditions
      for equity classification under FAS 133. As a result, the net proceeds from
      the
      arrangement were first allocated to the Default Put ($87,146) and the warrants
      ($901,665) based upon their fair values, because these instruments are required
      to be initially and subsequently carried at fair values. These instruments
      will
      be carried in the Company’s balance sheet following the financing under the
      classification, Derivative Liabilities and adjusted to fair value. The warrants
      and shares of common stock underlying the warrants and notes were issued to
      two
      accredited investors in a private placement exempt from registration under
      the
      Securities Act of 1933 pursuant Regulation D.





On
      May
      16, 2006, the Company issued 2,000,000 shares of common stock pursuant for
      an
      exercise of a warrant associated with its January 2005 convertible note
      financing for total proceeds of $200,000. The common stock underlying this
      warrant was registered pursuant to a registration statement declared effective
      by the Securities and Exchange Commission on August 2, 2005.





On
      June
      7, 2006, the Company issued 101,100 shares of common stock pursuant to a
      conversion of its May 2005 convertible note. The shares of common stock
      underlying the convertible note were issued pursuant to a registration statement
      declared effective by the Securities and Exchange Commission on August 2,
      2005.





On
      July
      3, 2006, the Company issued 2,000,000 shares of common stock pursuant to an
      exercise of a warrant associated with its November 2003 convertible notes
      financing for total proceeds of $100,000. The common stock underlying this
      warrant was registered pursuant to a registration statement declared effective
      by the Securities and Exchange Commission on August 3, 2004.





On
      July,
      6, 2006, the Company issued 83,121 shares of common stock in a private
      placement, pursuant to Section 4(2) of the Securities Act of 1933, to an
      accredited investor for total proceeds of $51,950,000.





On
      July,
      14, 2006, the Company issued 436,388 shares of common stock upon the cashless
      exercise of a warrant associated with its Series D convertible preferred stock.
      These shares were issued to an accredited investor pursuant to Regulation D
      and
      Section 4(2) of the Securities Act of 1933.





On
      July
      7, August 17 and August 31, 2006, the Company issued, in the aggregate, 275,000
      shares of common stock pursuant to a conversion of its Series H preferred stock.
      The shares of common stock underlying the preferred were issued pursuant to
      Regulation D.





On
      July,
      19, 2006, the Company issued 1,008,065 shares of common stock upon the cashless
      exercise of a warrant associated with its Series H convertible preferred stock.
      These shares were issued to an accredited investor pursuant to Regulation D
      and
      Section 4(2) of the Securities Act of 1933.





On
      July
      26, 2006, the Company entered into a Securities Purchase Agreement with five
      accredited institutional investors, for the issuance and sale of $30 million
      in
      senior convertible notes that are due in January 2010. Under the terms of the
      financing, the Company sold $30 million in senior convertible notes, of which
      $15 million (the “Initial Notes”) were released upon closing and $15 million
      (the “Additional Notes”) were released from escrow in November 2006. The Initial
      Notes carry a 9% annual coupon, payable quarterly, and were initially
      convertible into shares of common stock at $0.70 per share. The Additional
      Notes
      carry a 9% annual coupon, payable quarterly, and were initially convertible
      into
      shares of common stock at $0.70 per share and then subsequently to $0.51 per
      share. In addition, the Additional Notes also provide that, from and after
      October 10, 2006 through December 15, 2006, the holder may require the Company
      to redeem at such holder's option any portion of the holder's Additional Note
      in
      cash at a price equal to 125% of the amount redeemed (the “Holder Optional
      Redemption”). In the event that such holder does not exercise the Holder
      Optional Redemption, the holder's right to any such optional redemptions shall
      terminate; provided, however, that once a holder delivers such a request, its
      right to deliver a subsequent request shall terminate.





F-47
 
  **BRAVO!
          BRANDS INC. AND SUBSIDIARY**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
          THE YEARS ENDED DECEMBER 31, 2006 AND 2005**


The
      Company also issued to the investors series A warrants to purchase 13,178,571
      shares of common stock initially exercisable at $0.73 per share (the “Series A
      Warrants”) that expire in July 2011 and series B warrants to purchase 43,392,856
      shares of common stock initially exercisable at $0.73 per share (the “Series B
      Warrants”) that expire in July 2011. The Company has the option to redeem the
      Initial Notes and the Amended Notes at a date earlier than maturity (the
“Company Redemption”). If the Company exercises the Company Redemption, the
      holders will have the right to exercise the Series B Warrants and receive common
      shares to which these contingent warrants are indexed. Absent the Company’s
      exercise of the Company Redemption to redeem the Initial Notes and/or the
      Additional Notes, the holders have no right to exercise the Series B Warrants.





Pursuant
      to a Registration Rights Agreement between the Company and the investors, also
      dated July 26, 2006, the Company agreed to prepare and file a registration
      statement covering the resale of the shares issuable upon the conversion of
      the
      senior convertible notes and exercise of the warrants. The Company agreed to
      file this resale registration statement by the later to occur of (i) August
      26,
      2006 or (ii) 15 days following the effectiveness of the Form SB-2 filed by
      the
      Company on December 21, 2005, but in no event later than October 10, 2006.
      If,
      among other things, (a) the Company fails to file the resale registration
      statement within the period described above, which the Company was unable to
      do,
      or (b) the Company fails to cause the resale registration statement to be
      effective by the SEC within 60 days following the date the Company files the
      resale registration statement, or within 90 days, if there is a review of the
      resale registration statement by the SEC, the Company will be obligated to
      pay
      to each investor, as partial relief, on the date of such failure, an amount
      in
      cash equal to .75% of the aggregate purchase price paid by such investor for
      the
      notes and the warrants. The Company will be further obligated to pay, as partial
      relief, an amount in cash equal to 1.5% of the aggregate purchase price paid
      by
      such investor for the notes and the warrants on every thirtieth day that such
      failure continues (prorated for partial periods).





On
      August
      31, 2006, the Company entered into Amendment Agreements with respect to the
      July
      26, 2006 $30 million senior convertible notes transaction described above.
      Pursuant to the Amendment Agreements, the investors each agreed to release
      the
      Company from the events of default that occurred under the terms of the Initial
      Notes and Additional Notes as a result of the Company’s late filing of its Form
      10-QSB for the quarterly period ended June 30, 2006. The Company agreed, in
      consideration for such releases, to exchange the Additional Notes for amended
      and restated notes (the "Amended and Restated Notes").





The
      terms
      of the Amended and Restated Notes differ from the terms of the Additional Notes
      in certain regards. The conversion price applicable was reduced from $0.70
      to
      $0.51. The Company also granted the Holder Optional Redemption as discussed
      above.





F-48
 
  **BRAVO!
          BRANDS INC. AND SUBSIDIARY**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
          THE YEARS ENDED DECEMBER 31, 2006 AND 2005**


On
      December 29, 2006, the Company entered into Amendment and Exchange Agreements
      (the “December Amendment”) with these investors. Pursuant to the December
      Amendment, each of the investors agreed to release the Company from the events
      of default that occurred under the terms of the Initial Notes and Additional
      Notes as a result of the Company’s late filing of its Form 10-QSB for the
      quarterly period ended June 30, 2006. Each of the investors waived any events
      of
      default in the Amended and Restated Additional Notes relating to the Company’s
      failure to pay the Holder Optional Redemption. Further, the Company agreed
      to
      capitalize the $3,750,000 redemption premium (which represents a 25% premium
      on
      the $15,000,000 principal amount of the Additional Notes) with respect to the
      investors’ right to compel redemption pursuant to the Holder Redemption. Also,
      in connection with the December Amendment, the investors’ right to compel
      redemption by exercise of the Holder Redemption has been
      terminated.





In
      consideration for each of the investors entering into the December Amendment,
      the Company agreed to amend and restate the terms of the Initial Notes, the
      Additional Notes, the Series A Warrants and the Series B Warrants. The
      conversion price of the Initial Notes and the Additional Notes has been reduced
      to $0.32. The exercise price of the Series A Warrants and the Series B Warrants
      was reduced to $0.34.





On
      August
      24, 2006, the Company issued 168,937 shares of common stock pursuant to a
      conversion of the Company’s May 2005 convertible note. The shares of common
      stock underlying the convertible note were issued pursuant to a registration
      statement declared effective by the Securities and Exchange Commission on August
      2, 2005.





On
      September 13 2006, the Company issued, in the aggregate, 161,527 shares of
      common stock pursuant to a conversion of its Series F preferred stock. The
      shares of common stock underlying the preferred stock were issued pursuant
      to
      Regulation D.





On
      September 28, 2006, the Company issued 4,000,000 shares of common stock pursuant
      to a conversion of its November 2003 convertible note. The shares of common
      stock underlying the convertible note were issued pursuant to a registration
      statement declared effective by the Securities and Exchange Commission on August
      3, 2004.





On
      September 28, 2006, the Company issued 1,000,000 shares of common stock pursuant
      to a conversion of its June 2004 convertible note. The shares of common stock
      underlying the convertible note were issued pursuant to a registration statement
      declared effective by the Securities and Exchange Commission on April 18,
      2005.





On
      November 17, 2006, the Company issued 1,750,000 shares of common stock pursuant
      to a consulting agreement.





On
      November 17, 2006, the Company issued 500,000 shares of common stock for the
      exercise of the February 2004 Marvel warrants for total proceeds of
      $25,000.





**Year
      ended December 31, 2005**





Quarter
      Ended March 31, 2005





New
      Financing: January 2005 Convertible Notes . On
      January 31, 2005, the Company closed a funding transaction with Longview Fund,
      LP, Longview Equity Fund, LP, Longview International Equity Fund, LP, Alpha
      Capital Aktiengesellschaft and Whalehaven Funds Limited, five institutional
      accredited investors, for the issuance and sale to the Subscribers of up to
      $2,300,000 of principal amount of promissory notes convertible into shares
      of
      common stock and Warrants to purchase shares of common stock at 100% coverage
      of
      the common stock issuable in accordance with the principal amount of the notes.
      One Million One Hundred Fifty Thousand Dollars ($1,150,000) of the purchase
      price was paid on the initial closing date, and One Million One Hundred Fifty
      Thousand Dollars ($1,150,000) of the purchase price will be payable within
      five
      (5) business days after the actual effectiveness of an SB-2 Registration
      Statement as defined in the Subscription Agreement. The initial closing notes
      were at prime plus 4% interest in the aggregate amount of $1,150,000, plus
      five-year Warrants for the purchase of, in the aggregate, 9,200,000 shares
      of
      common stock, at the lesser of (i) $0.16, or (ii) 101% of the closing bid price
      of the Common Stock as reported by Bloomberg L.P. for the OTC Bulletin Board
      for
      the trading day preceding the Closing Date. The notes are convertible into
      shares of common stock at $0.125 per common share. Conversions are limited
      to a
      maximum ownership of 9.99% of the underlying common stock at any one time.
      The
      notes have a maturity date two years from closing and are payable in twelve
      equal monthly installments, commencing June 1, 2005. The installment payments
      consist of principal equal to 1/20 th of the
      initial principal amount which, subject to certain conditions concerning trading
      volume and price, can be paid in cash at 103% of the monthly installment, or
      common stock or a combination of both. The notes have an acceleration provision
      upon the change in a majority of the present Board of Directors except as the
      result of the death of one or more directors, or a change in the present CEO.
      In
      connection with this transaction, the Company issued restricted common stock
      in
      the aggregate amount of 460,000 shares plus the aggregate cash amount of $57,500
      for due diligence fees to the investors in this transaction. The Company issued
      the Convertible Promissory Note and the underlying common stock upon conversion
      to an accredited investor, pursuant to a Regulation D offering. The underlying
      common stock is now registered pursuant to a Form SB-2 registration statement
      declared effective August 2, 2005.





F-49
 
  **BRAVO!
          BRANDS INC. AND SUBSIDIARY**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
          THE YEARS ENDED DECEMBER 31, 2006 AND 2005**


November
      2003 Convertible Notes .
      The
      Company converted $25,000 of its November 2003 Convertible Promissory Notes
      into
      549,340 shares of common stock pursuant to a notice of conversion from Gamma
      Opportunity Capital Partners LP, at a fixed conversion price of $0.05. The
      conversion included $2,467 of accrued and unpaid interest on the converted
      amount. The Company issued the underlying common stock upon conversion pursuant
      to a Form SB-2 registration statement, declared effective on August 3,
      2004.





April
      2004 Convertible Notes .
      The
      Company converted $99,999 of its April 2004 Convertible Promissory Notes into
      1,141,387 shares of common stock pursuant to notices of conversion from Longview
      Fund LP, at a fixed conversion price of $0.10. The conversions included $14,138
      of accrued and unpaid interest. The Company issued the underlying common stock
      upon conversion pursuant to its SB-2 registration statement, declared effective
      on August 3, 2004.





June
      2004 Convertible Notes .
      The
      Company converted $41,666 of its June 2004 Convertible Promissory Notes into
      430,327 shares of restricted common stock pursuant to a notice of conversion
      from Longview Fund LP, at a fixed conversion price of $0.15. The conversion
      included $22,822 of accrued and unpaid interest. The Company issued the
      Convertible Promissory Note and the underlying common stock upon conversion
      to
      an accredited investor, pursuant to a Regulation D offering. The underlying
      common stock is now registered pursuant to a Form SB-2 registration statement
      declared effective April 18, 2005.





Quarter
      Ended June 30, 2005





New
      Financing: April 2005 Convertible Note .
      On
      April 21, 2005, the Company closed a funding transaction with Alpha Capital
      Aktiengesellschaft for the issuance of a convertible 10% note in the aggregate
      amount of $300,000. The promissory note is convertible into shares of common
      stock of the Company at $0.20 per common share. Conversions are limited to
      a
      maximum ownership of 9.99% of the Company’s common stock at any one time. The
      note has an October 31, 2005 maturity and is payable in five equal monthly
      installments, commencing June 1, 2005. The installment payments consist of
      principal (equal to 1/5 th of the
      initial principal amount) plus accrued interest. Installments can be paid in
      cash or common stock valued at the average closing price of the Company’s common
      stock during the five trading days immediately preceding the relevant
      installment due date. The Company has repriced Class B Warrants issued on June
      30, 2004 from $2.00 per share to $0.125 per share and issued restricted common
      stock in the aggregate amount of 93,750 shares for finder’s fees to a
      third-party to facilitate this transaction. The Company has the right to prepay
      the promissory note by paying to the holder cash equal to 120% of the principal
      to be prepaid plus accrued interest. The notes have an acceleration provision
      upon the change in a majority of the present Board of Directors except as the
      result of the death of one or more directors or a change in the present CEO
      of
      the Company. The common stock underlying the note and the finder’s fee common
      stock have “piggy back” registration rights. The Company issued the convertible
      note and finder’s fee common stock to accredited investors, pursuant to a
      Regulation D offering.





F-50
 
 **BRAVO!
          BRANDS INC. AND SUBSIDIARY**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
          THE YEARS ENDED DECEMBER 31, 2006 AND 2005**


New
      Financing: May 2005 Convertible Notes On
      May
      23, 2005, the Company closed a funding transaction (the “May ’05 Transaction”)
      with Longview Fund, LP, Whalehaven Funds Limited, Ellis International Ltd.,
      and
      Osher Capital Corp., four institutional accredited investors, for the issuance
      and sale to the Subscribers of Five Hundred Thousand Dollars ($500,000) of
      principal amount of promissory notes convertible into shares of the Company’s
      common stock and Warrants to purchase shares of common stock at 100% coverage
      of
      the common stock issuable in accordance with the principal amount of the notes.
      This May ’05 Transaction was a part of a January 23, 2005 funding transaction
      for an aggregate of Two Million Three Hundred Thousand Dollars ($2,300,000),
      One
      Million One Hundred Fifty Thousand Dollars ($1,150,000) of which was paid on
      the
      initial closing date, and One Million One Hundred Fifty Thousand Dollars
      ($1,150,000) of which (the “Second Tranche”) was to be payable within five (5)
      business days after the actual effectiveness of an SB-2 Registration Statement
      covering the aggregate transaction, as defined in the Subscription Agreement.
      The May ’05 Transaction for Five Hundred Thousand Dollars ($500,000) is a
      partial interim closing of the Second Tranche, which occurred prior to the
      anticipated effectiveness of the SB-2 Registration Statement covering the
      aggregate transaction. Contemporaneous with the May ’05 Transaction, the Company
      agreed to a modification of the January 23, 2005 aggregate transaction for
      the
      substitution of Ellis International Ltd. and Osher Capital Corp. in the place
      of
      Alpha Capital Aktiengesellschaft, one of the original investors. The May ’05
      Transaction convertible notes are at prime plus 4% interest in the aggregate
      amount of $500,000 plus five-year Warrants for the purchase of, in the
      aggregate, 4,000,000 shares of common stock, at an exercise price of $0.129.
      The
      notes are convertible into shares of common stock at $0.125 per common share.
      Conversions are limited to a maximum ownership of 9.99% of the underlying common
      stock at any one time. The notes have a maturity date two years from closing
      and
      are payable in twelve equal monthly installments, commencing June 1, 2005.
      The
      installment payments consist of principal equal to 1/20 th of the
      initial principal amount which, subject to certain conditions concerning trading
      volume and price, can be paid in cash at 103% of the monthly installment or
      common stock or a combination of both. The notes have an acceleration provision
      upon the change in a majority of the present Board of Directors except as the
      result of the death of one or more directors, or a change in the present CEO.
      In
      connection with this transaction, the Company issued restricted common stock
      in
      the aggregate amount of 200,000 shares plus the aggregate cash amount of $25,000
      for due diligence fees to Longview Fund, LP, Gem Funding LLC, Ellis
      International Ltd., and Osher Capital Corp. in this transaction.





Conversions:
      November 2003 Convertible Notes .
      The
      Company converted $50,000 of its November 2003 Convertible Promissory Note
      into
      1,106,740 shares of common stock pursuant to a notice of conversion from Gamma
      Opportunity Capital Partners LP, at a fixed conversion price of $0.05. The
      conversion included $5,337 of accrued and unpaid interest. The Company issued
      the underlying common stock upon conversion pursuant to a Form SB-2 registration
      statement, declared effective on August 3, 2004.





F-51
 
  **BRAVO!
          BRANDS INC. AND SUBSIDIARY**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
          THE YEARS ENDED DECEMBER 31, 2006 AND 2005**


Warrant
      Exercise: November 2003 Warrant. The
      Company issued 1,000,000 shares of common stock to Gamma Opportunity Capital
      Partners LP pursuant to the exercise of a Warrant issued in connection with
      the
      November 2003 financing transaction, and received $50,000 in warrant exercise
      payments. The shares of common stock underlying the warrant were issued pursuant
      to a Form SB-2 shelf registration statement, declared effective by the SEC
      on
      August 3, 2004.





Warrant
      Exercise: April 2004 Warrant. The
      Company issued 1,500,000 shares of common stock to Longview Fund LP pursuant
      to
      the exercise of a Warrant issued in connection with the April 2004 financing
      transaction, and received $225,000 in warrant exercise payments. The shares
      of
      common stock underlying the warrant were issued pursuant to a Form SB-2 shelf
      registration statement, declared effective by the SEC on August 3,
      2004.





Conversions:
      June 2004 Convertible Notes .
      The
      Company converted $528,573 of its June 2004 Convertible Promissory Notes into
      5,633,039 shares of common stock pursuant to notices of conversion from Longview
      Fund LP, Gem Funding LLC, Whalehaven Capital Fund Limited, Stonestreet Limited
      Partnership and Bi-Coastal Consulting Corp. at a fixed conversion price of
      $0.10. The conversion included $33,689 of accrued and unpaid interest. The
      Company issued the common stock upon conversion pursuant to a Form SB-2
      registration statement declared effective by the Securities and Exchange
      Commission on April 18, 2005.





Warrant
      Exercise: June 2004 Warrant. The
      Company issued 2,200,000 shares of common stock to Longview Fund LP, Whalehaven
      Capital Fund Limited and Stonestreet Limited Partnership pursuant to the
      exercise of Warrants issued in connection with the June 2004 financing
      transaction, and received $309,000 in warrant exercise payments. The shares
      of
      common stock underlying the warrants were issued pursuant to a Form SB-2 shelf
      registration statement, declared effective by the SEC on April 18,
      2005.





Conversions:
      October 2004 Convertible Notes .
      The
      Company converted $446,250 of its October 2004 Convertible Promissory Notes
      into
      4,718,514 shares of common stock pursuant to notices of conversion from Longview
      Fund LP, Gem Funding LLC, Whalehaven Capital Fund Limited, Stonestreet Limited
      Partnership and Bi-Coastal Consulting Corp. at a fixed conversion price of
      $0.10. The conversion included $25,602 of accrued and unpaid interest. The
      Company issued the common stock upon conversion pursuant to a Form SB-2
      registration statement declared effective by the Securities and Exchange
      Commission on April 18, 2005.





Warrant
      Exercise: October 2004 Warrant. The
      Company issued 1,700,000 shares of common stock to Longview Fund LP, Whalehaven
      Capital Fund Limited and Stonestreet Limited Partnership pursuant to the
      exercise of Warrants issued in connection with the October 2004 financing
      transaction and received $248,700 in warrant exercise payments. The shares
      of
      common stock underlying the warrants were issued pursuant to a Form SB-2 shelf
      registration statement, declared effective by the SEC on April 18,
      2005.





Conversions:
      December 2004 Convertible Notes. The
      Company converted $210,000 of its December 2004 Convertible Promissory Notes
      into 2,176,706 shares of common stock pursuant to notices of conversion, to
      Momona Capital Corp. and Ellis International Ltd Inc., at a fixed conversion
      price of $0.10 per share. The conversion included $7,450 of accrued and unpaid
      interest. The Company issued the underlying common stock upon conversion
      pursuant to a Form SB-2 registration statement, declared effective on April
      18,
      2005.





F-52
 
 **BRAVO!
          BRANDS INC. AND SUBSIDIARY**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
          THE YEARS ENDED DECEMBER 31, 2006 AND 2005**


Warrant
      Exercise: December 2004 Warrant. The
      Company issued 500,000 shares of common stock to Momona Capital Corp. and Ellis
      International Ltd Inc., pursuant to the exercise of Warrants issued in
      connection with the December 2004 financing transaction, and received $72,500
      in
      warrant exercise payments. The shares of common stock underlying the warrants
      were issued pursuant to a Form SB-2 shelf registration statement, declared
      effective by the SEC on April 18, 2005.





Conversions:
      January 2005 Convertible Notes. The
      Company converted $534,304 of its January 2005 Convertible Promissory Notes
      into
      4,461,685 shares of restricted common stock pursuant to notices of conversion,
      to Longview Fund LP, Longview Equity Fund LP and Longview International Equity
      Fund LP at a fixed conversion price of $0.125 per share. The Company issued
      the
      Convertible Promissory Note and the underlying common stock upon conversion
      to
      an accredited investor, pursuant to a Regulation D offering. The underlying
      common stock is now registered pursuant to a Form SB-2 registration statement
      declared effective August 2, 2005.





Conversions:
      Series F Convertible Preferred. The
      Company converted 31,134 shares of its Series F Convertible Preferred, having
      a
      stated value of $311,340 into 2,903,839 shares of common stock pursuant to
      notices of conversion, to Austinvest Anstalt Balzers and Esquire Trade &
Finance Inc. The Company issued the Series F Convertible Preferred and the
      underlying common stock upon conversion to accredited investors, pursuant to
      a
      Regulation D offering and Rule 144(k).





Conversions:
      Series H Convertible Preferred. The
      Company converted 100,000 shares of its Series H Convertible Preferred, having
      a
      stated value of $1,000,000 into 2,500,000 shares of common stock pursuant to
      notices of conversion, to four individual and two institutional investors.
      The
      Company issued the Convertible Preferred and the underlying common stock upon
      conversion to accredited investors, pursuant to a Regulation D offering and
      Rule
      144(k).





Conversions:
      Series I Convertible Preferred. The
      Company converted 20,000 shares of its Series I Convertible Preferred, having
      a
      stated value of $200,000 into 2,354,808 shares of common stock pursuant to
      a
      notice of conversion, to Alpha Capital AG. The Company issued the Convertible
      Preferred and the underlying common stock upon conversion to accredited
      investors, pursuant to a Regulation D offering and Rule 144(k).





Warrant
      Exercise: Series I Warrant. The
      Company issued 1,333,333 shares of restricted common stock to Alpha Capital
      AG,
      pursuant to the exercise of Warrants issued in connection with the Series I
      financing transaction, and received $133,333 in warrant exercise payments.
      The
      shares of common stock underlying the warrants are now registered pursuant
      to a
      Form SB-2 shelf registration statement, declared effective by the SEC on August
      2, 2005.





Private
      Placements. On May
      17, 2005, the Company issued the aggregate of 27,500 restricted shares of its
      common stock, with a recorded value of $4,950, to eleven product sales brokers
      as a bonus for the performance of services for the Company. The Company issued
      the restricted common stock pursuant to Section 4(6) of the Securities Act
      of
      1933, which provides an exemption from the registration requirements of the
      Act
      for transactions not involving a public offering.





S-8
      Registration .
      On
      April 14, 2005 and April 18, 2005, the Company issued 750,000 and 250,000
      shares, respectively, of its common stock to Geoffrey Eiten, for services
      rendered for strategic business planning. These shares were part of 1,500,000
      shares of the Company’s common stock registered under a Form S-8 registration
      statement filed December 23, 2004.





F-53
 
 **BRAVO!
          BRANDS INC. AND SUBSIDIARY**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
          THE YEARS ENDED DECEMBER 31, 2006 AND 2005**


Warrant
      Issue .
      On June
      20, 2005, the Company issued a one year Warrant to Marvel Enterprises Inc.
      to
      purchase 1,000,000 shares of its common stock at $0.05 per share. This
      Warrant was issued in connection with the execution of a License Agreement
      with
      Marvel for the United States, Canada and Mexico. The
      Company issued the Warrant pursuant to Section 4(6) of the Securities Act of
      1933, which provides an exemption from the registration requirements of the
      Act
      for transactions not involving a public offering.





Quarter
      Ended September 30, 2005





Warrant
      Exercise: Series D Warrant .
      The
      Company issued 696,042 shares of common stock to Longview Fund LP, Longview
      Equity Fund LP, Longview International Equity Fund LP and Esquire Trade &
Finance Inc., pursuant to the cashless exercises of warrants for 763,750 shares
      of common stock. The Company issued the Warrants and the underlying common
      stock
      upon exercise to accredited investors, pursuant to a Regulation D offering
      and
      Rule 144(k).





Conversions:
      Series F Convertible Preferred. The
      Company converted 19,133 shares of its Series F Convertible Preferred, having
      a
      stated value of $191,330 into 804,752 shares of common stock pursuant to notices
      of conversion to Amro International, SA. The Company issued the Series F
      Convertible Preferred and the underlying common stock upon conversion to
      accredited investors, pursuant to a Regulation D offering and Rule 144(k).





Warrant
      Exercise: Series F Warrant .
      The
      Company issued 3,345,417 shares of common stock to Austinvest Anstalt Balzers
      and Esquire Trade & Finance Inc. and Libra Finance, SA., pursuant to the
      cashless exercise of warrants for 3,676,518 shares of common stock. The Company
      issued the Warrants and the underlying common stock upon exercise to accredited
      investors, pursuant to a Regulation D offering and Rule 144(k).





Conversions:
      Series H Convertible Preferred. The
      Company converted 1,000 shares of its Series H Convertible Preferred, having
      a
      stated value of $10,000 into 25,000 shares of common stock pursuant to notices
      of conversion, to one individual investor. The Company issued the Convertible
      Preferred and the underlying common stock upon conversion to accredited
      investors, pursuant to a Regulation D offering and Rule 144(k).





Conversions:
      Series I Convertible Preferred. The
      Company converted 10,000 shares of its Series I Convertible Preferred, having
      a
      stated value of $100,000 into 656,953 shares of common stock pursuant to a
      notice of conversion, to Tradersbloom Limited. The conversion included $24,000
      of accrued and unpaid interest. The Company issued the Convertible Preferred
      and
      the underlying common stock upon conversion to accredited investors, pursuant
      to
      a Regulation D offering and Rule 144(k).





Conversions:
      April 2004 Convertible Notes .
      The
      Company converted $250,000 of its April 2004 Convertible Promissory Notes into
      2,808,219 shares of common stock pursuant to notices of conversion from Osher
      Capital Inc., Ellis International Ltd Inc. and Alpha Capital AG. The conversion
      included $3,082 of accrued and unpaid interest on the converted amount. The
      Company issued the underlying common stock upon conversion pursuant to a Form
      SB-2 registration statement, declared effective on August 4, 2004.





F-54
 
  **BRAVO!
          BRANDS INC. AND SUBSIDIARY**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
          THE YEARS ENDED DECEMBER 31, 2006 AND 2005**


Conversions:
      June 2004 Convertible Notes .
      The
      Company converted $250,000 of its June 2004 Convertible Promissory Notes into
      2,796,575 shares of common stock pursuant to notices of conversion from Alpha
      Capital AG at a fixed conversion price of $0.10. The conversion included $29,657
      of accrued and unpaid interest on the converted amount. The Company issued
      the
      common stock upon conversion pursuant to a Form SB-2 registration statement
      declared effective by the Securities and Exchange Commission on April 18,
      2005.





Conversions:
      October 2004 Convertible Notes .
      The
      Company converted $125,000 of its October 2004 Convertible Promissory Notes
      into
      1,342,808 shares of common stock pursuant to notices of conversion from Alpha
      Capital AG at a fixed conversion price of $0.10. The conversion included $9,280
      of accrued and unpaid interest on the converted amount. The Company issued
      the
      common stock upon conversion pursuant to a Form SB-2 registration statement
      declared effective by the Securities and Exchange Commission on April 18,
      2005.





Warrant
      Exercise: December 2004 Warrant. The
      Company issued 300,000 shares of common stock to Momona Capital Corp. pursuant
      to the exercise of Warrants issued in connection with the December 2004
      financing transaction and received $30,000 in warrant exercise payments. The
      shares of common stock underlying the warrants were issued pursuant to a Form
      SB-2 shelf registration statement, declared effective by the SEC on April 18,
      2005.





Conversions:
      January 2005 Convertible Notes. The
      Company converted $500,071 of its January 2005 Convertible Promissory Notes
      into
      4,186,644 shares of restricted common stock pursuant to notices of conversion
      to
      Longview Fund LP, Longview Equity Fund LP and Longview International Equity
      Fund
      LP at a fixed conversion price of $0.125 per share. The conversion included
      $23,260 of accrued and unpaid interest on the converted amount. The Company
      issued the common stock upon conversion pursuant to a Form SB-2 registration
      statement declared effective by the Securities and Exchange Commission on August
      2, 2005.





Warrant
      Exercise: January 2005 Warrant. The
      Company issued 7,200,000 shares of common stock to Whalehaven Capital Fund
      Limited, Longview Fund LP, Longview Equity Fund LP and Longview International
      Equity Fund LP pursuant to the exercise of Warrants issued in connection with
      the January 2005 financing transaction and received $720,000 in warrant exercise
      payments. The shares of common stock underlying the warrants were issued
      pursuant to a Form SB-2 shelf registration statement, declared effective by
      the
      SEC on August 2, 2005.





Conversions:
      April 2005 Convertible Notes. The
      Company converted $300,000 of its April 2005 Convertible Promissory Note into
      1,556,438 shares of restricted common stock pursuant to notices of conversion,
      to Alpha Capital AG at a fixed conversion price of $0.20 per share. The
      conversion included $11,288 of accrued and unpaid interest on the converted
      amount. The Company issued the common stock upon conversion pursuant to a Form
      SB-2 registration statement declared effective by the Securities and Exchange
      Commission on August 2, 2005.





Conversions:
      May 2005 Convertible Notes. The
      Company converted $475,000 of its May 2005 Convertible Promissory Notes into
      4,141,270 shares of restricted common stock pursuant to notices of conversion
      to
      Whalehaven Capital Fund Limited, Ellis International Ltd, Longview Fund LP
      and
      Osher Capital Corp. The conversion included $9,317 of accrued and unpaid
      interest on the converted amount. The Company issued the common stock upon
      conversion pursuant to a Form SB-2 registration statement declared effective
      by
      the Securities and Exchange Commission on August 2, 2005.





F-55
 
  **BRAVO!
          BRANDS INC. AND SUBSIDIARY**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
          THE YEARS ENDED DECEMBER 31, 2006 AND 2005**


Warrant
      Exercise: May 2005 Warrant. The
      Company issued 4,000,000 shares of common stock to Whalehaven Capital Fund
      Limited, Ellis International Ltd, Longview Fund LP and Osher Capital Corp.
      pursuant to the exercise of Warrants issued in connection with the January
      2005
      financing transaction and received $400,000 in warrant exercise payments. The
      shares of common stock underlying the warrants were issued pursuant to a Form
      SB-2 shelf registration statement, declared effective by the SEC on August
      2,
      2005.





August
      2005 Convertible Notes. On
      August 18, 2005, the Company closed a funding transaction (the “August ’05
      Transaction”) with Longview Fund, LP, Longview Equity Fund, LP and Longview
      International Equity Fund, LP, three institutional accredited investors, for
      the
      issuance and sale to the Subscribers of Six Hundred Fifty Thousand Dollars
      ($650,000) of principal amount of promissory notes convertible into shares
      of
      common stock and Warrants to purchase shares of common stock at 100% coverage
      of
      the common stock issuable in accordance with the principal amount of the notes.
      This August’05 Transaction was a part of a January 23, 2005 funding transaction
      for an aggregate of Two Million Three Hundred Thousand Dollars ($2,300,000).
      The
      August ’05 Transaction is the Second Tranche of the January ’05 transaction,
      which occurred upon the effectiveness of the SB-2 Registration Statement
      covering the aggregate transaction. The August’05 Transaction convertible notes
      are at prime plus 4% interest in the aggregate amount of $650,000, plus
      five-year Warrants for the purchase of, in the aggregate, 5,200,000 shares
      of
      common stock, at an exercise price of $0.129. The notes are convertible into
      shares of common stock at $0.125 per common share. Conversions are limited
      to a
      maximum ownership of 9.99% of the underlying common stock at any one time.
      The
      notes have a maturity date two years from closing and are payable in twelve
      equal monthly installments. The installment payments consist of principal equal
      to 1/20 th of the
      initial principal amount which, subject to certain conditions concerning trading
      volume and price, can be paid in cash at 103% of the monthly installment, or
      common stock or a combination of both. The notes have an acceleration provision
      upon the change in a majority of the present Board of Directors except as the
      result of the death of one or more directors, or a change in the present CEO.
      In
      connection with this transaction, the Company issued restricted common stock
      in
      the aggregate amount of 260,000 shares plus the aggregate cash amount of $32,500
      for due diligence fees to Longview Fund companies. The Company issued the equity
      equivalents, the underlying common stock upon conversion and the finders’ fee
      common stock pursuant to a Form SB-2 registration statement declared effective
      by the Securities and Exchange Commission on August 2, 2005.





On
      September 30, 2005, the Company prepaid $250,000 of the aggregate $650,000
      of
      the August ’05 Transaction notes, as follows: $57,692 to Longview Fund, LP,
      $144,231 to Longview Equity Fund, LP and $ $48,077 to Longview International
      Equity Fund, LP. The holders of these notes waived the prepayment premium in
      lieu of their retention of warrants attached to August ’05
      Transaction.





Conversions:
      August 2005 Convertible Notes. The
      Company converted $91,217 of its August 2005 Convertible Promissory Notes into
      743,750 shares of restricted common stock pursuant to a notice of conversion,
      to
      Longview Fund LP, at a fixed conversion price of $0.125 per share. The
      conversion included $1,752 of accrued and unpaid interest on the converted
      amount. The Company issued the common stock upon conversion pursuant to a Form
      SB-2 registration statement declared effective by the Securities and Exchange
      Commission on August 2, 2005.





Warrant
      Exercise: August 2005 Warrant. The
      Company issued 5,200,000 shares of common stock to Longview Fund LP, Longview
      Equity Fund LP and Longview International Equity Fund LP pursuant to the
      exercise of Warrants issued in connection with the August 2005 financing
      transaction and received $520,000 in warrant exercise payments. The shares
      of
      common stock underlying the warrants were issued pursuant to a Form SB-2 shelf
      registration statement, declared effective by the SEC on August 2,
      2005.





F-56




**BRAVO!
      BRANDS INC. AND SUBSIDIARY**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE YEARS ENDED DECEMBER 31, 2006 AND 2005**




Private
      Placements. On
      August 3, 2005, the Company issued 500,000 restricted shares of its common
      stock
      to Geoffrey Eiten, for services rendered for strategic business planning. The
      Company issued the restricted common stock pursuant to Section 4(6) of the
      Securities Act of 1933, which provides an exemption from the registration
      requirements of the Act for transactions not involving a public
      offering.





On
      August
      29 and September 19, 2005, the Company issued the aggregate of 1,000,000
      restricted shares of its common stock to National Financial Communications
      Corp.
      pursuant to the exercise of Warrants issued in connection with a consulting
      agreement for services rendered for strategic business planning. The Company
      issued the restricted common stock pursuant to Section 4(6) of the Securities
      Act of 1933, which provides an exemption from the registration requirements
      of
      the Act for transactions not involving a public offering.





On
      September 19, 2005, the Company issued 450,000 restricted shares of its common
      stock to Alpha Capital AG, an accredited investor, in a sale not involving
      a
      public offering at a price of $1.00 per share. The Company issued the common
      stock pursuant to a Regulation D offering.





Warrant
      Issue .
      On
      August 31, 2005, the Company issued a three year Warrant to CCE to purchase
      30,000,000 shares of common stock at $0.36 per share. During
      the first 18 months of the exercise period, the
      Company has the option to “call” the exercise of up to 10,000,000 shares of
      common stock issuable upon exercise of the Warrant, upon the Company’s
      satisfaction of certain conditions, including a trading price of not
      less
      than $1.08 per share for 20 consecutive trading days. This Warrant was issued
      in
      connection with the execution of a MDA on August 31, 2005. The
      Company issued the Warrant pursuant to Section 4(6) of the Securities Act of
      1933, which provides an exemption from the registration requirements of the
      Act
      for transactions not involving a public offering. The Company capitalized
      $15,960,531 in deferred distribution costs for the issuance of a three year
      warrant to CCE to purchase of 30,000,000 shares of common stock in connection
      with the MDA. The Company will recognize that cost as a selling expense over
      the
      10-year term of the agreement.





Quarter
      Ended December 31, 2005





On
      November 28, 2005, the Company closed a funding transaction with 13 accredited
      institutional investors, for the issuance and sale of 40,500,000 shares of
      common stock for a purchase price of $20,250,000. In addition, the Company
      also
      issued five-year warrants for the purchase of an additional 15,187,500 shares
      of
      common stock at an exercise price of $0.80 per share. The securities are
      restricted and have been issued pursuant to an exemption to the registration
      requirements of Section 5 of the Securities Act of 1933 for “transactions of the
      issuer not involving any public offering” provided in Section 4(2) of the Act
      and pursuant to a Regulation D offering. In connection with this financing,
      the
      Company issued common stock purchase warrants to purchase 1,012,500 shares
      of
      common stock at an exercise price of $.50 per share and 304,688 shares of common
      stock at an exercise price of $.80 per share to SG Cowen & Co., LLC, who
      acted as placement agent for this financing.





The
      shares of common stock and the shares of common stock underlying the warrants
      carry registration rights that obligate the Company to file a registration
      statement within 45 days from closing and have the registration statement
      declared effective within 120 days from closing.





All
      of
      the above offerings and sales were deemed to be exempt under rule 506 of
      Regulation D and Section 4(2) of the Securities Act of 1933, as amended. No
      advertising or general solicitation was employed in offering the securities.
      The
      offerings and sales were made to a limited number of persons, all of whom were
      accredited investors, or business associates of the Company., and transfer
      was
      restricted by the Company in accordance with the requirements of the Securities
      Act of 1933. In addition to representations by the above-referenced persons,
      the
      Company has made independent determinations that all of the above-referenced
      persons were accredited or sophisticated investors, and that they were capable
      of analyzing the merits and risks of their investment and that they understood
      the speculative nature of their investment. Furthermore, all of the
      above-referenced persons were provided with access to the Company’s Securities
      and Exchange Commission filings.





F-57


**BRAVO!
        BRANDS INC. AND SUBSIDIARY**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE YEARS ENDED DECEMBER 31, 2006 AND 2005**




Warrant
      Exercise: June 2004 Warrant. In
      December 2005, the Company issued 2,500,000 shares of common stock to Alpha
      Capital AG pursuant to the exercise of a “B” Warrant issued in connection with
      the June 2004 financing transaction and received $250,000 in warrant exercise
      payments. The shares of common stock underlying the warrants were issued
      pursuant to a Form SB-2 shelf registration statement, declared effective by
      the
      SEC on April 18, 2005.





**Note
      12 - Income Taxes**





The
      Company has recorded no income tax benefit for its taxable losses during the
      years ended December 31, 2006 and 2005 because there is no certainty that the
      Company will realize those benefits. The components of the Company’s deferred
      tax assets and liabilities as of December 31, 2006 and 2005 are as
      follows:





2006
            
            2005Tax
                effect of net operating loss carryforwards
            
            $
            29,441,394
            
            $
            14,875,732Accrued
                expenses that are deductible in future periods
            
            
            1,645,170
            
            
            1,479,268Bad
                debt reserves that are deductible in future periods
            
            
            130,550
            
            
            130,550Debt
                discounts that affect the timing of the Company’s interest
            
            
            533,571
            
            
            25,477Depreciation
                and amortization method differences
            
            
            1,645
            
            
            1,645Net
                deferred tax assets
            
            $
            31,752,330
            
            $
            16,512,672Valuation
                allowances
            
            $
            (31,752,330
            )
            $
            (16,512,672
            )





The
      Company’s valuation allowances increased by $15,239,658 and $6,952,484 during
      the years ended December 31, 2006 and 2005, respectively.





As
      of
      December 31, 2006, the Company has a net tax operating loss of $78,931,351
      that
      will be available to offset future taxable income, if any. The use of net
      operating loss carryforwards to reduce future income tax liabilities is subject
      to limitation and these amounts will begin to expire in 2022.





The
      following table illustrates the reconciliation of the tax benefit at the federal
      statutory rate to the Company’s effective rate for the years ended December 31,
      2006 and 2005:





2006
            
            2005Benefit
                at federal statutory rate
            
            
            (34.00
            )%
            
            (34.00
            )%Benefit
                at state rate, net of federal benefit
            
            
            (3.30
            )%
            
            (3.30
            )%Non-deductible
                derivative fair value losses
            
            
            (4.23
            )%
            
            28.64
            %Effect
                of changes in the Company’s valuation allowances
            
            
            41.53
            %
            
            8.63
            %Non-deductible
                travel expenses and charitable donations
            
            
            0.00
            %
            
            0.03
            %Benefit
                at the Company’s effective rate
            
            
            (0.00
            )%
            
            (0.00
            )%





The
      Company operates in certain foreign jurisdictions that are not reflected in
      the
      above rate reconciliation because these operations are insignificant. However,
      the Company plans to increase its foreign operations and, as a result, the
      Company may generate tax liabilities in these foreign operations in future
      periods.





F-58


**BRAVO!
        BRANDS INC. AND SUBSIDIARY**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE YEARS ENDED DECEMBER 31, 2006 AND 2005**




**Note
      13** **-** **Commitments
      and Contingencies**





Lease
      of Office





The
      Company leases office space at its corporate office in North Palm Beach, Florida
      under an original operating lease that commenced in February 1999. As of January
      1, 2007, the Company has executed an expansion of its office space in North
      Palm
      Beach, Florida to include 9,358 total square feet. The term of this lease has
      been renewed for an additional ten-year period that will expire December 31,
      2016.





Future
      minimum rental payments, which exclude variable common area maintenance and
      employee parking charges, required under the operating lease as of
      December 31, 2006 are as follows:





Years
                ending December 31,
            
            Amount2007
            
            $
            161,4262008
            
            $
            161,4262009
            
            $
            161,4262010
            
            $
            161,4262011
            
            $
            161,426Thereafter
            
            $
            807,128





Rental
      expense, which also includes maintenance and parking fees, for the years ended
      December 31, 2006 and 2005 was $ 184,266 and $ 90,000 , respectively.





Licenses





The
      Company licenses trademarks and trade dress from certain Licensors for use
      on
      its products. Royalty advances are payable against earned royalties on a
      negotiated basis for these licensed intellectual property rights. The table
      below identifies each Licensor to which the Company’s licenses require future
      guarantee payments as of December 31, 2006:


Licensor
              
              Remaining
                  Term
              
              Aggregate
                  Remaining GuaranteeMasterfoods-
                  USA
              
              
              Six
                  years
              
              $
              12,150,000Masterfoods-
                  Canada
              
              
              Six
                  years
              
              $
              1,287,810Masterfoods-
                  Mexico
              
              
              Six
                  years
              
              $
              798,200Diabetes
                  Research Institute
              
              
              Ten
                  months
              
              $
              17,000General
                  Mills
              
              
              Five
                  years
              
              $
              650,000





Employment
      Contracts





The
      Company’s Chief Executive Officer, Mr. Warren, has a two-year employment
      contract, expiring October 2007, that provides a base salary of $300,000, plus
      a
      bonus of one quarter percent (0.25%) of net revenue and normal corporate
      benefits. This contract has a minimum two-year term plus a severance package
      upon change of control based on base salary.





F-59


**BRAVO!
        BRANDS INC. AND SUBSIDIARY**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE YEARS ENDED DECEMBER 31, 2006 AND 2005**




Officers
      Toulan, Patipa, Edwards and Kee have employment contracts with base salaries
      aggregating $710,000 annually, plus discretionary bonuses and normal corporate
      benefits. These contracts have minimum two-year terms plus severance packages
      upon change of control based on base salary.





The
      Company’s Chief Financial Officer, Mr. Kaplan, has an employment contract,
      expiring November 2008, that provides a base salary of $180,000 for year one,
      $200,000 for year two and $220,000 for year three, plus discretionary bonuses
      and normal corporate benefits. This contract has a minimum three-year term
      plus
      a severance package upon change of control based on base salary.





Marketing
      Commitments





In
      August
      2005, the Company executed a MDA with CCE. Pursuant to this agreement, the
      Company was contractually obligated to spend an aggregate of $5,000,000 on
      marketing activities in
      2005
      and 2006 for the Company’s products that are distributed by CCE. Beginning in
      2007, the Company is further obligated to spend an amount annually in each
      country within a defined territory equal or greater than 3% of the Company’s
      total CCE revenues in such territory (on a country by country basis). Such
      national and local advertising for the Company’s products includes actively
      marketing the Slammers mark, based on a plan to be mutually agreed each year.
      The Company is required to maintain its intellectual property rights necessary
      for the production, marketing and distribution of its products by CCE.





During
      the period commencing at the inception of the CCE agreement through the year
      ended December 31, 2006, the Company has met its obligation of $5,000,000 on
      marketing activities pursuant to its agreement with CCE.





Production
      and Supply Agreements





Jasper
      Products LLC





On
      December 27, 2005, the Company executed a multi-year non-exclusive production
      agreement with Jasper Products, L.L.C. of Joplin, Missouri for the production
      of
      the Company’s products through 2011. Under the terms of the agreement, the
      parties have agreed to annual volume commitments for the ordering and production
      of the Company’s various lines of shelf stable single serve flavored milk
      beverages. To secure the production commitments, as well as the right of first
      refusal for Jasper's additional production capacity going forward, the Company
      paid a one time equipment mobilization payment of $2.7 million to Jasper. The
      agreement incorporates per unit (single bottle) monetary penalties for both
      unused capacity by the Company and any production shortfall by Jasper. During
      2006, the Company incurred $2.9 million in unused capacity fees.





HP
      Hood LLC





On
      September 19, 2006, the Company executed a six-year non-exclusive production
      agreement with HP Hood LLC of Chelsea, Massachusetts, for the production of
      the
      Company’s products through 2012. Under the terms of the agreement, the parties
      have agreed to annual volume commitments for the ordering and production of
      the
      Company’s various lines of shelf-stable, single-serve flavored milk beverages.
      The agreement incorporates per unit monetary penalties for unused capacity
      by
      the Company. The penalty shall be
      adjusted annually based upon a formula indexed to a defined series of the
      Producer Price Index for Total Manufacturing Industries. In
      connection with the agreement, the Company issued a six year warrant to HP
      Hood
      for the purchase of 5,870,000 shares of the Company’s common stock at an
      exercise price of $0.73 per share. The Company has a conditional right to call
      the exercise of the warrant. The Company incurred no penalties related to annual
      volume commitments during 2006.





F-60


**BRAVO!
        BRANDS INC. AND SUBSIDIARY**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE YEARS ENDED DECEMBER 31, 2006 AND 2005**


William
      Neilson Limited





On
      June
      14, 2006, the Company executed a three-year non-exclusive production agreement
      with William Neilson Limited of Ontario, Canada, for the production of the
      Company’s products, which will commence on the date of the Company’s first
      order. Under the terms of the agreement, the parties have agreed to annual
      volume commitments for the ordering and production of the Company’s various
      lines of shelf-stable, single-serve flavored milk beverages. The agreement
      incorporates per unit monetary penalties for unused capacity by the Company.
      The
      Company incurred no penalties related to annual volume commitments during
      2006.





**Note
      14 - Subsequent Events**





On
      February 12, 2007, the Company obtained financing in the amount $2,000,000
      and
      issued promissory notes aggregating that principal amount to three accredited
      investors. The notes provide for rights of participation in a subsequent
      financing by us. We also issued five year warrants for 2,000,000 shares of
      our
      common stock at an exercise price of $0.34 per share in connection with this
      financing. The warrants and underlying common stock were issued pursuant to
      Regulation D.





On
      February 28, 2007, the Company’s Board of Directors granted a total of
      22,125,000 stock options to employees and directors.  Of the 22,125,000
      options, the Board granted 1,275,000 under the Company’s 2005 Incentive Stock
      Option Plan and 20,850,000 under its 2006-2007 Incentive Stock Option
      Plan.  All options granted have a contractual life of 10 years, and two
      thirds of the options vest equally over two years in equal annual installments,
      provided that the individual is continuously in the Company’s employ, with the
      first third exercisable as of the grant date.





On
      March
      15, 2007, the Company obtained financing in the amount of $625,000 and issued
      promissory notes aggregating that principal amount to three accredited
      investors. The notes provide for rights of participation in a subsequent
      financing by us. We also issued five year warrants for 625,000 share of our
      common stock at an exercise price of $0.34 per share in connection with this
      financing. The warrants and underlying common stock were issued pursuant to
      Regulation D.




F-61


ITEM
      8.
      CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE





None.





ITEM
      8A.
      CONTROLS AND PROCEDURES





Evaluation
      of Disclosure Controls and Procedures





We
      maintain “disclosure controls and procedures,” as such term is defined in Rules
      13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934. Our disclosure
      controls and procedures are designed to:





·
            ensure
                information required to be disclosed by us is recorded, processed,
                summarized and reported within the time periods specified in Securities
                and Exchange Commission rules, regulations, and forms, and





·
            ensure
                that such information is accumulated and communicated to our management,
                including our Chief Executive Officer and Chief Accounting Officer,
                as
                appropriate, to allow timely and appropriate decisions regarding
                required
                disclosure to be made.





Our
      evaluation was performed under the supervision and with the participation of
      our
      audit committee and senior management, including our Chief Executive Officer
      and
      Chief Accounting Officer. We evaluated the effectiveness of the design and
      operation of our disclosure controls and procedures pursuant to Exchange Act
      Rules 13a-15(b) and 15d-15(b). During this evaluation, management considered
      the
      impact of any material weaknesses and other deficiencies in our internal control
      over financial reporting.





Based
      upon this evaluation, in July 2006 we determined that the following material
      weakness existed:





·
            inadequate
                controls existed over the process for the identification and
                implementation of the proper accounting for complex and non-routine
                transactions





·
            inappropriate
                accounting for compound derivative instruments embedded within our
                financial instruments





These
      weaknesses were the most significant factors that drove our need to restate
      our
      consolidated financial statements for each of the two years ended
      December 31, 2004 and 2005 in order to present those financial statements
      properly.





Because
      the material weakness identified above had not been fully remedied at December
      31, 2006, our Chief Executive Officer and our Chief Accounting Officer have
      concluded that our disclosure controls and procedures relating to compound
      derivative instruments embedded within our financial statements were not
      effective as of December 31, 2006.





To
      address the issues raised by this control deficiency, the Company has undertaken
      the following actions:





·
            Hired
                two additional full-time experienced accountants, whose key
                responsibilities include creating a sound internal control structure
                over
                the financial reporting function


·
            Restructured
                departmental responsibilities to properly align financial reporting
                responsibilities to the employees most experienced in this
                area


·
            Engaged
                an external CPA firm with extensive experience in accounting for
                complex
                derivative instruments to assist us in properly accounting and reporting
                of our financial instruments






25




·
            Commenced
                a project to significantly improve overall internal controls. This
                plan
                includes the implementation of a new accounting information system
                and
                hiring of consultants experienced in implementing effective internal
                controls, inclusive of financial reporting for compound derivative
                instruments embedded within our financial
                instruments.





We
      expect
      that we will remediate the material weakness identified above during
      2007.




ITEM
      8B.
      OTHER INFORMATION




None


26




PART
      III





ITEM
      9.
      DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS





The
      directors, executive officers and significant employees as of December 31,
      2006,
      are as follows. Our directors serve for staggered terms of two years, or until
      their successors are elected.





Name
                of Officer and Age
            
            Position
                with the Company
            
            Year
                AppointedStanley
                Hirschman
            
            60
            
            Chairman
                and Director
            
            2000Roy
                Warren
            
            51
            
            Director,
                Chief Executive Officer
            
            1997/1999Arthur
                Blanding
            
            83
            
            Director
            
            1999Gerald
                Bos
            
            67
            
            Director
            
            2006Robert
                Cummings
            
            64
            
            Director
            
            1997John
                McCormack
            
            47
            
            Director
            
            1997Phillip
                Pearce
            
            78
            
            Director
            
            1997Michael
                Edwards
            
            47
            
            Chief
                Revenue Officer
            
            2000Stanley
                Harris
            
            58
            
            Chief
                Marketing Officer
            
            2006Jeffrey
                Kaplan
            
            58
            
            Chief
                Financial Officer
            
            2005Tommy
                Kee
            
            58
            
            Chief
                Accounting Officer
            
            2003Benjamin
                Patipa
            
            51
            
            Chief
                Operating Officer
            
            2002Roy
                Toulan
            
            61
            
            Vice
                President, Corporate Secretary, General Counsel
            
            2003Mark
                Maraist
            
            38
            
            Vice
                President, Controller
            
            2006Michael
                Comerford
            
            51
            
            Director
                of Sales Operations
            
            2006Joseph
                Librizzi
            
            59
            
            Director
                of Operations, Procurement and Supply Mgmt
            
            2006Jack
                Shea
            
            56
            
            Director
                Business Development
            
            2006Charles
                Walton
            
            51
            
            Director
                of Product Development
            
            2006




The
      experience and background of the Company’s directors, executive officers and
      significant employees follow:





*Mr.
      Stanley Hirschman* -
      Chairman and Director since September 2000





Mr.
      Hirschman is president of CPointe Associates, Inc., an executive management
      and
      consulting firm specializing in solutions for emerging companies with technology
      based products.  CPointe was formed in 1996.  In addition, he is a
      director of Axion Power International and Dalrada Financial Corporation. 
Prior to establishing CPointe Associates, Mr. Hirschman was vice president
      of
      operations of Software Etc., a national retail software chain and has held
      executive positions with retailers TJ Maxx, Gap and Banana Republic.  Mr.
      Hirschman currently serves on the Compensation and Audit Committees of the
      Company’s board of directors.





*Mr.
      Roy Warren* - Chief
      Executive Officer since May 1999; Director since 1997





Mr.
      Warren serves as our Chief Executive Officer and as a director. As Chief
      Executive Officer, Mr. Warren provides overall company leadership and strategy.
      Mr. Warren also serves as a director of our wholly owned U.K. subsidiary, Bravo!
      Brands (UK) Ltd.





For
      15
      years from 1981 through 1996, Mr. Warren was in the securities brokerage
      industry. During those years, Mr. Warren acted as executive officer, principal,
      securities broker and partner with brokerage firms in Florida, most notably
      Kemper Financial Companies, Alex Brown & Sons and Laffer Warren &
Company. Mr. Warren currently serves on the Executive Committee of the Company’s
      board of directors.




27





*Mr.
      Arthur Blanding* -
      Director Since November 1999





Mr.
      Blanding is president of The Omega Company, an international dairy industry
      consulting company. As President of The Omega Company for the past 20 years,
      Mr.
      Blanding has completed over 200 projects successfully, both in the U.S. and
      abroad. Clients of The Omega Company include Abbott International, Cumberland
      Farms, Dairy Gold, Farm Fresh, Inc., Haagen Dazs, Labatt, Ross Laboratories
      and
      Stop & Shop Company, among others. Mr. Blanding was a consultant for the
      design and construction of the dairy processing facility built in Shanghai
      by
      Green Food Peregrine. The Omega Company is a party to a consulting contract
      with
      the Company concerning technical and production issues. Mr. Blanding serves
      on
      the Company’s compensation committee.





*Gerald
      Bos -* Director
      Since 2006





Mr.
      Bos
      became a Director in April 2006. Prior to his retirement on December 31, 2005,
      Mr. Bos was Chief Financial Officer of Dairy Farmers of America, Inc. (DFA),
      a
      cooperative owned and operated by approximately 20,600 dairy farmers. DFA is
      a
      diversified US manufacturer of dairy products, food components and ingredients.
      The cooperative is considered a leader in formulating and packaging shelf-stable
      dairy products in cans and glass. Mr. Bos will continue to serve DFA in a
      consulting capacity. Mr. Bos serves on the Company’s audit committee and has
      been designated as the committee’s financial expert.





*Mr.
      Robert Cummings* -
      Director Since 1997





Mr.
      Cummings' work experience includes ten years in purchasing at Ford Motor
      Company. In 1975, he founded and currently operates J & J Production
      Service, Inc., a manufacturing representative business. Mr. Cummings serves
      as
      chairman of the Company’s Compensation Committee.





*Mr.
      John McCormack* -
      Director since 1997





From
      December 2000 to March 2003, Mr. McCormack served as our President and Chief
      Operating Officer. Prior to his employment with the Company, Mr. McCormack
      served as an executive with Dean Foods Co. for over 15 years. As a Vice
      President of Dean Foods, he was in charge of Dean Food's mid-western division
      out of Chicago, Illinois. Mr. McCormack currently is employed by
      Coca-Cola Enterprises Inc. as a Regional Sales Manager for the supermarket
      channel in Wisconsin, Minnesota and Northern Illinois.





*Mr.
      Phillip Pearce* -
      Director Since 1997





Mr.
      Pearce is a "retired" member of the securities industry. Mr. Pearce served
      as
      Chairman of the NASD during which time he was instrumental in the founding
      of
      NASDAQ. Additionally, Mr. Pearce was a former Director of E.F. Hutton and has
      served as Governor of the New York Stock Exchange. Since his retirement in
      1988,
      Mr. Pearce has remained active in the securities industry as a corporate
      financial consultant. Mr. Pearce serves on our audit committee. In addition,
      Mr.
      Pearce currently serves as a Director of H2 Diesel, Preservation Science, and
      The Transportation Group.





*Mr.
      Michael Edwards* - Chief
      Revenue Officer since 2003





Mr.
      Edwards has been with our company in a sales and marketing capacity since 2000.
      Prior to that time, he worked for 5 years in beverage marketing research for
      Message Factors, Inc., a Memphis, Tennessee marketing research firm. Mr. Edwards
      has a BS degree from Florida State University in Management and Marketing and
      spent 13 years in the banking industry, leaving CitiBank to join Message Factors
      in 1995.





*Mr.
      Stanley Harris -* Chief
      Marketing Officer since 2006





Mr.
      Harris, who joined the company in January 2006, is responsible for all aspects
      of the Company’s marketing efforts. Prior to joining Bravo!, Mr. Harris founded
      Harris Drury Cohen and grew the business into one of the largest independent
      advertising firms in the southeast, billing in excess of $100 million. His
      national clients included Celebrity Cruises, Wyndham Resorts, Sea Doo Personal
      Watercraft, Chloraseptic Sore Throat Products and Raymond James Financial.
      He
      began his career in retail advertising, working for J.C. Penney.




28





*Mr.
      Jeffrey Kaplan* - Chief
      Financial Officer since 2005





Mr.
      Kaplan joined Bravo! in October 2005 as Chief Financial Officer. Mr. Kaplan
      served as Executive Vice President and Chief Financial Officer of BIB Holdings,
      Ltd. and then its private company spin-off, Elk Canyon Ltd., designers of
      jeanswear and loungewear, from October 2003 to September 2005. He served as
      Executive Vice President of Business Affairs of Viewpoint Corporation, a
      graphics software company, from November 2001 to September 2003 and its
      Executive Vice President and Chief Financial Officer from February 2001 to
      October 2001. Mr. Kaplan served as Executive Vice President and Chief Financial
      Officer of Rare Medium Group Inc., an IT professional services company, from
      October 1999 to February 2001. Mr.
      Kaplan received his Bachelor of Arts degree in political science from Brown
      University in 1970 and his Masters of Business Administration in finance from
      New York University in 1972.





*Mr.
      Tommy Kee* -Chief
      Financial Officer 2003 - 2005; Chief Accounting Officer since 2005





Tommy
      Kee
      joined our company in March 2003 as Chief Financial Officer. Mr. Kee currently
      serves as our Chief Accounting Officer. He graduated with an MBA from the
      University of Memphis and a BS degree in accounting from the University of
      Tennessee. Before joining us, he served for several years as CFO for Allied
      Interstate, Inc. in the West Palm Beach area. Prior to that, Mr. Kee served
      as
      CFO and Treasurer for Hearx Ltd. a West Palm Beach, Florida public company.
      He
      also served 18 years as International Controller and Financial Director with
      the
      Holiday Inns Inc. organization in Memphis and Orlando. Mr. Kee handles all
      financial management and reporting for our company and works closely with our
      external auditors, general counsel and controller for financial reporting and
      SEC compliance.





*Dr.
      Benjamin Patipa* - Chief
      Operating Officer since 2004





Dr.
      Patipa is a pediatrician with over fifteen years of experience in directing
      operations, marketing, sales and facilitating growth in both public and private
      companies. In 1987, Dr. Patipa founded and served as the chairman and CEO of
      Weight For Me, Inc., a company that developed a proprietary program which
      pioneered the delivery of weight control and nutrition services to the over
      12
      million obese children and adolescents in America. Weight For Me earned national
      and international recognition as the premier program for the control of obesity
      in children and adolescents. Dr. Patipa also served at HEARx Ltd. as a member
      of
      the Executive Operating Committee and Sonus USA, Inc., where he lead the
      company’s franchise licensing and buying group business in the Southeast United
      States. Most recently, Dr. Patipa served as Senior Vice President and
      Operational Head of eHDL/HealthNet Data Link, Inc., a national electronic
      healthcare information company.





*Mr.
      Roy Toulan.* - Vice
      President, Corporate Secretary, General Counsel since 2003





Roy
      Toulan began with the original founders as outside corporate counsel in 1997
      and
      has been responsible for all of our corporate and business legal work, including
      securities matters. Mr. Toulan became Corporate Counsel in October 2002, when
      he
      left his private legal practice in Boston and Vice President in January 2003.
      He
      received his law degree from Catholic University in Washington D.C., and for
      the
      first 15 years of his career practiced corporate and securities litigation
      with
      large law firms in New York and Boston. Before joining our company full time,
      he
      spent the last 18 years of his private practice in Boston, Massachusetts,
      engaged in general corporate and securities law helping companies with corporate
      structure and funding, both domestically and internationally. Mr. Toulan also
      serves as a director of our wholly owned U.K. subsidiary, Bravo! Brands (UK)
      Ltd.




29





*Mr.
      Mark Maraist - Vice President, Controller since 2006*





Mr.
      Maraist joined the Company in July 2006. His responsibilities include SEC
      reporting, financial planning, reporting and analysis, technical accounting
      research, implementation of effective internal controls throughout the company
      and assisting with the accounting closing process. Prior to joining the company,
      Mr. Maraist worked for nine years at Tyco International, serving in various
      senior audit, accounting, and finance positions. He also has five years of
      public accounting experience at KPMG Peat Marwick and Ernst and Young. Mr.
      Maraist, a Certified Public Accountant, received his Bachelors and Masters
      Degree in Accounting from the University of Florida.





*Mr.
      Michael Comerford - Director of Sales Operations since 2006*





Mr.
      Comerford joined Bravo in October, 2005 as Director of Operations. In June
      2006,
      Mr. Comerford assumed the position of Director of Sales Operations. This
      position has responsibility for working closely with the Cocoa Cola Enterprises
      Sales team nationwide as well as Bravo’s direct sales force.





During
      the five years preceding his employment at the Company, Mr. Comerford owned
      a
      food/beverage brokerage company in New Jersey. One of the product lines that
      he
      managed was the Slammers business, which he sold throughout the northeast.
      Before starting this business, Mr. Comerford worked in senior management
      positions with Chiquita Brands, Sunny Delight, and Drake Bakers. He graduated
      from Rider University in New Jersey with a degree in Marketing and minor in
      Economics.





*Mr.
      Joseph Librizzi - Director of Operations, Procurement and Supply Management
      since 2006*





Mr.
      Librizzi joined Bravo! in January 2006 as Director of Procurement and Supply
      Management and today is also Director of Operations. With over a decade of
      experience in supply chain, he is an expert in the consumer products business,
      especially milk based beverages. He has both reduced the company’s product costs
      and established strong partnerships with all its major suppliers.





Mr.
      Librizzi has a broad based business background. After spending 20 years in
      Finance during which time he held the position of CFO for three $100 million
      plus companies, he then transitioned to Operations and Supply Management. Before
      joining Bravo!, he was the Vice President of Procurement for Slim Fast Foods,
      where he was responsible for all Supply Chain activities for its two
      manufacturing plants and eight contract manufacturers.





*Mr.
      Jack Shea - Director Business Development since 2006*





Mr.
      Shea
      is responsible for development of distributor networks and sales for Bravo
      products that are not distributed by Coca Cola Enterprises (CCE) in North
      America. Additionally, he is tasked with initiating and developing new business
      opportunities.





Previously,
      Mr. Shea served as Vice President of Sales and Marketing for Tea Systems
      International (Liquid Tea Concentrate production and sales), Vice President
      Sales and Marketing, MVT Inc. (Motion Lenticular Point of Purchase material
      sales), and COO/General Manager, Halewood International / USA, Inc. (Beer,
      Wine
      and Spirits importing, sales and distribution.) Mr. Shea started in the beverage
      industry as a routes salesman for Joyce Beverages/New York which was the largest
      7UP bottler in the US. He was General Manager when the company was sold in
      1992.
      Mr. Shea holds a Bachelor of Arts degree from Iona College in New Rochelle,
      NY.




30





*Mr.
      Charles Walton - Director of Product Development since 2006*





Mr.
      Walton joined Bravo! in July 2006 as Director of Product Development after
      serving 17 years with DSM Nutritional Products (formerly Roche Vitamins Inc.).
      At DSM, Mr. Walton was a Senior Account Manager and a major contributor to
      product design and new product introductions specializing in the food and
      beverage industry.





Compliance
      With Section 16(A) of the Exchange Act





Based
        upon a review of the appropriate Forms 3, 4 and 5 and any amendments to such
        forms filed pursuant to Section 16(a), we report the following: (i) on February
        14, 2007, Mr. Robert Cummings, a Director, filed a Form 5 to report the sale
        of
        105,000 shares of our common stock at $0.2971 per share on December 12, 2006;
        (ii) on March 29, 2007, Mr. Cummings filed an amended Form 5A to report the
        purchase by a self directed investment qualified pension plan of 2,500 shares
        of
        our common stock on August 31, 2005 at $0.675 per share, 300,000 shares of
        our
        common stock on September 2, 2005 at $0.6415 per share, and 200,000 shares
        of
        our common stock on November 16, 2005 at $0.675 per share, and (iii)on February
        14, 2007, Mr. John McCormack, a Director, filed a Form 5 to report the sale
        of
        36,000 shares of our common stock at $0.7039 per share on May 16,
        2006.





Code
      of Ethics





The
      Company has adopted a code of ethics applicable to its Chief Executive Officer
      and senior financial officers. A copy of the Code of Ethics is attached as
      an
      exhibit to this report. The Code of Ethics is also available for review on
      the
      Company’s website at www.bravobrands.com .
      Furthermore, a copy of the code is available to any person free of charge upon
      request by writing to the Company at 11300 US#1, Suite 400, North Palm Beach,
      FL
      33408.





Audit
      Committee Financial Expert





The
      Company’s board of directors has determined that Gerald Bos qualifies as the
      financial expert member of the audit committee. Mr. Bos, an independent
      director, qualifies as our financial expert based on his extensive experience
      in
      accounting and financial positions, which includes serving eight years as Chief
      Financial Officer at Dairy Farmers of America and several years of public
      accounting experience with the accounting firm, Touche-Ross &
Co.





31




ITEM
      10.
      EXECUTIVE COMPENSATION





**Summary
      Compensation Table**





The
      following table sets forth the compensation earned during the last fiscal year
      by our top three highest paid executive officers:





**Non-**
            
            **Nonqualified****Equity**
            
            **Deferred****Principal**
            
            
            
            
            
            
            
            **Stock**
            
            **Option**
            
            **Incentive**
            
            **Compensation**
            
            ****All
                Other****Name**
            
            **Position**
            
            **Year**
            
            **Salary**
            
            **Bonus**
            
            **Awards**
            
            **Awards**
            
            **Plan**
            
            **Earnings**
            
            **Compensation**
            
            **Total**Roy
                Warren
            
            
            CEO
            
            
            2006
            
            $
            300,000
            
            $
            159,769
            
            $
            -
            
            $
            121,035
            
            $
            -
            
            $
            -
            
            $
            25,064
            
            $
            605,868Jeffrey
                Kaplan
            
            
            CFO
            
            
            2006
            
            
            180,000
            
            
            53,846
            
            
            -
            
            
            37,096
            
            
            -
            
            
            -
            
            
            77,225
            
            
            348,167Benjamin
                Patipa
            
            
            COO
            
            
            2006
            
            
            180,000
            
            
            53,846
            
            
            -
            
            
            29,049
            
            
            -
            
            
            -
            
            
            21,322
            
            
            284,217





****
                All other Compensation**
            
            **CEO**
            
            **CFO**
            
            **COO**Medical
            
            $
            12,767
            
            $
            8,324
            
            $
            12,767Dental
            
            
            1,747
            
            
            1,228
            
            
            1,747Life
            
            
            130
            
            
            103
            
            
            130LTD
            
            
            1,420
            
            
            1,278
            
            
            1,278401K
                match
            
            
            9,000
            
            
            5,400
            
            
            5,400Commuting
                Reimbursement
            
            
            -
            
            
            32,163
            
            
            -Tax
                Reimbursement
            
            
            -
            
            
            24,712
            
            
            -COBRA
            
            
            -
            
            
            4,017
            
            
            -**Total**
            
            **$**
            **25,064**
            
            **$**
            **77,225**
            
            **$**
            **21,322**





In
      2006,
      Roy Warren, Chief Executive Officer ("CEO"), earned a base salary of $300,000
      and quarterly bonuses equal to one quarter of one percent of top-line sales
      revenue. He also earned a $100,000 discretionary bonus at the end of
      2006.





In
      2006,
      Jeffrey Kaplan, Chief Financial Officer ("CFO"), and Benjamin Patipa, Chief
      Operating Officer ("COO"), earned base salaries of $180,000. They also earned
      cash bonuses of $10,000 per quarter, plus additional discretionary bonuses
      amounting to $13,846.





Option
      awards for each Principal Officer reflect the compensation cost as defined
      and
      calculated under FAS 123R, with the exception that compensation cost is not
      reduced by any estimates of forfeiture. The option awards compensation disclosed
      above represents the expense that the Company recognized during 2006 for options
      granted in previous years but which vested in the current year.





All
      other
      compensation for the CEO, CFO and COO relates to Medical, Dental, Life, and
      LTD
      benefits, and for the company's 3% match to the 401(K) plan. The CFO was also
      compensated for reimbursement of commuting expenses, reimbursement of taxes
      with
      respect to the commuting expenses and COBRA coverage for the first six months
      of
      2006, in lieu of other benefits.




32


**Director
      Compensation Table**





The
      following table summarizes compensation to all directors during the
      year:




**Fees**
            
            
            
            
            
            **Non-Equity**
            
            **Nonqualified****Earned**
            
            
            
            
            
            **Incentive**
            
            **Deferred****or
                Paid**
            
            **Stock**
            
            **Option**
            
            **Plan**
            
            **Compensation**
            
            **All
                Other****Name**
            
            **in
                Cash**
            
            **Awards**
            
            **Awards**
            
            **Compensation**
            
            **Earnings**
            
            **Compensation**
            
            **Total**Stanley
                Hirschman
            
            $
            99,000
            
            $
            -
            
            $
            32,485
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            131,485Gerald
                Bos
            
            
            11,500
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            11,500Arthur
                Blanding
            
            
            6,500
            
            
            -
            
            
            23,936
            
            
            -
            
            
            -
            
            
            -
            
            
            30,436Robert
                Cummings
            
            
            9,500
            
            
            -
            
            
            27,356
            
            
            -
            
            
            -
            
            
            -
            
            
            36,856Phillip
                Pearce
            
            
            12,000
            
            
            -
            
            
            34,195
            
            
            -
            
            
            -
            
            
            -
            
            
            46,195John
                McCormack
            
            
            3,500
            
            
            -
            
            
            27,356
            
            
            -
            
            
            -
            
            
            -
            
            
            30,856**Total**
            
            **$**
            **142,000**
            
            **$**
            **-**
            
            **$**
            **145,328**
            
            **$**
            **-**
            
            **$**
            **-**
            
            **$**
            **-**
            
            **$**
            **287,328**




Directors
      are compensated $1,000 each for board meetings which they attend in person
      or
      telephonically and $500 each for committee meetings.





In
      addition to $15,000 paid to Stanley Hirschman, Chairman of the Board of
      Directors, for attending board and committee meetings during the year, he was
      paid a $4,000 monthly fee for the responsibilities associated with serving
      as
      Chairman of the Board of Directors and Chairman of the Audit Committee. He
      also
      served on a special due diligence committee associated with the potential
      transaction with Coca Cola Enterprises of a majority equity interest in the
      Company. Although the due diligence committee process took place in 2005, Mr.
      Hirschman was paid $30,000 for these services during 2006. Also included in
      the
      above schedule are $6,000 in payments made to Mr. Hirschman in 2006 for 2005
      board meetings.





Option
      awards for each Director reflect the dollar value of compensation cost defined
      and calculated under FAS 123R, with the exception that compensation cost is
      not
      reduced by any estimates of forfeiture. The option awards compensation disclosed
      above represents the expense that the Company recognized during 2006 for options
      granted in previous years, but which vested in the current year.





Roy
      Warren, Chief Executive Officer, also serves on the Board of Directors. He
      did
      not receive any compensation for attending Board of Director meetings during
      the
      year. Refer to the Summary Compensation Table, for disclosures of his
      compensation earned during the year as CEO of the Company.




33


**Outstanding
      Equity Awards**





The
      following table summarizes all outstanding equity awards for the top three
      highest paid executives during the year:





**Option
                Awards**
            
            **Stock
                Awards****Name**
            
            **Principal**
                **Position**
            
            **Number
                          of**
                        **Securities**
                        **Underlying**
                        **Unexercised**
                        **Options
                          (#)**
                        **Exercisable**
            
            **Number
                          of**
                        **Securities**
                        **Underlying**
                        **Unexercised**
                        **Options
                          (#)**
                        **Unexercisable**
            
            **Number
                          of**
                        **Securities**
                        **Underlying**
                        **Unexercised**
                        **Unearned**
                        **Options
                          (#)**
            
            **Option**
                  **Exercise**
                  **Price**
            
            **Option**
                  **Expiration**
                  **Date**
            
            **Number
                          of**
                        **Shares
                          or**
                        **Units
                          of**
                        **Stock
                          That**
                        **Have
                          Not**
                        **Vested**
            
            **Market
                          Value of**
                        **Shares
                          or**
                        **Units
                          of**
                        **Stock
                          That**
                        **Have
                          Not**
                        **Vested**
            
            **Number
                        of**
                      **Unearned
                        Shares,**
                      **Units
                        or Other**
                      **Rights
                        That Have**
                      **Not
                        Vested**
            
            **Market
                        Value or**
                      **Payout
                        Value of**
                      **Unearned
                        Shares,**
                      **Units
                        or Other Rights**
                      **That
                        Have Not Vested**Roy
                Warren
            
            
            CEO
            
            
            416,667
            
            
            208,333
            
            
            -
            
            
            0.20
            
            
            5/9/2015
            
            
            -
            
            
            -
            
            
            -
            
            
            -Roy
                Warren
            
            
            CEO
            
            
            333,333
            
            
            166,667
            
            
            -
            
            
            0.23
            
            
            5/9/2015
            
            
            -
            
            
            -
            
            
            -
            
            
            -Roy
                Warren
            
            
            CEO
            
            
            333,333
            
            
            166,667
            
            
            -
            
            
            0.25
            
            
            5/9/2015
            
            
            -
            
            
            -
            
            
            -
            
            
            -Roy
                Warren
            
            
            CEO
            
            
            333,333
            
            
            166,667
            
            
            -
            
            
            0.28
            
            
            5/9/2015
            
            
            -
            
            
            -
            
            
            -
            
            
            -Roy
                Warren
            
            
            CEO
            
            
            250,000
            
            
            125,000
            
            
            -
            
            
            0.30
            
            
            5/9/2015
            
            
            -
            
            
            -
            
            
            -
            
            
            -**Total**
            
            
            
            
            
            **1,666,666**
            
            
            **833,334**
            
            
            **-**
            
            
            
            
            
            
            
            
            **-**
            
            
            **-**
            
            
            **-**
            
            
            **-**Jeffrey
                Kaplan
            
            
            CFO
            
            
            200,000
            
            
            -
            
            
            -
            
            
            0.75
            
            
            5/9/2015
            
            
            -
            
            
            -
            
            
            -
            
            
            -**Total**
            
            
            
            
            
            **200,000**
            
            
            **-**
            
            
            **-**
            
            
            
            
            
            
            
            
            **-**
            
            
            **-**
            
            
            **-**
            
            
            **-**Benjamin
                Patipa
            
            
            COO
            
            
            100,000
            
            
            50,000
            
            
            -
            
            
            0.20
            
            
            5/9/2015
            
            
            -
            
            
            -
            
            
            -
            
            
            -Benjamin
                Patipa
            
            
            COO
            
            
            80,000
            
            
            40,000
            
            
            -
            
            
            0.23
            
            
            5/9/2015
            
            
            -
            
            
            -
            
            
            -
            
            
            -Benjamin
                Patipa
            
            
            COO
            
            
            80,000
            
            
            40,000
            
            
            -
            
            
            0.25
            
            
            5/9/2015
            
            
            -
            
            
            -
            
            
            -
            
            
            -Benjamin
                Patipa
            
            
            COO
            
            
            80,000
            
            
            40,000
            
            
            -
            
            
            0.28
            
            
            5/9/2015
            
            
            -
            
            
            -
            
            
            -
            
            
            -Benjamin
                Patipa
            
            
            COO
            
            
            60,000
            
            
            30,000
            
            
            -
            
            
            0.30
            
            
            5/9/2015
            
            
            -
            
            
            -
            
            
            -
            
            
            -**Total**
            
            
            
            
            
            **400,000**
            
            
            **200,000**
            
            
            **-**
            
            
            
            
            
            
            
            
            **-**
            
            
            **-**
            
            
            **-**
            
            
            **-**




ITEM
      11.
      SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT





The
      following table sets forth the beneficial ownership of our company’s common
      stock as of December 31, 2006 as to:





·
            each
                person known to beneficially own more than 5% of our issued and
                outstanding common stock


·
            each
                of our directors


·
            each
                executive officer


·
            all
                directors and officers as a group





The
      following conditions apply to all of the following tables:





·
            except
                as otherwise noted, the named beneficial owners have direct ownership
                of
                the stock and have sole voting and investment power with respect
                to the
                shares shown


·
            the
                class listed as "common" includes the shares of common stock underlying
                the Company’s issued convertible preferred stock, options and
                warrants




34


Beneficial
      Owners





Title
                of Class
            
            Name
                and Address of Beneficial Owner (1)
            
            Amount
                and Nature of
              Beneficial
                Ownership
            
            Percent
                of Class (2)Common
            
            Coca-Cola
                Enterprises Inc.
              2500
                Windy Ridge Parkway Atlanta, GA 30339
            
            30,000,000
            
            14.97%Common
            
            Mid-Am
                Capital, L.L.C. (3)
              Northpointe
                Tower
              10220
                North Ambassador Drive
              Kansas
                City, MO 64190
            
            19,970,723
            
            9.97%Common
            
            Evolution
                Capital Management, LLP
              1132
                Bishop Street
              Suite
                1880
              Honolulu,
                Hawaii 96813
            
            19,109,244
            
            9.44%Common
            
            Magnetar
                Capital Master Fund, Ltd (4)
              1603
                Orrington Avenue
              13th
                Floor
              Evanston,
                IL 60201
            
            17,297,494
            
            8.54%Common
            
            Lombard
                Odier Darier Hentsch & Cie (4)
              Rue
                de la Corraterie 11
              1204
                Geneva
            
            16,500,000
            
            8.15%Common
            
            Deutsche
                Bank AG
              Taunusanlage
                12
              60325
                Frankfurt am Main
              Federal
                Republic of Germany
            
            10,605,000
            
            5.23%





(1)
            Beneficial
                Ownership is determined in accordance with the rules of the Securities
                and
                Exchange Commission and generally includes voting or investment power
                with
                respect to securities. Shares of common stock subject to options
                or
                warrants currently exercisable or convertible, or exercisable or
                convertible within 60 days of December 31, 2006 are deemed outstanding
                for
                computing the percentage of the person holding such option or warrant
                but
                are not deemed outstanding for computing the percentage of any other
                person.





(2)
            Percentage
                calculated from base of 202,429,528 shares of common stock issued
                and
                outstanding.





(3)
            This
                owner is contractually limited to a beneficial ownership of our equity
                not
                to exceed 9.99%. Equity listed consists of convertible preferred,
                convertible debentures and/or
                warrants.





(4)
            Equity
                listed consists of common stock and warrants to purchase common
                stock





35




Management
      Owners





Title
                of Class
            
            Name
                and Address of Management Owner
            
            Amount
                and Nature
              of
                Ownership (1)
            
            
            Percent
                of Class (2)Common
            
            Roy
                Warren
              11300
                US Highway No.1
              N.
                Palm Beach, FL
            
            5,310,765
            (3)
            
            2.62%Common
            
            Robert
                Cummings
              2829
                N.E. 44th Street
              Lighthouse
                Point, FL
            
            1,025,038
            (4)
            
            Less
                than 1%Common
            
            John
                McCormack
              8750
                South Grant
              Burridge,
                IL 60521
            
            1,215,838
            (4)
            
            Less
                than 1%Common
            
            Mr.
                Arthur Blanding
              Janesville,
                WI 53545
            
            947,297
            (5)
            
            Less
                than 1%Common
            
            Phillip
                Pearce
              6624
                Glenleaf Court
              Charlotte,
                NC 28270
            
            962,297
            (6)
            
            Less
                than 1%Common
            
            Stanley
                Hirschman
              2600
                Rutgers Court
              Plano,
                Texas 75093
            
            1,040,652
            (7)
            
            Less
                than 1%Common
            
            Roy
                Toulan
              VP,
                General Counsel
              6
                Wheelers Pt. Rd
              Gloucester,
                MA 01930
            
            1,615,121
            (8)
            
            Less
                than 1%Common
            
            Tommy
                Kee
              Chief
                Accounting Officer
              11300
                US Highway 1
              N.
                Palm Beach, FL 33408
            
            1,042,385
            (8)
            
            Less
                than 1%Common
            
            Benjamin
                Patipa
              Chief
                Operating Officer
              6139
                Indian Forest Circle
              Lake
                Worth, FL 33463
            
            1,358,700
            (8)
            
            Less
                than 1%Common
            
            Michael
                Edwards
              Vice
                President Sales
              4140
                S.E. Old St. Lucie Blvd.
              Stuart,
                FL 34996
            
            2,000,000
            (8)
            
            Less
                than 1%Common
            
            Jeffrey
                Kaplan
              11300
                US Highway No.1
              N.
                Palm Beach, FL
            
            200,000
            
            
            Less
                than 1%Common
            
            Executive
                officers and directors as a group
            
            16,718,093
            
            
            8.26%




36




(1)
            Beneficial
                Ownership is determined in accordance with the rules of the Securities
                and
                Exchange Commission and generally includes voting or investment power
                with
                respect to securities. Shares of common stock subject to options
                or
                warrants currently exercisable or convertible, or exercisable or
                convertible within 60 days of December 31, 2006 are deemed outstanding
                for
                computing the percentage of the person holding such option or warrant
                but
                are not deemed outstanding for computing the percentage of any other
                person.





(2)
            Percentage
                calculated from base of 202,429,528 shares of common stock issued
                and
                outstanding.





(3)
            Includes
                options to purchase 2,500,000 shares of our common stock pursuant
                to a
                2005 Incentive Stock Option Plan adopted by the Board of Directors
                on May
                12, 2005.





(4)
            Includes
                options to purchase 565,038 shares of our common stock pursuant to
                a 2005
                Incentive Stock Option Plan adopted by the Board of Directors on
                May 12,
                2005.





(5)
            Includes
                options to purchase 494,408 shares of our common stock pursuant to
                a 2005
                Incentive Stock Option Plan adopted by the Board of Directors on
                May 12,
                2005.





(6)
            Includes
                options to purchase 706,297 shares of our common stock pursuant to
                a 2005
                Incentive Stock Option Plan adopted by the Board of Directors on
                May 12,
                2005.





(7)
            Includes
                options to purchase 670,982 shares of our common stock pursuant to
                a 2005
                Incentive Stock Option Plan adopted by the Board of Directors on
                May 12,
                2005.





(8)
            Includes
                options to purchase 600,000 shares of our common stock pursuant to
                a 2005
                Incentive Stock Option Plan adopted by the Board of Directors on
                May 12,
                2005.





There
      currently are no arrangements that may result in a change of ownership or
      control.





ITEM
      12.
      CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS





*Certain
      Relationships and Related Party Transactions*





John
      McCormack has been a director of the Company since 1997 and was our Chief
      Operating Officer from December 2000 to March 2003. Since December 2005, Mr.
      McCormack has been employed by Coca-Cola Enterprises Inc. as a Regional Sales
      Manager for the supermarket channel in Wisconsin, Minnesota and Northern
      Illinois.





*Director
      Independence*





Our
      board
      has positions for seven directors that are elected as Class A or Class B directors at alternate annual
      meetings of our shareholders. The policy of the board is that a majority of
      the
      directors will not be current employees of the Company and will otherwise meet
      appropriate standards of independence. In determining independence, the board
      will consider the definition of “independent director” in the listing standards
      of the NASDAQ Stock Market. Under this definition, five of our seven current
      directors are considered independent. The board members deemed not to be
      independent are Roy G. Warren due to his current position as CEO of the Company
      and John McCormack, who served as an employee of the Company within the past
      three years.




37


ITEM
      13.
      EXHIBITS





**Exhibit
                No.**
            
            **Document
                Description**
            
            **Incorporated
                by Reference**
            
            **Filed
                Herewith**3.1
            
            Articles
                of Incorporation
            
            (1)3.2
            
            Amended
                Articles (name change)
            
            (1)3.4
            
            Restated
                Bylaws
            
            (1)4
            
            Rights
                of Equity Holders4.1
            
            Preferred,
                Series B Designation
            
            (1)4.2
            
            Preferred,
                Series F Designation
            
            (2)4.3
            
            Preferred,
                Series G Designation
            
            (3)4.4
            
            Preferred,
                Series H Designation
            
            (6)4.5
            
            Preferred,
                Series I Designation
            
            (7)4.6
            
            Preferred,
                Series J Designation
            
            (8)4.7
            
            Preferred,
                Series K Designation
            
            (10)4.8
            
            Subscription
                Agreement dated November 2003 entered with Gamma Opportunity Capital
                Partners, LP
            
            (11)4.9
            
            Class
                A Common Stock Purchase Warrant issued to Gamma Opportunity Capital
                Partners, LP
            
            (11)4.10
            
            Class
                B Common Stock Purchase Warrant issued to Gamma Opportunity Capital
                Partners, LP
            
            (11)4.11
            
            Convertible
                Note issued to Gamma Opportunity Capital Partners, LP dated November
                2003
            
            (11)4.12
            
            Class
                A Common Stock Purchase Warrant issued to Libra Finance,
                S.A.
            
            (11)4.13
            
            Subscription
                Agreement dated November 2003 entered with MID-AM CAPITAL,
                L.L.C
            
            (11)4.14
            
            Class
                A Common Stock Purchase Warrant issued to MID-AM CAPITAL,
                L.L.C.
            
            (11)4.15
            
            Class
                B Common Stock Purchase Warrant issued to MID-AM CAPITAL,
                L.L.C
            
            (11)4.16
            
            Convertible
                Note issued to MID-AM CAPITAL, L.L.C. dated November 2003
            
            (11)4.17
            
            Subscription
                Agreement dated April 2, 2004 entered with Alpha Capital
                Aktiengesellschaft andLongview
                Fund LP
            
            (11)4.18
            
            Convertible
                Note issued to Alpha Capital Aktiengesellschaft dated April
                2004
            
            (11)4.19
            
            Convertible
                Note issued to Longview Fund LP dated April 2004
            
            (11)4.20
            
            Common
                Stock Purchase Warrant issued to Alpha Capital Aktiengesellschaft
                dated
                April 2004
            
            (11)4.21
            
            Common
                Stock Purchase Warrant issued to Longview Fund LP dated April
                2004
            
            (11)4.22
            
            Subscription
                Agreement entered by and between the Company and Mid-AM Capital LLC
                dated
                June 2004
            
            (12)4.23
            
            Convertible
                Note issued to Mid-AM Capital LLC dated June 2004
            
            (12)4.24
            
            Common
                Stock Purchase Warrant A issued to Mid-AM Capital LLC dated June
                2004
            
            (12)4.25
            
            Common
                Stock Purchase Warrant B issued to Mid-AM Capital LLC dated June
                2004
            
            (12)4.26
            
            Subscription
                Agreement entered by and between the Company and Alpha Capital, Longview
                Fund LP, Stonestreet Limited Partnership, Whalehaven Funds Limited
                and
                Gamma Opportunity Capital Partners LP dated June 2004
            
            (12)




38




4.27
            
            Form
                of Common Stock Purchase A issued to Alpha Capital, Longview Fund
                LP,
                Stonestreet Limited Partnership, Whalehaven Funds Limited and Gamma
                Opportunity Capital Partners LP dated June 2004
            
            (12)4.28
            
            Form
                of Common Stock Purchase B issued to Alpha Capital, Longview Fund
                LP,
                Stonestreet Limited Partnership, Whalehaven Funds Limited and Gamma
                Opportunity CapitalPartners LP dated June 2004
            
            (12)4.29
            
            Form
                of Convertible Note issued to Alpha Capital, Longview Fund LP, Stonestreet
                Limited Partnership, Whalehaven Funds Limited and Gamma Opportunity
                Capital Partners LP dated June 2004
            
            (12)4.30
            
            Subscription
                Agreement entered by and between the Company and Alpha Capital, Longview
                Fund LP, Stonestreet Limited Partnership and Whalehaven Funds Limited
                dated October 2004
            
            (12)4.31
            
            Form
                of Common Stock Purchase C issued to Alpha Capital, Longview Fund
                LP,
                Stonestreet Limited Partnership and Whalehaven Funds Limited dated
                October
                2004
            
            (12)4.32
            
            Form
                of Convertible Note issued to Alpha Capital, Longview Fund LP, Stonestreet
                Limited Partnership, Whalehaven Funds Limited and Gamma Opportunity
                Capital Partners LP dated October 2004
            
            (12)4.33
            
            Subscription
                Agreement entered by and between the Company and Momona Capital Corp.
                and
                Ellis International Ltd. dated December 2004
            
            (12)4.34
            
            Form
                of Common Stock Purchase C issued to Momona Capital Corp. and Ellis
                International Ltd. dated December 2004
            
            (12)4.35
            
            Form
                of Convertible Note issued to Momona Capital Corp. and Ellis International
                Ltd. dated December 2004
            
            (12)4.36
            
            Form
                of Convertible Note issued to Alpha Capital, Longview Fund LP, Longview
                Equity Fund LP, Longview International Equity Fund LP and Whalehaven
                Funds
                Limited dated January 2005
            
            (13)4.37
            
            Subscription
                Agreement entered by and between the Company and Alpha Capital, Longview
                Fund LP, Longview Equity Fund LP, Longview International Equity Fund
                LP
                and Whalehaven Funds Limited dated January 2005
            
            (13)4.38
            
            Form
                of Common Stock Purchase Warrant issued to Alpha Capital, Longview
                Fund
                LP, Longview Equity Fund LP, Longview International Equity Fund LP
                and
                Whalehaven Funds Limited dated January 2005
            
            (13)4.39
            
            Form
                of Securities Purchase Agreement with 13 institutional investors
                in
                connection with November 28, 2005 $20,250,000 financing
            
            (14)4.40
            
            Form
                of Stock Purchase Warrant in connection with November 28, 2005 $20,250,000
                financing
            
            (14)10
            
            Material
                Contracts10.6
            
            MoonPie
                License Agreement
            
            (10)10.7
            
            Marvel
                License Agreement (US)
            
            (10)10.9
            
            Real
                Estate Lease Amendment Extending Term
            
            (10)10.10
            
            Masterfoods
                License
            
            (13)Marvel
                Enterprises License (UK)
            
            (13)Coca-Cola
                Enterprises Master Distribution Agreement
            
            (15)




39




16.1
            
            Letter
                on change or certifying accountant
            
            (9)21.1
            
            Subsidiary
                Articles of Association
            
            (4)31.1
            
            Certification
                of CEO, Rules 13a-14(a) & 15d-14(a)
            
            
            
            X31.2
            
            Certification
                of CAO, Rules 13a-14(a) & 15d-14(a)
            
            
            
            X32.1
            
            Certifications
                of CEO & CAO, 18 U.S.C. Sec. 1350
            
            
            
            X33
            
            Code
                of Ethics
            
            
            
            X





(1)  Filed
      with Form 10SB/A First Amendment





(2)  Filed
      with Form 10K-SB for 12-31-99





(3)  Filed
      with Form 10QSB for 6-30-00





(4)  Filed
      with Form SB-2/A Second Amendment





(5)  Filed
      with Form SB-2/A Third Amendment





(6)  Filed
      with Form 10K-SB 2001





(7)  Filed
      with Form 10QSB for 6-30-02





(8)  Filed
      with Form 8-K for 10-02-02





(9)  Filed
      with Form 8-K for 3-26-04





(10)  Filed
      with Form 10K-SB 2003





(11)  Filed
      with Form SB-2 June 4, 2004





(12)  Filed
      with Form SB-2 January 21, 2005





(13)  Filed
      with Form 10K-SB 2004





(14)  Filed
      with Form 8-K for 11-28-05





(15)  Filed
      with Form 10QSB for 9-30-05





ITEM
      14.
      PRINCIPAL ACCOUNTANT FEES AND SERVICES





Audit
      Fees





The
      aggregate fees billed for each of the last two fiscal years for professional
      services rendered by the principal accountant for the audit of our annual
      financial statements and review of financial statements included in our Forms
      10-KSB were $181,906 and $109,279 respectively for 2006 and 2005.


40




Audit
      Related Fees





None.





Tax
      Fees





During
      2006, we paid $25,000 for the preparation of tax returns. In 2005, we paid
      an
      aggregate of $37,000 for the preparation of 2004 and prior years’ tax
      returns.





All
      Other Fees





None.


Audit
      Committee Pre-Approval Policies





The
      audit
      committee makes reasonable inquiry as to the independence of our principal
      auditors based upon the considerations set forth in Rule 2-01 of Regulation
      S-B,
      including the examination of representation letters furnished by the principal
      accountant. The audit committee has not approved any services beyond those
      required for the audit of our annual financial statements, review of financial
      statements included in our Forms 10-KSB and preparation of corporate tax
      returns.





41




SIGNATURES





In
      accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
      Bravo! Brands, Inc. has caused this report to be signed on its behalf by the
      undersigned, thereunder duly authorized.


BRAVO!
              BRANDS,
              INC.By:
            /S/
              Roy
              G. Warren, Chief Executive Officer




In
      accordance with the Securities Exchange Act of 1934, Bravo Brands, Inc. has
      caused this report to be signed on its behalf by the undersigned in the
      capacities and on the dates stated.





Signature
            
            Title
            
            Date/S/
              Roy G. Warren
            
            Chief
              Executive Officer
            
            April
              2
              , 2007/S/
              Tommy E. Kee
            
            Chief
              Accounting Officer, Treasurer
            
            April
              2,
              2007





42