UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
DC 20549





FORM
10-Q





x
            QUARTERLY REPORT PURSUANT TO
      SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934





For the
quarterly period ended September 30, 2010





or





o
            TRANSITION REPORT PURSUANT TO
      SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934





Commission
file number: 000-52685





FIRST
BLUSH BRANDS, INC.


(Exact
name of registrant as specified in its charter)





Delaware
                      
                      26-1364883(State or other jurisdiction of incorporation or organization)
                      
                      (I.R.S. Employer Identification No.)9595
      Wilshire Blvd., Suite 900
                        Beverly
      Hills, CA
                      
                      90212(Address
      of principal executive office)
                      
                      (Zip
      Code)





(310)
717-8942


(Registrant's
telephone number, including area code)





Indicate
by check mark whether the Registrant: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.


Yes  
x
    No   o





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





Indicate
by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
the definitions of “large accelerated filer”, “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.





Large
      Accelerated Filer o
              Accelerated
      Filer oNon-Accelerated
      Filer o
              Smaller
      Reporting Company   x(Do
      not check if a smaller reporting company )





Indicated
by check mark whether the Registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).


Yes o    No x





As of
November 22, 2010, the Company had outstanding 9,246,000 shares of Common
Stock.








TABLE
OF CONTENTS


FIRST
BLUSH BRANDS, INC.


FORM
10-Q





PagePART
      I FINANCIAL INFORMATION
                
                3ITEM
      1 Financial Statements
                
                3ITEM
      2 Management’s Discussion and Analysis of Financial Condition and Results
      of Operations
                
                17ITEM
      3 Legal Proceedings
                
                24ITEM
      4 Quantitative and Qualitative Disclosures About Market
    Risk
                
                24ITEM
      5 Controls and Procedures
                
                24PART
      II OTHER INFORMATION
                
                25ITEM
      6 Exhibits
                
                25SIGNATURES
                
                26


2




PART
I- FINANCIAL INFORMATION





Item
1. Financial Statements





First
Blush Brands, Inc.





(Formerly
Known as AFH Holding II, Inc.)





FINANCIAL
STATEMENTS





INDEX





·
          Financial Statements:Balance
      Sheets, September 30, 2010, unaudited, and December 31,
    2009
                    
                    4Statements
      of Profit and Loss, unaudited, for the three and nine months ended
      September 30, 2010 and 2009
                    
                    5Statements
      of Cash Flows, unaudited, for the nine months ended September 30, 2010 and
      2009
                    
                    6Notes
      to Financial Statements
                    
                    7


3


First Blush Brands, Inc.


(Formerly
Known as AFH Holding II, Inc.)


Balance
Sheets





(Unaudited)At September 30,
                      
                      
                      At December 31,2010
                      
                      
                      2009AssetsCurrent
      assets:Cash
                      
                      $
                      3,619
                      
                      
                      $
                      -Accounts
      receivable, net of allowance for doubtful accounts of $21,000 at September
      30, 2010
                        and
      December 31, 2009
                      
                      
                      64,788
                      
                      
                      
                      37,065Inventory
                      
                      
                      235,105
                      
                      
                      
                      293,135Prepaids
      & other
                      
                      
                      5,112
                      
                      
                      
                      -Total
      current assets
                      
                      
                      308,624
                      
                      
                      
                      330,200Deferred
      income taxes
                      
                      
                      47,921
                      
                      
                      
                      19,534Equipment,
      net
                      
                      
                      8,765
                      
                      
                      
                      -Intangible
      assets, net
                      
                      
                      1,400
                      
                      
                      
                      55,786Total
      assets
                      
                      $
                      366,710
                      
                      
                      $
                      405,520Liabilities
      & Equity (Deficit)Current
      liabilities:Accounts
      payable
                      
                      $
                      755,380
                      
                      
                      $
                      344,968Liability
      due to related party consultant
                      
                      
                      245,000
                      
                      
                      
                      -Promotional
      liability
                      
                      
                      89,172
                      
                      
                      
                      27,194Other
      accrued liabilities
                      
                      
                      154,452
                      
                      
                      
                      160,557Derivative
      liabilities
                      
                      
                      126,680
                      
                      
                      
                      -Notes
      payable - RHG
                      
                      
                      208,360
                      
                      
                      
                      927,191Notes
      payable - related party
                      
                      
                      -
                      
                      
                      
                      100,000Total
      current liabilities
                      
                      
                      1,579,044
                      
                      
                      
                      1,559,910Notes
      Payable
                      
                      
                      1,055,454
                      
                      
                      
                      -Commitments
      and contingenciesEquity:Preferred
      stock, par value $0.001, 20,000,000 shares authorized, 0 outstanding at
      September 30, 2010 and  December 31, 2009
                      
                      
                      -
                      
                      
                      
                      -Common
      stock, par value $0.001, 100,000,000  authorized, 9,246,000 and
      7,125,000 outstanding at September 30, 2010 and December 31, 2009,
      respectively
                      
                      
                      9,246
                      
                      
                      
                      7,125Additional
      paid in capital
                      
                      
                      (8,029
                      )
                      
                      
                      (250,841
                      )Retained
      loss
                      
                      
                      (2,269,005
                      )
                      
                      
                      (910,674
                      )Total
      equity (deficit)
                      
                      
                      (2,267,788
                      )
                      
                      
                      (1,154,390
                      )Total
      liabilities and equity (deficit)
                      
                      $
                      366,710
                      
                      
                      $
                      405,520





The
accompanying notes are an integral part of these financial
statements.


4


First
Blush Brands, Inc.


(Formerly
Known as AFH Holding II, Inc.)


Statements
of Profit and Loss





Unaudited
                            
                            
                            UnauditedFor the Three Months Ended
                            
                            
                            For the Nine Months EndedSeptember30,
                            
                            
                            September30,2010
                            
                            
                            2009
                            
                            
                            2010
                            
                            
                            2009Gross
      revenue
                            
                            $
                            59,091
                            
                            
                            $
                            252,411
                            
                            
                            $
                            273,089
                            
                            
                            $
                            622,155Promotion
      allowance
                            
                            
                            (47,236
                            )
                            
                            
                            (126,891
                            )
                            
                            
                            (121,407
                            )
                            
                            
                            (162,422
                            )Net
      revenue
                            
                            
                            11,855
                            
                            
                            
                            125,520
                            
                            
                            
                            151,682
                            
                            
                            
                            459,733Cost
      of goods sold
                            
                            
                            24,845
                            
                            
                            
                            99,804
                            
                            
                            
                            122,613
                            
                            
                            
                            299,086Gross
      profit (loss)
                            
                            
                            (12,990
                            )
                            
                            
                            25,716
                            
                            
                            
                            29,069
                            
                            
                            
                            160,647Selling,
      general and administrative expense
                            
                            
                            439,252
                            
                            
                            
                            77,278
                            
                            
                            
                            1,197,213
                            
                            
                            
                            549,929Loss
      on derivative liabilities
                            
                            
                            3,953
                            
                            
                            
                            -
                            
                            
                            
                            3,953
                            
                            
                            
                            -Abnormal
      production costs
                            
                            
                            21,213
                            
                            
                            
                            -
                            
                            
                            
                            21,213
                            
                            
                            
                            28,415Write-off
      of intangible asset
                            
                            
                            51,071
                            
                            
                            
                            -
                            
                            
                            
                            51,071
                            
                            
                            
                            -Write-off
      of inventory
                            
                            
                            -
                            
                            
                            
                            131,213
                            
                            
                            
                            28,613
                            
                            
                            
                            131,213Operating
      loss
                            
                            
                            (528,479
                            )
                            
                            
                            (182,775
                            )
                            
                            
                            (1,272,994
                            )
                            
                            
                            (548,910
                            )Interest
      expense
                            
                            
                            37,459
                            
                            
                            
                            35,762
                            
                            
                            
                            112,922
                            
                            
                            
                            96,197Pre-tax
      loss
                            
                            
                            (565,938
                            )
                            
                            
                            (218,537
                            )
                            
                            
                            (1,385,916
                            )
                            
                            
                            (645,107
                            )Tax
      benefit
                            
                            
                            (11,200
                            )
                            
                            
                            (4,871
                            )
                            
                            
                            (27,585
                            )
                            
                            
                            (13,023
                            )Net
      loss
                            
                            $
                            (554,738
                            )
                            
                            $
                            (213,666
                            )
                            
                            $
                            (1,358,331
                            )
                            
                            $
                            (632,084
                            )Basic
      loss per share
                            
                            $
                            (0.06
                            )
                            
                            $
                            (0.02
                            )
                            
                            $
                            (0.18
                            )
                            
                            $
                            (0.07
                            )Diluted
      loss per share
                            
                            $
                            (0.06
                            )
                            
                            $
                            (0.02
                            )
                            
                            $
                            (0.18
                            )
                            
                            $
                            (0.07
                            )





The
accompanying notes are an integral part of these financial
statements.


5


First
Blush Brands, Inc.


(Formerly
Known as AFH Holding II, Inc.)


Statements
of Cash Flows





UnauditedFor
      the Nine Months EndedSeptember 30,2010
                      
                      
                      2009Cash
      flow used by operating activities:Cash
      collected from customers
                      
                      $
                      165,113
                      
                      
                      $
                      324,020Cash
      paid to suppliers
                      
                      
                      (206,852
                      )
                      
                      
                      (126,280
                      )Cash
      paid to employees & contractors
                      
                      
                      (22,583
                      )
                      
                      
                      (374,914
                      )Cash
      paid for other selling, general & administrative costs
                      
                      
                      (237,147
                      )
                      
                      
                      (256,208
                      )Cash
      paid for interest
                      
                      
                      (288,951
                      )
                      
                      
                      -Net
      cash used by operating activities
                      
                      
                      (590,420
                      )
                      
                      
                      (433,382
                      )Cash
      flow from financing activities:Payments
      on notes payable
                      
                      
                      (818,831
                      )
                      
                      
                      -Proceeds
      from issuing notes payable
                      
                      
                      1,055,454
                      
                      
                      
                      157,646Proceeds
      from the sale of common stock and warrants
                      
                      
                      293,462
                      
                      
                      
                      274,989Proceeds
      from recapitalization
                      
                      
                      74,199
                      
                      
                      
                      -Net
      cash from financing activities
                      
                      
                      604,284
                      
                      
                      
                      432,635Cash
      flow used by investing activities:Purchase
      of long-lived assets
                      
                      
                      (10,245
                      )
                      
                      
                      -Net
      cash used by investing activities
                      
                      
                      (10,245
                      )
                      
                      
                      -Increase/(decrease)
      in cash
                      
                      
                      3,619
                      
                      
                      
                      (747
                      )Cash
      at the start of the period
                      
                      
                      -
                      
                      
                      
                      874Cash
      at the end of the period
                      
                      $
                      3,619
                      
                      
                      $
                      127





Reconciliation
of net loss to cash used by operating activities:





UnauditedFor
      the Nine Months EndedSeptember 30,2010
                
                
                2009Net
      loss
                
                $
                (1,358,331
                )
                
                $
                (632,085
                )Amortization
      & depreciation expense
                
                
                4,794
                
                
                
                7,072Increase
      in A/R
                
                
                (27,723
                )
                
                
                (52,856
                )Decrease
      in inventory
                
                
                58,030
                
                
                
                232,530Increase
      in prepaids
                
                
                (5,112
                )
                
                
                -Increase
      in deferred tax asset
                
                
                (28,387
                )
                
                
                (13,023
                )Increase/(decrease)
      in accounts payable & promotional liability
                
                
                472,390
                
                
                
                (42,353
                )Increase
      in liability to related party consultant
                
                
                245,000
                
                
                
                -(Decrease)/increase
      in other accrued liabilities
                
                
                (6,105
                )
                
                
                67,333Write
      off of intangible asset
                
                
                51,071
                
                
                
                -Change
      in derivative liability
                
                
                3,953
                
                
                
                -Net
      cash flows used by operating activity
                
                $
                (590,420
                )
                
                $
                (433,382
                )





The
accompanying notes are an integral part of these financial
statements.


6


First
Blush Brands, Inc.




(Formerly
Known as AFH Holding II, Inc.)




Notes
to Financial Statements




1.
The Company




As used
herein, “we” and “our” refers to First Blush, Inc. prior to the Exchange (See
footnote #3 History and
Recapitlization) and to First Blush Brands, Inc. and its consolidated
subsidiary after the Exchange.  First Blush, Inc. and First Blush Brands,
Inc., are each a Delaware corporations and are based in Beverly Hills,
California.  Currently, we produce and market two product
lines:




1.
            An
      all natural, premium grape juice crafted from 100% pure, fine wine grapes.
      We currently offer four juices: Cabernet, Merlot, Syrah and Chardonnay
      juice under the name “First Blush.”




2.
            An
      all natural ready-to-drink tea crafted from 50% of our premium grape juice
      and 50% brewed organic white tea. We currently offer two teas: Cabernet
      White Tea and Chardonnay White Tea, also under the name “First
      Blush.”




We flash
pasteurize all of our products for safety and product quality.  The result
is that our products have a 24-month shelf life.




We sell
our products in over 1,500 retail outlets in the United States, primarily
through grocery stores.




We
purchase all of our grape juice concentrate from third-party suppliers and
outsource all production, warehousing and distribution.  As well, we
utilize brokers to help us initiate new sales and service existing
customers.




2.
Basis of Presentation




We have
prepared our accompanying unaudited financial statements in accordance with
generally accepted accounting principles in the United States (“GAAP”) for
interim financial information and in accordance with the rules and regulations
of the United States Securities and Exchange Commission (“SEC”). Accordingly,
the financial statements do not include all of the information and notes
required by GAAP for annual financial statements as permitted under applicable
rules and regulations. In the opinion of management, all normal recurring
adjustments considered necessary for a fair presentation have been included. The
results of operations for the three and nine months ended September 30, 2010 are
not necessarily indicative of the results to be expected for the full year
ending December 31, 2010.  For further information, refer to our
financial statements and notes thereto included with our 8-K filed with the
Securities and Exchange Commission on May 13, 2010, as amended.




Except
for the authorized and outstanding capital stock appearing on the balance sheet
the financial statements as of and for the year ended December 31, 2009 are for
First Blush, Inc. and have been audited.  The financial statements for the
three and nine months ended September 30, 2009 are also for First Blush,
Inc.  Financial statements post the Exchange represent the consolidated
results of First Blush Brands, Inc. and its subsidiary First Blush, Inc. 
The information on the balance sheet for the authorized and outstanding capital
stock at December 31, 2009 is restated to show the effect of the Exchange as a
recapitalization.




3. 
History and Recapitalization




First
Blush Brands, Inc. (“FBBI”), formerly known as AFH Holding II, Inc. (“AFH”), was
incorporated as a Delaware corporation on April 16, 2007 as a development stage
company with no assets and no business operations.   AFH was organized
to provide a method for a foreign or domestic private company to become a
reporting (“public”) company.   FBBI registered its shares of common
stock under Section 12(g) of the Exchange Act. FBBI was what is commonly known
as a “shell” company.  At the time of the Exchange, AFH Holding and
Advisory, LLC was the sole shareholder of FBBI.




On May
12, 2010, FBBI and its sole shareholder entered into a share exchange agreement
with First Blush, Inc. and its security holders (the “Exchange
Agreement”).  Pursuant to the terms of the Exchange Agreement, each
outstanding share of common stock and Series A Preferred Stock of First Blush,
Inc. was transferred to FBBI in exchange for shares of the common stock, $0.001
par value per share, of FBBI.  Upon consummation of the Exchange Agreement
(the “Exchange” or “reorganization”), First Blush, Inc. became a wholly owned
subsidiary of FBBI, and the security holders of First Blush became our
shareholders, owning approximately 89.06% of our outstanding common stock. 
On September 8, 2010, AFH Holding II, Inc. changed its name to First Blush
Brands, Inc.


7




The
Exchange was accounted for as a capital-raising transaction under the guidance
of the SEC’s staff’s Accounting Disclosure Rules and
Practices, Appendix B.Under that guidance, a transaction between a
private operating company and a non-operating public shell company in which the
shell company is the issuer of securities and the operating company is
determined to be the accounting enterprise for accounting purposes is accounted
for as an issuance of securities by the operating company under capital-raising
transaction rather than a business combination.




The
proceeds of $74,199 from recapitalization consist of the following:




1)
            We
      agreed to pay a fee to AFH Holding and Advisory, LLC in the amount of
      $250,000, subject to satisfaction of certain conditions.  Our CEO Mr.
      Tony Roth paid $75,000 of that amount.  We issued to Mr. Roth 75,000
      shares of our common stock in satisfaction of this indebtedness.  We
      consider the $75,000 to be cash proceeds to
us.




2)
            We
      issued 800,000 shares to AFH Holding and Advisory, LLC as part of the
      recapitalization at a par value of $0.001 per share.  We consider the
      aggregate $800 to be cash proceeds to
us.




3)
            We
      reduced Additional Paid in Capital by $1,601 as a reduction of cash flow
      from the recapitalization as part of our recapitalization accounting and
      the roll forward of Additional Paid in
Capital.




In
January 2007, First Blush business operations were commenced by Victoria Briggs
and her husband, Christopher Bagdasarian, through Rose Hill Gardens LLC (“RHG”)
which is 100% owned by Ms. Briggs.  On August 1, 2008 First Blush, Inc. was
formed as a Delaware corporation.




On
December 31, 2008 the assets related to First Blush were transferred from RHG to
First Blush, Inc.  In exchange First Blush, Inc. issued a promissory note
to RHG for $828,698.  RHG also extended to us the option to borrow
additional funds up to a combined aggregate borrowing of $1,000,000. 
 The promissory note accrues annual interest at 12%.




The
transfer of the assets by RHG into First Blush, Inc. was between entities under
common control pursuant to Accounting Standards Codification 805, Business
Combinations. The transfer of the assets also constituted a set of activities
and assets to be a business in accordance with FASB ASC 805.  For a
transferred set of activities and assets to be a business, it must contain all
of the inputs and processes necessary for it to continue to conduct normal
operations after the transferred set of assets is separated from the transferor,
which include the ability to sustain a revenue stream by providing its outputs
to customers. First Blush, Inc. obtained the inputs and processes necessary for
normal operations.  The transaction has been accounted for as a
recapitalization of RHG.  Accordingly, the assets were carried over to
First Blush, Inc. at the historical carrying values and the historical
operations of those assets by RHG are presented in the accompanying financial
statements as the historical operations of First Blush, Inc. for all periods
presented.




4.
Summary of Significant Accounting Policies




a.   Use
of estimates in preparation of financial statements




The
preparation of our financial statements in conformity with accounting principles
generally accepted in the United States requires us to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and contingent liabilities at the date of our
financial statements and our reported amounts of revenue and expense during the
reporting period. Actual results could differ from our
estimates.


8


b.
Inventory and inventory valuation




Our
inventory consists of raw materials and finished goods as follows:




At
      September 30,
                    
                    
                    At
      December 31,2010
                    
                    
                    2009Finished
      goodsFirst
      Blush Juice
                    
                    $
                    11,318
                    
                    
                    $
                    57,782First
      Blush Tea
                    
                    
                    -
                    
                    
                    
                    34,003Total
      finished goods
                    
                    $
                    11,318
                    
                    
                    $
                    91,785Raw
      materialsConcentrate
                    
                    $
                    153,924
                    
                    
                    $
                    172,737Other
                    
                    
                    69,863
                    
                    
                    
                    28,613Total
      raw materials
                    
                    $
                    223,787
                    
                    
                    $
                    201,350Total
      Inventory
                    
                    $
                    235,105
                    
                    
                    $
                    293,135




Finished
goods include all of the costs to produce cases of completed juice and tea
bottles that are ready to sell.  These costs include: 1) cost of physical
inputs such as the cost of the juice and tea, the bottle, the cap, etc. and 2)
cost of service inputs such as cost to mix the juice, fill the bottles, shipping
raw materials to the bottler and storage of the finished goods.  In
addition, we include in the cost of finished goods the cost of normal production
losses expected to be incurred during the bottling process.  We use the
industry norm of 5% of total production cost to calculate the loss factor to
include in our inventory.   We expense any losses above 5% of total
production cost in the period of production and report it separate from cost of
goods sold in our statement of profit and loss.




During
the nine months ended September 30, 2010 we wrote off $28,613 of raw materials
(labels and trays) that were unsuitable for future production due to our switch
to boxes instead of trays and our change to a new UPC codes that specifically
identifies First Blush Brands.   During the quarter ended September
30, 2010 we had $21,213 of abnormal production costs related to shipping raw
materials from our old bottler to our new bottler, air freight costs and
performing non-routine testing on our bottlers’ equipment in preparation for
production.




In 2009
we had abnormal production losses in excess of the 5% norm equating to $28,415
due to issues with our bottler.   These were expensed as part of
operating income separate from cost of goods sold in our statement of profit and
loss for the nine months ended September 30, 2009.




In 2009
we also switched from using glass bottles to PET (Polethylene terephthalate)
bottles and as a result disposed of $131,213 of finished inventory in glass
bottles.




We value
our inventory using a first-in first-out cost flow assumption adjusted for lower
of cost or market valuation, if needed.  To date, no lower of cost or
market valuation adjustments have been necessary.  In addition, our
finished goods have a two year shelf-life; to date we have not had a loss
related to expiration of our inventory’s shelf-life.




c. 
    Revenue and related cost recognition




We
recognize revenue when the following revenue recognition criteria are
met:


•
            We
      have persuasive evidence of a sales
arrangement;




•
            We
      have evidence that delivery of goods has
  occurred;




9


•
            We
      have a sales price that is fixed or
  determinable; and




•
            We
      have reasonable assurance of
collectability.




We
generally sell our product FOB destination and therefore transfer title and the
related risks of ownership when the customer accepts the product at their
receiving dock.


We report
revenue net of any state imposed redemption requirements, which we collect from
the purchaser and remit to the respective state.   We are not required
to collect sales taxes as we sell to retailers, who are responsible for
collecting sales taxes from the ultimate consumer.


Consistent
with our revenue recognition practices, we recognize related cost of goods sold
when our product is received by our customers.
  d. Allowance for Doubtful Trade
Accounts Receivable


The Company establishes an
allowance for doubtful or uncollectible trade accounts receivable based on the
age of outstanding invoices and management’s
evaluation of collectability of outstanding balances.




e.
Promotional liability




Many of
our promotional programs are based on discounts given to the ultimate consumer
at the point of purchase.  For these programs we generally reduce our cost
to the retailer for all product sold under promotion so there is no, or limited,
impact on the retailer’s gross profit.  Because we do not know the ultimate
amount of product that will be sold under promotional programs and because
retailers pay us 100% of the purchase price upon purchase of our product, we
accrue an estimated liability for the amount we expect we will have to refund to
the retailers due to these programs.  As a result we have an accrual for
promotional programs of $89,172 and $27,194 at September 30, 2010 and December
31, 2009, respectively.




We treat
promotional allowance as contra revenue and recorded promotional allowance of
$47,236 and $126,891for the three months ended September, 30 2010 and 2009,
respectively and $121,407and $162,422 for the nine months ended September, 30
2010 and 2009, respectively.  For the quarter ended September 30, 2010
expect a promotional allowance of 50% or $29,546 for our new promotional
program.  The additional promotional allowance of $17,690 is an adjustment
to our promotional liability for first and second quarters of 2010 promotional
activity at Safeway where our product was still being sold under
promotion.




f.
Income Taxes




We
account for income taxes under the Financial Accounting Standards Board’s, FASB,
accounting guidance for income taxes. In accordance with FASB’s accounting
guidance, we recorded a deferred tax asset for the net operating loss, NOL,
carry forward resulting from losses.  The asset is a result of our ability
to utilize the NOL in future periods to offset future taxable income and
therefore reduce our taxes payable in the future.  At September 30, 2010
and December 31, 2009 we had an asset for the NOL of $958,418 and $390,687,
respectively. However, given our current going concern issues we determined that
this asset may not be realized as it is dependent on us generating sufficient
future operating income and accordingly we created a valuation allowance of
$910,497 and $371,153 at the respective dates based on our judgment and
estimates.  In the future, we may determine that we will be able to realize
all or most of this asset and we will adjust our valuation allowance
accordingly, which will result in a reduction in income tax expense reported in
our financial statements in the period of change.




g.
Recent accounting pronouncements




There
have been no recent accounting pronouncements that will directly and materially
impact us in the future.


10




5.
May 26, 2010 Offering




On May
26, 2010 we commenced an offering to certain “accredited investors” (as such
term is defined in Regulation D promulgated under the Securities Act of 1933, as
amended) for the right to purchase, at $2 per unit, units consisting
of:




o
            Two
      shares of our common stock.




o
            A
      base warrant (“Base Warrant”) to purchase one share of our common stock at
      the value per share of our common stock in our next qualified financing,
      as defined in the Base Warrant.




o
            A
      par value warrant (“Par Warrant”) to purchase additional shares of our
      common stock at its par value ($0.001 per share) in the event its value
      per share in the next qualified financing is less than
    $1.00.




During
the quarter ended September 30, 2010 we raised $246,000 under this offering
issuing 246,000 shares of our common stock and 123,000 base warrants.  The
units were sold to investors pursuant to the terms of a securities purchase
agreement between the Company and the investors.  We granted to purchasers
of units “piggyback” registration rights with respect to their shares of common
stock.




6.
Notes Payable






On August
17, 2010, we completed a private placement of $1,100,000 principal amount of
promissory notes (the “Notes”) and 1,000,000 shares of common stock to
“accredited investors” (the “Private Placement”). The securities were sold to
investors pursuant to the terms of a securities purchase agreement (the
“Purchase Agreement”) between the Company and the investors.  We received
gross proceeds from the Private Placement of $1,100,000 which we used to pay
down our existing senior debt (see below).




The
principal amount of the Notes is due in 12 equal monthly payments of an
aggregate of $91,667 each, commencing on January 1, 2012. The Notes bear
interest at a rate of 10% per annum. Interest is payable quarterly in arrears
commencing on September 30, 2010.  Pursuant to the terms of the Notes, we
have agreed, among other things, not to (i) pay dividends on our common stock,
other than solely in the form of common stock, (ii) repurchase our common stock
or other securities, (iii) sell or dispose of all or a substantial portion of
our assets unless the proceeds of such sale are used to pay off the Notes, or
(iv) make future loans or advances or guarantee debt other than in the ordinary
course of business.




Our
obligations under the Notes are guaranteed by RHG.




We
granted to the purchasers in the Private Placement “piggyback” registration
rights with respect to their shares of common stock substantially similar to the
registration rights that we have granted to the purchasers in our previous
private placements.




We used
the proceeds of the Private Placement to repay (i) all amounts outstanding under
our $100,000 Senior Secured Promissory Note, dated September 26, 2009, due to
Michael D. Bagdasarian (the “MDB Note”), and (ii) $1,000,000 of the outstanding
principal and accrued interest under our Senior Secured Credit Facility from RHG
(the “RHG Note”). Following this repayment, the MDB Note has been paid in full
and terminated and the outstanding balance of the RHG Note was $192,876
increasing to $208,360 at September 30, 2010.  We may make additional
borrowings under the RHG Note in the future.




We
discounted the notes by $47,461, which was allocated to the shares issued with
the notes.  This discount produces an effective interest rate of
12.67%.




7.
Warrants and Fair Value of Financial Instruments




We have
adopted the provisions of Accounting Standards Codification (“ASC”) 820-10’s
guidance on fair value measurements, which defines fair value, establishes a
framework for measuring fair value and expands disclosures about fair value
measurements related to financial instruments.


Fair
value as defined by the guidance is the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. The fair value estimates of financial
instruments are not necessarily indicative of the amounts we might pay or
receive in actual market transactions. The use of different market assumptions
and/or estimation methodologies may have a material effect on the estimated fair
value amounts.


11


Current
fair value accounting guidance includes a hierarchy that is intended to increase
consistency and comparability in fair value measurements and related
disclosures. The fair value hierarchy is based on inputs to valuation techniques
that are used to measure fair value that are either observable or unobservable.
Observable inputs reflect assumptions market participants would use in pricing
an asset or liability based on market data obtained from independent sources
while unobservable inputs reflect a reporting entity’s pricing based upon their
own market assumptions. The current guidance establishes a three-tiered fair
value hierarchy that prioritizes the inputs used in measuring fair value as
follows:


·
              Level
      1. Observable inputs such as quoted prices in active
    markets;


·
            Level
      2. Inputs, other than quoted prices, that are observable for the asset or
      liability, either directly or indirectly. These include quoted prices for
      similar assets or liabilities in active markets and quoted prices for
      identical or similar assets or liabilities in markets that are not
      active; and


·
            Level
      3. Unobservable inputs in which there is little or no market data, which
      require the reporting entity to develop its own
    assumptions.




To the
extent that multiple inputs are used to determine the fair value of an asset or
a liability, that asset or liability will be classified in its entirety based on
the lowest level of input that is significant to the fair value measurement,
with level 3 being the lowest.




The
Financial Accounting Standards Board’s accounting guidance requires disclosure
of fair value information about financial instruments, whether or not those
instruments are recognized at fair value in the accompanying balance
sheets.




We have
the following three types of financial instruments:




I.
Base Warrants and Par Warrants




We issued
the Base Warrants and Par Warrants in our May 26, 2010 offering, as discussed
above.   We have determined that these warrants qualify as derivative
financial instruments under the provisions of ASC 815-40 “Derivatives and
Hedging – Contracts in an Entity’s Own Stock.”  These warrant
agreements include provisions designed to protect holders from a decline in our
stock price (“down-round” provision) because: 1) Base Warrants — the exercise
price of the Base Warrants will be reduced in the event that we issue equity
shares at a price lower than the current $1 exercise price of the warrants, and
2) Par Warrants — the number of shares the Par Warrant converts into increases
if we issue equity shares at a price lower than $1 per share.   As a
result of these provisions, these warrants are not considered “fixed-for-fixed”
options as defined under ASC 815-40, and consequently these warrants must be
treated as a liability and recorded at fair value at each reporting date with
changes in fair value reflected in earnings.




The Base
Warrants and the Par Warrants are considered Level 3 financial liabilities
because there is no current market for these securities and therefore the
determination of fair value requires significant judgment and use of
unobservable inputs.  We have estimated the fair value of these warrants
using the Black-Scholes option pricing model, and in the case of the Par
Warrants an estimate of the number of shares that the Par Warrant would convert
into given various possible future share prices.




For the
Black-Scholes model we used the following assumptions:




Issuance
                    
                    
                    9/30/2010Expected
      volatility (A)
                    
                    
                    116
                    %
                    
                    
                    115
                    %Expected
      dividend yield
                    
                    
                    0.00
                    %
                    
                    
                    0.00
                    %Risk-free
      rate (B)
                    
                    
                    1.01
                    %
                    
                    
                    0.64
                    %Expected
      term, years
                    
                    
                    3
                    
                    
                    
                    3




(A)
Because our company did not have its shares traded on a public stock exchange we
had to use a proxy to calculate volatility.  We used share price data for
three historical years for small publically traded beverage companies with
market capitalization of less than $35 million.




(B) We
used the rate on U.S. federal government bonds with a three-year term found at
http://www.federalreserve.gov/releases/h15/data.htm.




We
disclose these warrants on our balance sheet under “Derivative liabilities” and
report change in fair value in income from operations under “Loss on derivative
liabilities” summarize as follows:


12




At September 30, 2010Fair Value Measurements
    UsingCarrying
                          Value
                        
                        
                        Level 1
                        
                        
                        Level 2
                        
                        
                        Level 3
                        
                        
                        TotalDerivative
      liabilities
                        
                        $
                        126,680
                        
                        
                        $
                        -
                        
                        
                        $
                        -
                        
                        
                        $
                        126,680
                        
                        
                        $
                        126,680Total
      derivative liabilities
                        
                        $
                        126,680
                        
                        
                        $
                        -
                        
                        
                        $
                        -
                        
                        
                        $
                        126,680
                        
                        
                        $
                        126,680




Fair Value Measurements
                              Using Level 3 InputsDerivative
                              Liabilities
                            
                            
                            TotalsBeginning
      balance as of June 30, 2010
                            
                            $
                            -
                            
                            
                            $
                            -Issuance
      of derivative liabilities
                            
                            
                            122,727
                            
                            
                            
                            122,727Total
      loss on derivative liabilities
                            
                            
                            3,953
                            
                            
                            
                            3,953Ending
      balance as of September, 30, 2010
                            
                            $
                            126,680
                            
                            
                            $
                            126,680




II.
Notes payable


The
following table reflects the carrying value and fair value of our notes
payable:


At September 30,
                  
                  
                  At December 31,2010
                  
                  
                  2009Carrying Value
                  
                  
                  Fair Value
                  
                  
                  Carrying Value
                  
                  
                  Fair ValueNotes
      payable
                  
                  $
                  1,263,814
                  
                  
                  $
                  1,263,471
                  
                  
                  $
                  1,027,191
                  
                  
                  $
                  1,025,499





We
believe the carrying value of our RHG Note is not euqual to its a reasonable
estimate of its fair value due recent changes in the credit markets.  We
have estimated the fair value of our fixed rate debt using discounted cash flow
techniques based on level 3 inputs, as discussed above.  Specifically we
estimated the fair market discount rate for our debt considering the credit
markets, our credit risk and the terms of our debt including call provisions and
collateral.


We
believe the carrying value of our new Notes is a reasonable estimate of their
fair value as those notes were issued during the quarter ended September, 30,
2010.


III.
Receivables, Accounts Payable and Certain Other Accrued Liabilities


Due to
their short-term nature, fair value approximates carrying value


8.
Related Party Indebtedness




We have
transactions with related parties as follows:




·
            Rose
      Hill Gardens, LLC




We had a
secured note payable with a balance of $208,360 and $927,191 at September 30,
2010 and December 31, 2009, respectively, to Rose Hill Gardens, LLC.  Rose
Hill Gardens, LLC owned 72.22% and 97.4% at September 30, 2010 and December 31,
2009, respectively.   At September 30, 2010 Victoria Briggs, was a
member of our board of directors.  At December 31, 2009 Victoria Briggs,
was our acting president at the time and member of our board of directors, and
is the sole owner of Rose Hill Gardens, LLC.




13




On July
1, 2010 we increased the monthly consulting fee paid to RHG to $20,000 per
month, however, on August 16, 2010, we modified the contract again changing the
fee to $10,000 per month, extending it for one year and defining its scope to
provide support in the following areas:




1.
            Sales
      and marketing support




2.
            Fulfillment




3.
            Production
      management




4.
            Customer
      Service




5.
            Strategic
      Planning




6.
            Acquisition
      targeting




7.
            Advice
      concerning structure and negotiations of acquisitions and financing
      transactions




At any
time, we may reduce the scope of any service or terminate all of the services
under the agreement and accordingly renegotiate the fee paid.




·
            Michael
      D. Bagdasarian, Trustee




At
December 31, 2009, we had a secured note payable of $100,000 to Michael D.
Bagdasarian, Trustee.  Michael Bagdasarian is the father of Chris
Bagdasarian who is Victoria Briggs’ husband.




·
            AFH
      Holding and Advisory, LLC




The
consideration given to AFH Holding and Advisory, LLC for the Exchange consisted
of 800,000 shares of our common stock and $250,000, $75,000 of which was paid by
Tony Roth.  As of September 30, 2010 we have accrued the remaining $175,000
as a liability along with an additional $70,000 for expenses associated with the
Exchange reimbursable to AFH Holding and Advisory, LLC.   At September
30, 2010 AFH Holding and Advisory, LLC owns approximately 8.7% of our common
stock.




·
            Barrett
      Carrere, CFO and Principal Executive
Officer




As of
September 30, 2010 we owe Barrett Carrere, our CFO and Principal Executive
Officer, an aggregate total of $106,701 consisting of: $92,882 for accrued
compensation expenses, reported in other accrued liabilities on balance our
sheet, and $13,819 for expenses incurred on behalf of the Company, recorded in
accounts payable on our balance sheet.




9.
Intangibles




We have
the following amortizable intangible asset:




At December 31,2009Gross
                    Carrying
                    Amount
                  
                  
                  Accumulated
                    Amortization
                  
                  
                  Net
                    Carrying
                    AmountExclusive
      right to use bottle production mold
                  
                  $
                  66,000
                  
                  
                  $
                  (10,214
                  )
                  
                  $
                  55,786




We wrote
this asset off on July 1, 2010 as we are no longer using this mold and do not
anticipate use of it in the future.  The write-off resulted in a
charge to income of $51,071.


14


During
the quarter ended September 30, 2010 we purchased the domain name “First Blush”
for $1,400.  This is an indefinite lived intangible asset.




10.
Calculation of Earnings per Share




Basic
earnings per share is calculated by dividing net income by the weighted-average
number of shares outstanding during the period. Diluted earnings per share is
calculated by dividing net income by the weighted-average number of common
shares outstanding after giving effect to all potentially dilutive common shares
outstanding during the period. Basic and diluted earnings per share were
calculated as follows:


Three
      Months Ended
                        
                        
                        Nine
      Months EndedSeptember 30,
                        
                        
                        September 30,2010
                        
                        
                        2009
                        
                        
                        2010
                        
                        
                        2009Net
      loss
                        
                        $
                        (554,738
                        )
                        
                        $
                        (213,666
                        )
                        
                        $
                        (1,358,331
                        )
                        
                        $
                        (632,084
                        )Weighted
      average common shares outstanding:Basic
                        
                        
                        8,707,278
                        
                        
                        
                        8,976,563
                        
                        
                        
                        7,506,593
                        
                        
                        
                        8,976,563Effect
      of dilutive potential common stock:Stock
      options
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -Non-vested
      shares
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -Warrants
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -Diluted
                        
                        
                        8,707,278
                        
                        
                        
                        8,976,563
                        
                        
                        
                        7,506,593
                        
                        
                        
                        8,976,563Basic
      loss per share
                        
                        $
                        (0.06
                        )
                        
                        $
                        (0.02
                        )
                        
                        $
                        (0.18
                        )
                        
                        $
                        (0.07
                        )Diluted
      loss per share
                        
                        $
                        (0.06
                        )
                        
                        $
                        (0.02
                        )
                        
                        $
                        (0.18
                        )
                        
                        $
                        (0.07
                        )





Because
their inclusion would have had an anti-dilutive effect, we excluded from share
count, and our weighted-average share count calculations, potential common
shares of 641,954 and 114,750 for the nine and three months ended September 30,
2010, respectively and potential common shares of for the nine and three months
ended September 30, 2009, consisting of shares issuable upon exercise of
warrants.




11.
CEO Termination




On August
13, 2010, our CEO and Chairman of the board, Tony Roth, terminated his
employment with us and stepped down from our board of directors.  He owns
75,000 shares of our common stock.




In
addition to his responsibilities as CFO, Barrett Carrere has assumed the
responsibilities of our principal executive officer until we hire a new
CEO.


15


12.
Concentrations




We had
concentrations in gross revenue and accounts receivable as follows:




% of Gross RevenueFor
      the Three Months Ended
                    
                    
                    For
      the Nine Months EndedSeptember
      30,
                    
                    
                    September
      30,2010
                    
                    
                    2009
                    
                    
                    2010
                    
                    
                    2009Safeway
                    
                    
                    96
                    %
                    
                    
                    84
                    %
                    
                    
                    95
                    %
                    
                    
                    70
                    %UNFI
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    1
                    %
                    
                    
                    10
                    %Palmentere
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    8
                    %New
      Age
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    3
                    %City
      Super
                    
                    
                    4
                    %
                    
                    
                    7
                    %
                    
                    
                    3
                    %
                    
                    
                    3
                    %




% of Accounts ReceivableAt
                              
                              
                              AtSeptember
      30,
                              
                              
                              December
      31,2010
                              
                              
                              2009Safeway
                              
                              
                              72
                              %
                              
                              
                              76
                              %UNFI
                              
                              
                              28
                              %
                              
                              
                              -New
      Age
                              
                              
                              -
                              
                              
                              
                              24
                              %




Our
payment terms generally require payment within 30 days, however, as of September
30, 2010, we had approximately $24,000 in accounts receivable for UNFI the
majority of which was greater than 90 days old.  We have an allowance of
approximately $21,000 for the balances over 90 days old.




We do not
require collateral for receivables from our customers; however, we do evaluate
new customers for credit worthiness.




13.
Going Concern




We began
operations in January 2007 and have incurred costs in formulating our products
and establishing a market for them.   We incurred net losses of
$554,738 and $213,666 for the three months ended September 30, 2010 and 2009,
respectively and net losses of $1,358,331 and $632,084 for the nine months ended
September 30, 2010 and 2009, respectively.  In addition, at September 30,
2010 our current liabilities of $1,579,044 are considerably in excess of our
current assets of $308,624.  As a result of these factors, there is
substantial doubt about our ability to continue as a going concern and our
ability to pay off our current liabilities.   We are attempting to
obtain additional capital through either debt or equity financing sources, or a
combination of the two, however, we have had difficulties doing so and if we are
unable to obtain additional capital we may need to declare bankruptcy,
discontinue operations or both.    The accompanying financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.




14.
Subsequent Events




On
October 5, 2010 one of our vendors, Zuckerman-Honickman, Inc. (“Zuckerman”)
filed an action against First Blush, Inc. and First Blush Brands Inc. in Los
Angeles Superior Court, case name Zuckerman-Honickman, Inc. v. First Blush,
Inc., case number BC446875.  Zuckerman is seeking recovery of $122,678 for
past due invoices and 10% interest and legal costs.  The $122,678 is part
of our accounts payable balance at September 30, 2010 and December 31,
2009.   We have reached a settlement calling for monthly payments of
$10,000, the first of which has already been made.


16


Item 2. Management’s Discussion
and Analysis of Financial Condition and Results of Operations.





Forward-looking
Information





The
following discussion should be read in conjunction with our Consolidated
Financial Statements and Notes thereto, included elsewhere within this report.
This Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of Section 21E of the Securities Exchange Act of 1934, including
statements using terminology such as “can,” “may,” “believe,” “designed to,”
“expect,” “intend to,” “plan,” “anticipate,” “estimate,” “potential,” or
“continue,” or the negative thereof or other comparable terminology regarding
beliefs, plans, expectations or intentions regarding the future. You should read
statements that contain these words carefully because they:





·
            discuss our future
      expectations;





·
            contain projections of our future
      results of operations or of our financial condition;
      and





·
            state other “forward-looking”
      information.





We
believe it is important to communicate our expectations. However,
forward-looking statements involve risks and uncertainties and our actual
results and the timing of certain events could differ materially from those
discussed in or implied by forward-looking statements as a result of certain
factors, including those set forth in our Current Report on Form 8-K filed on
May 13, 2010, as amended.  All forward-looking statements and risk factors
included in this document are made as of the date hereof, based on information
available to us as of the date thereof, and we assume no obligations to update
any forward-looking statement or risk factor, unless we are required to do so by
law.





Introduction





We
produce and market two product lines:





1.
            An all natural, premium grape
      juice crafted from 100% pure, fine wine grapes. We currently offer four
      juices: Cabernet, Merlot, Syrah and Chardonnay juice under the name “First
      Blush.”





2.
            An all natural ready-to-drink tea
      crafted from 50% of our premium grape juice and 50% brewed organic white
      tea. We currently offer two teas: Cabernet White Tea and Chardonnay White
      Tea, also under the name “First
Blush.”




We sell
our products in over 1,500 retail outlets in the United States, primarily
through grocery stores.





We
purchase all of our grape juice concentrate from third-party suppliers and
outsource all production, warehousing and distribution.  As well, we
utilize brokers to help us initiate new sales and service existing
customers.





Executive
Overview




We, First
Blush Brands, Inc., formerly known as AFH Holding II, Inc., were incorporated as
a Delaware corporation on April 16, 2007 as a development stage company with no
assets and no business operations.   We were organized to provide a
method for a foreign or domestic private company to become a reporting
(“public”) company.   We registered its shares of common stock under
Section 12(g) of the Exchange Act.  We were what is commonly known as a
“shell” company.  At the time of the exchange, AFH Holding and Advisory,
LLC was our sole shareholder.




On May
12, 2010, we entered into a share exchange agreement with First Blush, Inc. and
its security holders whereby each outstanding share of common stock and Series A
Preferred Stock of First Blush, Inc. was transferred to us in exchange for
shares of our common stock.  Upon consummation of the exchange agreement,
First Blush, Inc. became a wholly owned subsidiary of ours, and the security
holders of First Blush became our shareholders, owning approximately 89.06% of
our outstanding common stock.  On June 8, 2010, we changed our name to
First Blush Brands, Inc.




During
the first quarter of 2010 we made a strategic decision to delay production of
additional finished goods in anticipation of the share exchange and the related
reorganization of our Company.  As a result of this decision we depleted
our finished goods inventory by March 31, 2010.  During the three months
ended September 30, 2010 we reinitiated production of our product and made the
first initial restocking sales to Safeway.  We expect the restocking
process with Safeway to continue through the fourth quarter 2010 and the first
quarter of 2011.  Our relationship with Safeway has not been impaired even
though there was a delay in restocking its store shelves.





As a
result of our strategic decision, revenue for the nine months ended September
30, 2010 was $151,682, and revenue for the three months ended September 30, 2010
was $11,855, both of which were considerably less than the comparable periods
last year.   We expect a spike in revenue for fourth quarter 2010 as
we restock Safeway stores; however we expect that revenue for the year ending
December 31, 2010 will be less than revenue for the year ending December 31,
2009.  We have started a very aggressive promotional campaign for the
fourth quarter alternating between buy-one-get-one-free promotions and
buy-10-get-10 free promotions resulting in a promotional allowance approximating
50%.  The initial results of these programs have been favorable, and we
expect they will contribute to the spike in fourth quarter revenue as Safeway
purchases additional product to keep up with demand.


17


In 2011
we expect our revenues fluctuation to be more consistent with 2009 as typical
reorder patterns at Safeway are established.  We also expect that our gross
revenue from Safeway, and therefore our total gross revenue, will increase due
to the following: 1) we expect to continue with our aggressive promotional
campaign resulting in promotional allowances approximating 40-50%, 2) we expect
to manage our brand more effectively by taking steps to ensure that stores are
adequately stocked, 3) we expect to replace racks in stores where they have been
damaged and therefore removed from the floor and ensure that in the future racks
are reordered on a timely basis if damaged, and 4) we expect to work closer with
Safeway management to ensure that product is reordered on a timely basis and
that we are optimizing our promotional programs.





We have
obtained approval from The Kroger Co. to launch our products in certain
Kroger locations; however, we will not proceed with the launch unless we are
adequately capitalized to support its success.  As of right now, due to
difficulties obtaining additional capital, we do not anticipate the launch to
occur in the near future.  We are not considering launching in any other
stores right now.





During
the quarter we completed a private placement of $1,100,000 principal amount of
promissory notes and 1,000,000 shares of common stock.  We received gross
proceeds from the placement of $1,100,000, which we used to pay down our
existing senior debt.





During
the quarter we also completed an offering consisting of equity and warrants for
which we received $246,000.  We used these proceeds for production and for
other working capital requirements; however, efforts to raise additional capital
necessary to meet our obligations have not been successful.  We are
considering various strategies to raise the cash necessary to pay our
obligations and continue the growth of our brand, including sales of equity,
borrowing additional debt, entering into strategic partnerships and merging or
selling the Company.


18


Critical Accounting Policies and Use of
Estimates





We
believe that the application of the following accounting policies, which are
important to our financial position and results of operations, require us to
make significant judgments and estimates. For a summary of all our accounting
policies, including the accounting policies discussed below, see Note 4, Summary of Significant Accounting
Policies in our financial statements included this filing.





·
            Promotional
      allowance




Many of
our promotional programs are based on discounts given to the ultimate consumer
at the point of purchase.  For these programs we generally reduce our cost
to the retailer for all product sold under promotion so there is no, or limited,
impact on the retailer’s gross profit.  Because we do not know the ultimate
amount of product that will be sold under promotional programs and because
retailers pay us 100% of the purchase price upon purchase of our product, we
accrue an estimated liability for the amount we expect we will have to refund to
the retailers due to these programs.  As a result we have an accrual for
promotional programs of $89,172 and $27,194 at September 30, 2010 and December
31, 2009, respectively.




We treat
promotional allowance as contra revenue and recorded promotional allowance of
$47,236 and $126,891for the three months ended September, 30 2010 and 2009,
respectively and $121,407and $162,422 for the nine months ended September, 30
2010 and 2009, respectively.  For the quarter ended September 30, 2010
expect a promotional allowance of 50% or $29,546 for our new promotional
program.  The additional promotional allowance of $17,690 is an adjustment
to our promotional liability for first and second quarters of 2010 promotional
activity at Safeway where our product was still be sold under
promotion.




·
            Income
    Taxes





We
account for income taxes under the Financial Accounting Standards Board’s, FASB,
accounting guidance for income taxes. In accordance with FASB’s accounting
guidance, we recorded a deferred tax asset for the net operating loss, NOL,
carry forward resulting from losses in our year ended December 31, 2009. 
The asset is a result of our ability to utilize the NOL in future periods to
offset future taxable income and therefore reduce our taxes payable in the
future.  At September 30, 2010 and December 31, 2009 we had an asset for
the NOL of $958,418 and $390,687, respectively. However, given our current going
concern issues we determined that this asset may not be realized as it is
dependent on us generating sufficient future operating income and accordingly we
created a valuation allowance of $910,497 and $371,153 at the respective dates
based on our judgment and estimates.  In the future, we may determine that
we will be able to realize all or most of this asset and we will adjust our
valuation allowance accordingly, which will result in a reduction in income tax
expense reported in our financial statements in the period of
change.


19


Results of
Operations





The
following table sets forth our statement of results of operation data as a
percentage of net sales from continuing operations for the periods
indicated:





For the Three Months Ended September 30,
                
                
                For the Nine Months Ended September 30,2010
                
                
                2009
                
                
                
                
                
                2010
                
                
                2009$
                
                
                % of
                  Gross
                
                
                $
                
                
                % of
                  Gross
                
                
                %
                  Change
                
                
                $
                
                
                % of
                  Gross
                
                
                $
                
                
                % of
                  Gross
                
                
                %
                  ChangeRevenue:Gross
      revenue
                
                $
                59,091
                
                
                
                
                
                $
                252,411
                
                
                
                
                
                
                76.6
                %
                
                $
                273,089
                
                
                
                
                
                $
                622,155
                
                
                
                
                
                
                56.1
                %Promotion
      allowance
                
                
                (47,236
                )
                
                
                -80
                %
                
                
                (126,891
                )
                
                
                -50
                %
                
                
                62.8
                %
                
                
                (121,407
                )
                
                
                -44
                %
                
                
                (162,422
                )
                
                
                -26
                %
                
                
                25.3
                %Net
      revenue
                
                $
                11,855
                
                
                
                
                
                
                $
                125,520
                
                
                
                
                
                
                
                90.6
                %
                
                $
                151,682
                
                
                
                
                
                
                $
                459,733
                
                
                
                
                
                
                
                67.0
                %




For
      the Three Months Ended September 30,
                
                
                For
      the Nine Months Ended September 30,2010
                
                
                2009
                
                
                
                
                
                2010
                
                
                2009$
                
                
                % of
      Net
                  Rev
                
                
                $
                
                
                %
      of
                  Net
                  Rev
                
                
                %
                  Change
                
                
                $
                
                
                % of
      Net
                  Rev
                
                
                $
                
                
                % of
      Net
                  Rev
                
                
                %
                  ChangeGross
      Profit:Net
      revenue
                
                $
                11,855
                
                
                
                
                
                $
                125,520
                
                
                
                
                
                
                90.6
                %
                
                $
                151,682
                
                
                
                
                
                $
                459,733
                
                
                
                
                
                
                67.0
                %Cost
      of goods sold
                
                
                24,845
                
                
                
                210
                %
                
                
                99,804
                
                
                
                79.5
                %
                
                
                75.1
                %
                
                
                122,613
                
                
                
                81
                %
                
                
                299,086
                
                
                
                65.1
                %
                
                
                59.0
                %Gross
      profit (loss)
                
                $
                (12,990
                )
                
                
                -110
                %
                
                $
                25,716
                
                
                
                20.5
                %
                
                
                150.5
                %
                
                $
                29,069
                
                
                
                19
                %
                
                $
                160,647
                
                
                
                34.9
                %
                
                
                81.9
                %Selling,
      general and administrative expense
                
                
                439,252
                
                
                
                3705
                %
                
                
                77,278
                
                
                
                62
                %
                
                
                -468.4
                %
                
                
                1,197,213
                
                
                
                789
                %
                
                
                549,929
                
                
                
                119.6
                %
                
                
                -117.7
                %Loss
      on derivative liabilities
                
                
                3,953
                
                
                
                
                
                
                
                -
                
                
                
                
                
                
                
                
                
                
                
                3,953
                
                
                
                
                
                
                
                -Abnormal
      production costs
                
                
                21,213
                
                
                
                
                
                
                
                -
                
                
                
                
                
                
                
                
                
                
                
                21,213
                
                
                
                
                
                
                
                28,415Write-off
      of intangible asset
                
                
                51,071
                
                
                
                
                
                
                
                -
                
                
                
                
                
                
                
                
                
                
                
                51,071
                
                
                
                
                
                
                
                -Write-off
      of inventory
                
                
                -
                
                
                
                
                
                
                
                131,213
                
                
                
                
                
                
                
                
                
                
                
                28,613
                
                
                
                
                
                
                
                131,213Operating
      loss
                
                $
                (528,479
                )
                
                
                -4458
                %
                
                $
                (182,775
                )
                
                
                -146
                %
                
                
                -189.1
                %
                
                $
                (1,272,994
                )
                
                
                -839
                %
                
                $
                (548,910
                )
                
                
                -119.4
                %
                
                
                -131.9
                %




The
results of operations for three and nine months ended September 30, 2010 are
significantly less than the comparable periods in 2009 because of our strategic
decision to delay production of additional finished goods in anticipation of the
share exchange and the related reorganization of our company.  During the
three months ended September 30, 2010 we reinitiated production of our product
and made the first initial restocking sales to Safeway.  For the quarter
ended September 30, 2010, we expect a promotional allowance of approximately 50%
or $29,546 for our new promotional program.  The additional promotional
allowance of $17,690, resulting in an aggregate promotional allowance of
$47,236, is an adjustment to our promotional liability for promotional activity
occurring during the first and second quarters of 2010 at Safeway where our
product was still sold under our promotional programs.  Had we not had this
additional promotional adjustment, our gross profit margin would have been 16%
for the three months ended September 30, 2010 and 28% for the nine months ended
September 30, 2010.  Given a promotional allowance of 50% we expect gross
profit margin to be approximately 20%, however, to the extent that we are not
generating significant revenue small unexpected expenses can have a large impact
on the gross profit margin.




We expect
a spike in revenue for fourth quarter 2010 as we restock Safeway stores; however
we expect that revenue for the year ending December 31, 2010 to be less than
revenue for the year ending December 31, 2009.  We have started a very
aggressive promotional campaign for the fourth quarter alternating between
buy-one-get-one-free promotions and buy-10-get-10-free promotions resulting in a
promotional allowance approximating 50%.  The initial results of these
programs have been favorable, and we expect they will contribute to the spike in
fourth quarter revenue as Safeway purchases additional product to keep up with
demand.





Selling,
general and administrative costs increased significantly for the three and nine
months ended September 30, 2010 relative to the comparable periods 2009 due to
costs incurred as part of our share exchange and financing efforts.  For
the nine months ended September 30, 2010 we had the following specific increases
in selling, general and administrative costs relative to the comparable period
in 2009: 1) expenses related to consulting bankers and their advisors $330,000,
2) expenses related to legal services, $435,000, and 3) expenses related to
accounting services $67,000.  The expenses related to the consulting banker
and their advisors as well as most of the legal services were incurred as part
of the share exchange and our subsequent financing efforts.  On an ongoing
basis we expect to incur some level of legal and accounting expenses, and may
incur significant legal and accounting expenses depending on transactions that
we enter into.  The increases for the nine months ended September 30, 2010
were offset by the following decreases relative to the comparable period in
2009: 1) expenses related to compensation $287,000 2) general selling costs and
commissions $109,000, and 3) research and development $51,000.  We expect
expenses related to compensation and consulting for the year ending December 31,
2010 to be less than the same expenses for the year ended December 31, 2009 due
to the reductions in head count.  We also expect that selling costs will be
less for the year ended December 31, 2010 relative to the year ended December
31, 2009 as it is our expectation that revenue will be less for the year ended
December 31, 2010.


20


In
addition:




·
            During
      the nine months ended September 30,
2010:


o
            We
      wrote off $28,613 of raw materials (labels and trays) that were unsuitable
      for future production because of our switch to boxes instead of trays and
      our change to  new UPC codes that specifically identifying First
      Blush Brands.


o
            We
      incurred $21,213 of abnormal production costs related to shipping raw
      materials from our old bottler to our new bottler, abnormal air freight
      costs and performing additional and non-routine testing on our bottlers’
      equipment in preparation for our initial
  production.


o
            We
      wrote off our exclusive right to use a bottle production mold as we are no
      longer using this mold and do not anticipate to use it in the
      future.  This write-off resulted in a charge to income of
      $51,071.




·
            During
      the nine months ended September 30,
2009:


o
            We
      had abnormal production losses in excess of the 5% industry norm equating
      to $28,415 due to issues with our
bottler.


o
            We
      switched from using glass bottles to PET (Polyethylene terephthalate)
      bottles as part of a strategic marketing decision.  As a result of
      this decision, we wrote off $131,213 of glass bottle finished
      goods.


21


Liquidity and Capital Resources





For
      the Nine Months EndedSeptember 30,2010
                  
                  
                  2009Cash
      flow used by operating activities:Cash
      collected from customers
                  
                  $
                  165,113
                  
                  
                  $
                  324,020Cash
      paid to suppliers
                  
                  
                  (206,852
                  )
                  
                  
                  (126,280
                  )Cash
      paid for employees & management services
                  
                  
                  (22,583
                  )
                  
                  
                  (374,914
                  )Cash
      paid for other selling, general & administrative costs
                  
                  
                  (237,147
                  )
                  
                  
                  (256,208
                  )Cash
      paid for interest
                  
                  
                  (288,951
                  )
                  
                  
                  -Net
      cash used by operating activities
                  
                  $
                  (590,420
                  )
                  
                  $
                  (433,382
                  )





Activity
for the nine months ended September 30, 2010 relative to the nine months ended
September 30, 2009 is as follows:





·
            Cash collected from customers –
      We collected more cash from customers in 2009 because net revenue was
      greater for the nine months ended September 30, 2009 than the comparable
      period 2010.





·
            Cash
      paid to suppliers – We paid less to suppliers in 2010 as we had less
      revenue and therefore less
production.





·
            Cash
      paid for management services – We paid less cash for management services
      in 2010 as we terminated consultants in 2009 in response to the economic
      crisis and paid for other management and administrative services by
      increasing our notes payable.  In addition, we have only paid our CFO
      for one month of his employment and have accrued compensation expense
      owing to him of $92,882 at September 30,
2010.





·
            Cash
      paid for interest – We paid accrued interest on our notes payable as a
      result of our debt refinancing discussed
below.





As of
September 30, 2010, we had approximately $309,000 of current assets,
approximately $3,600 of which was cash and the rest of which was receivables,
inventory and pre-paid assets. On average, our receivables are collected in
approximately 30 days. Total current liabilities at September 30, 2010 totaled
approximately $1,579,000 of which approximately $755,000 are trade accounts. At
September 30, 2010, we had a net working capital deficiency of approximately
$1,270,000.   Our operating cash needs during the nine months ended
September 30, 2010 were primarily funded through operations, borrowings and the
raising of $246,000 in an offering, discussed below.





On May
26, 2010 we commenced an offering to certain “accredited investors” (as such
term is defined in Regulation D promulgated under the Securities Act of 1933, as
amended for the right to purchase, at $2 per unit, units consisting
of:




o
            Two
      shares of our common stock.




o
            A
      base warrant (“Base Warrant”) to purchase one share of our common stock at
      the value per share of our common stock in our next qualified financing,
      as defined in the Base Warrant.




o
            A
      par value warrant (“Par Warrant”) to purchase additional shares of our
      common stock at its par value ($0.001 per share) in the event its value
      per share in the next qualified financing is less than
    $1.00.




During
the quarter ended September 30, 2010, we raised $246,000 under this offering
issuing 246,000 shares of our common stock and 123,000 base warrants.  The
units were sold to investors pursuant to the terms of a securities purchase
agreement between the Company and the investors.  We granted to purchasers
of units “piggyback” registration rights with respect to their shares of common
stock.




On August
17, 2010, we completed a private placement of $1,100,000 principal amount of
promissory notes (the “Notes”) and 1,000,000 shares of common stock to
“accredited investors” (as such term is defined in Regulation D promulgated
under the Securities Act of 1933, as amended (the “1933 Act”)) (the “Private
Placement”). The securities were sold to investors pursuant to the terms of a
securities purchase agreement (the “Purchase Agreement”) between the Company and
the investors.  We received gross proceeds from the Private Placement of
$1,100,000 which we used to pay down our existing senior debt, discussed
below.





The
principal amount of the Notes is due in 12 equal monthly payments of an
aggregate of $91,667 each month, commencing on January 1, 2012. The Notes bear
interest at a rate of 10% per annum. Interest is payable quarterly in arrears
commencing on September 30, 2010.


22


Our
obligations under the Notes are guaranteed by RHG.





We used
the proceeds of the Private Placement to repay (i) all amounts outstanding under
our $100,000 Senior Secured Promissory Note, dated September 26, 2009, due to
Michael D. Bagdasarian (the “MDB Note”), and (ii) $1,000,000 of the outstanding
principal and accrued interest under our Senior Secured Credit Facility from RHG
(the “RHG Note”). Following this repayment, the MDB Note has been paid in full
and terminated and the outstanding balance of the RHG Note was $192,876 after
the repayment increasing to approximately $208,000 at September 30, 2010. 
The note payable to RHG and all unpaid and accrued interest is due on the sooner
of 30 days demand notice or December 31, 2010.  RHG intends to extend the
December 31, 2010 due date on the RHG Note keeping their right to call the note
and accrued interest with 30 days notice.  RHG may continue to provide
additional funds under the RHG Note as needed to fund on-going operating
needs.  If RHG does not extend the due date of the RHG Note past December
31, 2010 or calls the note in the future, we intend to seek additional financing
to pay the RHG Note.  We may not be successful in obtaining this
financing.  If we are not successful, we would be in default on the RHG
Debt.  Our new Notes have a cross-default provision that makes us in
default on the Notes if we are in default any indebtedness or obligation
exceeding $250,000.  An event of default under the Notes would increase our
interest rate to 12%, however, it would not make the Notes immediately due nor
would it accelerate required payments.





We are
continuing our efforts to raise capital to fund operations, pay our remaining
current liabilities and provide capital for future expansion.   We are
considering a variety of possibilities including the sale of equity, borrowing
additional debt, entering into strategic partnerships, and merging or selling
the Company.   The ultimate strategy that we choose will determine our
cash source and needs for the next 12-24 months.





If we
were to support our expected sales to Safeway and increase our customer base to
other Key Accounts, we estimate that we will need between $3.6 million and $6.6
million of additional funds over the next two years.  The primary use of
these funds will be for marketing expenses associated with attracting new
business as well as the build-up of inventory to meet customer demands. 
With these additional funds, we expect that we can support and obtain sales
ranging from $2.5 million to $3.2 million over the next year and $8.0 million
and $12.2 million the year after.  Without additional funds we may not even
be able to support the needs of our existing Key Account, Safeway.  We have
funded working capital needs through product sales, management of working
capital components of our business, sales of preferred stock.  We
anticipate that, in order to grow sales ranging from $2.5 million to $3.2
million over the next year and $8.0 million and $12.2 million the year after,
given an average operating margin of 8% on those sales, we will need between
$3.6 million and $6.6 million for manufacturing, research and development,
marketing, sales channel development, general and administrative expenses, short
and long-term debt repayments and interest expense, and approximately $2.5
million to establish a level of inventory and working capital necessary to
increase our growth in the years thereafter.  We can offer no assurance
that we will be able to generate cash or obtain financing sufficient to meet
these needs.  This cash need assumes the incurrence and repayment within
such two-year period of $3.0 million of debt at an average interest rate of 10%
and up to $3.0 million in capital contributions as well as the continued payment
of our accounts payable and collections on our accounts receivable in accordance
with our past experience.





Due to
the economic crisis sources of financing for companies like ours has become more
difficult to find.  In the event that we are unable to obtain additional
financing we will not be able to expand our company as planned and become
profitable.





If we do
not continue with our current strategy and only focus on Safeway, we will
require approximately $2.6 million to payoff current debt and payables in
addition to on-going operating cash flow needs.


23


Off-Balance-Sheet Arrangements





As of
September 30, 2010, we did not have any off-balance-sheet arrangements, as
defined in Item 303(a)(4) of Regulation S-K.





Recent
Accounting Pronouncements





See Note
4 to the financial statements included in Part I, Item 1 of this
report.





Item
3. Legal Proceedings





On
October 5, 2010 one of our vendors, Zuckerman-Honickman, Inc. (“Zuckerman”)
filed an action against First Blush, Inc. and First Blush Brands Inc. in Los
Angeles Superior Court, case name Zuckerman-Honickman, Inc. v. First Blush,
Inc., case number BC446875.  Zuckerman is seeking recovery of $122,678 for
past due invoices and 10% interest and legal costs.  The $122,678 is part
of our accounts payable balance at September 30, 2010 and December 31,
2009.   We have reached a settlement calling for monthly payments of
$10,000, the first of which has already been made.





Item
4. Quantitative and Qualitative Disclosures About Market Risk.





Not
applicable.





Item
5. Controls and Procedures.





Disclosure
Controls and Procedures





As of
September 30, 2010, Barrett Carrere, our Chief Financial Officer and Secretary
and principal executive officer evaluated the effectiveness of our "disclosure
controls and procedures" as defined in Rules 13a-15(e) and Rule 15d-15(e) of the
Securities Exchange Act of 1934 ("Disclosure Controls"). Based upon this
evaluation, Mr. Carrere concluded that the Disclosure Controls were effective,
as of the date of their evaluation, in reaching a reasonable level of assurance
that information required to be disclosed by us in the reports that we file or
submit under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the SEC's rules and
forms and that any information relating to us that is required to be disclosed
in the reports that we file or submit under the Securities Exchange Act of 1934
is accumulated and communicated to our management, including our principal
executive/financial officer, to allow timely decisions regarding required
disclosure.





Changes
in Internal Control over Financial Reporting





During
the fiscal quarter ended September 30, 2010, there were no changes in our
"internal control over financial reporting" as defined in Rules 13a-15(f) and
15d-15(f) of the Securities Exchange Act of 1934 (“Internal Control”),
 that have  materially affected or are reasonably likely to
materially affect our Internal Control.


24


PART II- OTHER INFORMATION





Item
6. Exhibits.





Exhibit
              
              Description31
              
              Certification
      of principal executive officer and Chief Financial Officer pursuant to
      Rule 13a-14(a) promulgated under the Securities Exchange Act of
      1934.32
              
              Certification
      of principal executive officer and Chief Financial Officer pursuant to 18
      U.S.C. Section 1350, as adopted pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002.


25




SIGNATURES




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





Date:  November
      22, 2010
                FIRST
      BLUSH BRANDS, INC./s/
      Barrett CarrereBarrett
      Carrere, Chief Financial Officer and
                  Secretary
      (principal executive and financial
officer)


26




EXHIBIT
INDEX





Exhibit
                  
                  Description31
                  
                  Certification
      of principal executive officer and Chief Financial Officer pursuant to
      Rule 13a-14(a) promulgated under the Securities Exchange Act of
      1934.32
                  
                  Certification
      of pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
      of the Sarbanes-Oxley Act of
2002.


27