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 June 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.)   Yeso      Noo





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 Filero
            Accelerated
      FileroNon-Accelerated
      Filero
            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).


Yeso   Nox





As of
August 16, 2010, the Company had outstanding 8,246,000 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
                
                
                15ITEM
      3 Quantitative and Qualitative Disclosures About Market
    Risk
                
                
                19ITEM
      4 Controls and Procedures
                
                
                19PART
      II OTHER INFORMATION
                
                
                20ITEM
      6 Exhibits
                
                
                20SIGNATURES
                
                
                21


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, June 30, 2010, unaudited, and December 31, 2009
                  
                  
                  4Statements
      of Profit and Loss, unaudited, for the three and six months ended June 30,
      2010 and 2009
                  
                  
                  5Statements
      of Cash Flows, unaudited, for the six months ended June 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 June 30,
                              
                              
                              At December 31,2010
                              
                              
                              2009AssetsCurrent
      assets:Cash
                              
                              $
                              24
                              
                              
                              $
                              -Accounts
      receivable
                              
                              
                              3,468
                              
                              
                              
                              37,065Inventory
                              
                              
                              174,662
                              
                              
                              
                              293,135Prepaids
      & other
                              
                              
                              551
                              
                              
                              
                              -Offering
      funds held in segregated account
                              
                              
                              58,838
                              
                              
                              
                              -Total
      current assets
                              
                              
                              237,543
                              
                              
                              
                              330,200Deferred
      income taxes
                              
                              
                              35,920
                              
                              
                              
                              19,534Intangible
      assets, net
                              
                              
                              51,071
                              
                              
                              
                              55,786Total
      assets
                              
                              $
                              324,534
                              
                              
                              $
                              405,520Liabilities
      & Equity (Deficit)Current
      liabilities:Accounts
      payable
                              
                              $
                              565,562
                              
                              
                              $
                              344,968Liability
      for offering funds
                              
                              
                              58,838
                              
                              
                              
                              -Liability
      due to related party consultant
                              
                              
                              245,000
                              
                              
                              
                              -Promotional
      liability
                              
                              
                              27,329
                              
                              
                              
                              27,194Other
      accrued liabilities
                              
                              
                              256,407
                              
                              
                              
                              160,557Notes
      payable - RHG, current
                              
                              
                              955,182
                              
                              
                              
                              927,191Notes
      payable related party, current
                              
                              
                              100,000
                              
                              
                              
                              100,000Total
      current liabilities
                              
                              
                              2,208,318
                              
                              
                              
                              1,559,910Commitments
      and contingenciesEquityPreferred
      stock, par value $0.001, 20,000,000 shares authorized, 0 outstanding at
      June 30, 2010 and  December 31, 2009
                              
                              
                              -
                              
                              
                              
                              -Common
      stock, par value $0.001, 100,000,000 authorized, 8,000,000 and
      7,125,000 outstanding at June 30, 2010 and December 31, 2009,
      respectively
                              
                              
                              8,000
                              
                              
                              
                              7,125Additional
      paid in capital
                              
                              
                              379,902
                              
                              
                              
                              306,578Retained
      loss
                              
                              
                              (2,271,686
                              )
                              
                              
                              (1,468,093
                              )Total
      equity (deficit)
                              
                              
                              (1,883,784
                              )
                              
                              
                              (1,154,390
                              )Total
      liabilities and equity (deficit)
                              
                              $
                              324,534
                              
                              
                              $
                              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 Six Months EndedJune 30,
                              
                              
                              June 30,2010
                              
                              
                              2009
                              
                              
                              2010
                              
                              
                              2009Gross
      revenue
                              
                              $
                              2,752
                              
                              
                              $
                              232,719
                              
                              
                              $
                              213,998
                              
                              
                              $
                              369,744Promotion
      allowance
                              
                              
                              (963
                              )
                              
                              
                              (26,548
                              )
                              
                              
                              (74,171
                              )
                              
                              
                              (35,531
                              )Net
      revenue
                              
                              
                              1,789
                              
                              
                              
                              206,171
                              
                              
                              
                              139,827
                              
                              
                              
                              334,213Cost
      of goods sold
                              
                              
                              13,506
                              
                              
                              
                              120,664
                              
                              
                              
                              97,768
                              
                              
                              
                              199,282Gross
      profit (loss)
                              
                              
                              (11,717
                              )
                              
                              
                              85,507
                              
                              
                              
                              42,059
                              
                              
                              
                              134,931Selling,
      general and administrative expense
                              
                              
                              696,829
                              
                              
                              
                              268,019
                              
                              
                              
                              757,961
                              
                              
                              
                              472,651Abnormal
      production losses
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              28,415Write-off
      of inventory
                              
                              
                              28,613
                              
                              
                              
                              -
                              
                              
                              
                              28,613
                              
                              
                              
                              -Operating
      loss
                              
                              
                              (737,159
                              )
                              
                              
                              (182,512
                              )
                              
                              
                              (744,515
                              )
                              
                              
                              (366,135
                              )Interest
      expense
                              
                              
                              39,996
                              
                              
                              
                              33,311
                              
                              
                              
                              75,463
                              
                              
                              
                              60,435Pre-tax
      loss
                              
                              
                              (777,155
                              )
                              
                              
                              (215,823
                              )
                              
                              
                              (819,978
                              )
                              
                              
                              (426,570
                              )Tax
      benefit
                              
                              
                              (15,486
                              )
                              
                              
                              (3,726
                              )
                              
                              
                              (16,385
                              )
                              
                              
                              (8,152
                              )Net
      loss
                              
                              $
                              (761,669
                              )
                              
                              $
                              (212,097
                              )
                              
                              $
                              (803,593
                              )
                              
                              $
                              (418,418
                              )Basic
      loss per share
                              
                              $
                              (0.10
                              )
                              
                              $
                              (0.02
                              )
                              
                              $
                              (0.11
                              )
                              
                              $
                              (0.05
                              )Diluted
      loss per share
                              
                              $
                              (0.10
                              )
                              
                              $
                              (0.02
                              )
                              
                              $
                              (0.11
                              )
                              
                              $
                              (0.05
                              )





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 Six Months EndedJune 30,2010
                      
                      
                      2009Cash
      flow used by operating activities:Cash
      collected from customers
                      
                      $
                      162,362
                      
                      
                      $
                      108,800Cash
      paid to suppliers
                      
                      
                      (70,717
                      )
                      
                      
                      (111,370
                      )Cash
      paid for employees & management services
                      
                      
                      -
                      
                      
                      
                      (348,003
                      )Cash
      paid for other selling, general & administrative costs
                      
                      
                      (193,811
                      )
                      
                      
                      (231,322
                      )Net
      cash used by operating activities
                      
                      
                      (102,166
                      )
                      
                      
                      (581,895
                      )Cash
      flow from financing activities:Payments
      on notes payable
                      
                      
                      (98,594
                      )
                      
                      
                      -Proceeds
      from issuing notes payable
                      
                      
                      126,585
                      
                      
                      
                      371,930Proceeds
      from the sale of common stock
                      
                      
                      -
                      
                      
                      
                      250,000Proceeds
      from recapitalization
                      
                      
                      74,199
                      
                      
                      
                      -Net
      cash from financing activities
                      
                      
                      102,190
                      
                      
                      
                      621,930Increase/(decrease)
      in cash
                      
                      
                      24
                      
                      
                      
                      40,035Cash
      at the start of the period
                      
                      
                      -
                      
                      
                      
                      874Cash
      at the end of the period
                      
                      $
                      24
                      
                      
                      $
                      40,909





Reconciliation
of net loss to cash used by operating activities:





UnauditedFor the Six Months EndedJune 30,2010
                    
                    
                    2009Net
      loss
                    
                    $
                    (803,593
                    )
                    
                    $
                    (418,418
                    )Amortization
      expense
                    
                    
                    4,714
                    
                    
                    
                    4,714(Increase)/decrease
      in A/R
                    
                    
                    33,597
                    
                    
                    
                    (155,874
                    )Decrease
      in inventory
                    
                    
                    118,473
                    
                    
                    
                    13,230Decrease
      in deposits
                    
                    
                    -
                    
                    
                    
                    2Increase
      in prepaids
                    
                    
                    (551
                    )
                    
                    
                    -Increase
      in offering funds held in segregated account
                    
                    
                    (58,838
                    )
                    
                    
                    -Increase
      in deferred tax asset
                    
                    
                    (16,385
                    )
                    
                    
                    (8,952
                    )Increase/(decrease)
      in accounts payable & promotional liability
                    
                    
                    220,729
                    
                    
                    
                    (26,452
                    )Increase
      in liability for offering funds
                    
                    
                    58,838
                    
                    
                    
                    -Increase
      in liability to consulting banker
                    
                    
                    245,000
                    
                    
                    
                    -Decrease
      in other accrued
                    
                    
                    95,850
                    
                    
                    
                    9,855Net
      cash flows used by operating activity
                    
                    $
                    (102,166
                    )
                    
                    $
                    (581,895
                    )Supplemental
      disclosure of cash flow informationCash
      paid for interest
                    
                    $
                    -
                    
                    
                    $
                    -





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


6





First
Blush Brands, Inc.


(Formerly
Known as AFH Holding, Inc.)


Notes
to Financial Statements





1.
The Company




As used
herein, “we” and “our” refers to First Blush, Inc. prior to the Exchange (See
note #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 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 six months ended June 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 Form 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 six months ended June 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 June 8, 2010, AFH Holding II, Inc. changed its name to
First Blush Brands, Inc.




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.


7


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 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.





b.
Cash





We
consider overdraws on checking accounts to be part of accounts
payable.  On June 30, 2010 we had an overdrawn balance of $50,029 for
checks cut and mailed on June 30, 2010.  We deposited funds in July
2010 to cover these checks out of the proceeds of our May 26, 2010 Offering
discussed in Note 12.





c.
Offering funds held in segregated account




At June
30, 2010 we had $58,838 in funds held in a segregated account from our May 26,
2010 Offering.  We closed the offering for these funds on July 1, 2010
and transferred the funds into our operating accounts.  These funds
were shown as a liability at June 30, 2010 because if we did not close the
offering, we would have been obligated to return the funds.





d.
Inventory and inventory valuation




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





At June 30,
                    
                    
                    At December 31,2010
                    
                    
                    2009Finished
      goodsFirst
      Blush Juice
                    
                    $
                    -
                    
                    
                    $
                    57,782First
      Blush Tea
                    
                    
                    -
                    
                    
                    
                    34,003Total
      finished goods
                    
                    $
                    -
                    
                    
                    $
                    91,785Raw
      materialsConcentrate
                    
                    $
                    172,737
                    
                    
                    $
                    172,737Other
                    
                    
                    1,925
                    
                    
                    
                    28,613Total
      raw materials
                    
                    $
                    174,662
                    
                    
                    $
                    201,350Total
      Inventory
                    
                    $
                    174,662
                    
                    
                    $
                    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.


8







During
the quarter ended June 30, 2010 we wrote off $28,613 of raw materials (labels
and trays) that were unsuitable for future production due to: 1) trays – we are
switching to boxes instead of trays for future production, and 2) labels – we
changed UPC codes to new UPC codes specifically identifying First Blush
Brands.




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 six months ended June 30, 2009.




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





e.         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;





•
            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.





f.
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 $27,329 and $27,194 at June 30, 2010 and
December 31, 2009, respectively.




We treat
promotional allowance as contra revenue and recorded promotional allowance of
$963 and $26,548 for the three months ended June, 30 2010 and 2009, respectively
and $74,171 and $35,531 for the six months ended June, 30 2010 and 2009,
respectively.





g.
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 June 30, 2010 and December 31, 2009 we had
an asset for the NOL of $718,395 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 $682,475 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.


9





h.
Recent accounting pronouncements




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





5.
Warrants





At
December 31, 2009 $37,822 of warrants were accounted for as part of additional
paid in capital.  In May 2010, these warrants expired upon
recapitalization of the company.  There was no change in additional
paid in capital for the expiration of the warrants, nor was there any gain
recognized.





6.
Fair Value of Financial Instruments





We have
adopted the applicable provisions of the new accounting guidance on fair value
measurements which defines fair value, establishes a framework for measuring
fair value and expands disclosures about fair value measurements related to
financial instruments.





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





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


·
            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.





The
Financial Accounting Standards Board’s accounting guidance requires disclosure
of fair value information about financial instruments, whether or not recognized
in the accompanying balance sheets. Fair value as defined by the guidance is the
price that would be received to sell an asset or paid to transfer a liability in
an orderly transaction between market participants at the measurement date. The
fair value estimates of financial instruments are not necessarily indicative of
the amounts we might pay or receive in actual market transactions. The use of
different market assumptions and/or estimation methodologies may have a material
effect on the estimated fair value amounts.





·
              Receivables,
      Accounts Payable and Certain Other Accrued Liabilities.





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





·
              Notes
      payable.





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





At June 30,
                    
                    
                    At December 31,2010
                    
                    
                    2009Carrying Value
                    
                    
                    Fair Value
                    
                    
                    Carrying Value
                    
                    
                    Fair ValueNotes
      payable
                    
                    $
                    1,055,182
                    
                    
                    $
                    (1,053,444
                    )
                    
                    $
                    1,027,191
                    
                    
                    $
                    1,025,499





We
believe the carrying value of our fixed rate debt is not 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 in the paragraph
above.  Specifically we estimated the fair market discount rate for
our debt considering the credit markets, our credit risk and the terms of our
debt including call provisions and collateral.


10





7.
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 $955,182 and $927,191 at June 30, 2010
and December 31, 2009, respectively, to Rose Hill Gardens, LLC.  Rose
Hill Gardens, LLC owned 83.5% and 97.4% at June 30, 2010 and December 31, 2009,
respectively.   At June 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, is the sole
owner of Rose Hill Gardens, LLC.




In
addition starting January 1, 2009 we began paying Rose Hill Gardens, LLC a
consulting fee of $8,500 per month for services in respect of, sales and
marketing, fulfillment, production management, customer service, strategic
planning, acquisition targeting and advice concerning structure and negotiations
of acquisitions and financing transactions.  Either party may
terminate this agreement at any time.




·
            Michael
      D. Bagdasarian, Trustee




At June
30, 2010, we had a secured note payable of $100,000 to Michael D. Bagdasarian,
Trustee.  Michael Bagdasarian is the father of Chris Bagdasarian who
is Victoria Briggs’ husband.




·
            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 June 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 June
30, 2010 AFH owns approximately 10% of our common stock.




8.
Intangibles




We have
the following amortizable intangible asset:





At June 30,
                  
                  
                  At December 31,2010
                  
                  
                  2009Gross
                    Carrying
                    Amount
                  
                  
                  Accumulated
                    Amortization
                  
                  
                  Net
                    Carrying
                    Amount
                  
                  
                  Gross
                    Carrying
                    Amount
                  
                  
                  Accumulated
                    Amortization
                  
                  
                  Net
                    Carrying
                    AmountExclusive
      right to use bottle production mold
                  
                  $
                  66,000
                  
                  
                  $
                  (14,930
                  )
                  
                  $
                  51,071
                  
                  
                  $
                  66,000
                  
                  
                  $
                  (10,214
                  )
                  
                  $
                  55,786





While we
have the exclusive right to use the bottle production mold in perpetuity, we
estimate its economic life to be seven years and amortize it on a straight-line
basis over this period.  We incurred amortization expense related to
this asset of $2,357 and $4,714 for the three and six months ended June 30, 2010
and 2009, respectively.




11




As of
June 30, 2010, we expect amortization expense for this asset for the next six
years to be as follows:


2010
                    
                    $
                    4,7142011
                    
                    
                    9,4292012
                    
                    
                    9,4292013
                    
                    
                    9,4292014
                    
                    
                    9,4292015
                    
                    
                    8,641$
                    51,071




9.
Calculation of Earnings per Share





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





Three Months Ended
                      
                      
                      Six Months EndedJune 30,
                      
                      
                      June 30,2010
                      
                      
                      2009
                      
                      
                      2010
                      
                      
                      2009Net
      loss
                      
                      $
                      (761,669
                      )
                      
                      $
                      (212,097
                      )
                      
                      $
                      (803,593
                      )
                      
                      $
                      (418,418
                      )Weighted
      average common shares outstanding:Basic
                      
                      
                      7,562,500
                      
                      
                      
                      8,976,563
                      
                      
                      
                      7,343,750
                      
                      
                      
                      8,976,563Effect
      of dilutive potential common stock:Stock
      options
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Non-vested
      shares
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Diluted
                      
                      
                      7,562,500
                      
                      
                      
                      8,976,563
                      
                      
                      
                      7,343,750
                      
                      
                      
                      8,976,563Basic
      loss per share
                      
                      $
                      (0.10
                      )
                      
                      $
                      (0.02
                      )
                      
                      $
                      (0.11
                      )
                      
                      $
                      (0.05
                      )Diluted
      loss per share
                      
                      $
                      (0.10
                      )
                      
                      $
                      (0.02
                      )
                      
                      $
                      (0.11
                      )
                      
                      $
                      (0.05
                      )





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 987,500 for the six months ended June 30, 2010 and 2009 and the three
months ended June 30, 2009, consisting of shares issuable upon exercise of
warrants.





10.
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
$761,669 and $212,097 for the three months ended June 30, 2010 and 2009,
respectively and net losses of $803,593 and $418,418 for the six months ended
June 30, 2010 and 2009, respectively.  In addition, at June 30, 2010
our current liabilities of $2,208,318 are considerably in excess of our current
assets of $237,543.  As a result of these factors, there is
substantial doubt about our ability to continue as a going concern and our
ability to pay off our current liabilities.   We are attempting
to obtain additional capital through either debt or equity financing sources, or
a combination of the two, however, if we are unable to obtain additional capital
we may need to declare bankruptcy, discontinue operations or both.  We
have incurred significant costs in these efforts during July and
August.  The accompanying financial statements do not include any
adjustments that might result from the outcome of this
uncertainty.


12





11.
Concentrations





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





%ofGrossRevenueFor the Three Months Ended
                    
                    
                    For the Six Months EndedJune 30,
                    
                    
                    June 30,2010
                    
                    
                    2009
                    
                    
                    2010
                    
                    
                    2009Safeway
                    
                    
                    56
                    %
                    
                    
                    57
                    %
                    
                    
                    95
                    %
                    
                    
                    60
                    %UNFI
                    
                    
                    -
                    
                    
                    
                    26
                    %
                    
                    
                    2
                    %
                    
                    
                    16
                    %New
      Age
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    5
                    %City
      Super
                    
                    
                    56
                    %
                    
                    
                    -
                    
                    
                    
                    3
                    %
                    
                    
                    -





%ofAccuntsReceivableAt
                            
                            
                            AtJune 30,
                            
                            
                            December 31,2010
                            
                            
                            2009Safeway
                            
                            
                            -
                            
                            
                            
                            76
                            %UNFI
                            
                            
                            100
                            %
                            
                            
                            -New
      Age
                            
                            
                            -
                            
                            
                            
                            24
                            %




Our
payment terms generally require payment within 30 days, however, as of June 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.




12.
Subsequent Events




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.




Our first
closing on this offering occurred on July 1, 2010 and our second and third
closings on July 9, 2010 and July 13, 2010.  As of August 18, 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.





RHG
Consulting Agreement




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 defining and defining its
scope to provide support in the following areas:


13




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.




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.




Barrett
Carrere, our Chief Financial Officer, will assume the responsibilities of
our principal executive officer until we hire a new CEO.





August
17, 2010 Debt Refinancing




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 pursuant to a
Guarantee.




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 June 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 is
$192,876.  We may make additional borrowings under the RHG Note in the
future.


14


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. 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.  With our
recapitalization completed, we have started the initial stages of our next
production as part of our restocking of Safeway stores.  We expect
this production to be completed in September 2010.  Because our racks
at Safeway hold 12 cases of our product and the Safeway warehouses hold
additional back-stock of our product,  most Safeway stores have
maintained our product on the floor, however, many stores are either running low
or our out of certain SKU’s, especially Chardonnay.   As a result
of our strategic decision, revenue for the second quarter is $1,789, which is
considerably less than the comparable quarter last year.   We
expect a spike in revenue for Q3 and/or Q4 as we restock Safeway
stores.  We expect our revenues to normalize in 2011 as typical
reorder patterns are established.


15




In
addition, we incurred significant legal and accounting costs in the second
quarter 2010 as part of our share exchange and financing efforts.




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 $27,329 and $27,194 at June 30, 2010 and
December 31, 2009, respectively.





We treat
promotional allowance as contra revenue and recorded promotional allowance of
$963 and $26,548 for the three months ended June, 30 2010 and 2009, respectively
and $74,171 and $35,531 for the six months ended June, 30 2010 and 2009,
respectively.





·
              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 June 30, 2010 and December 31, 2009 we had
an asset for the NOL of $718,395 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 $682,475 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.




16




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:




FortheThreeMonthsEndedJune30,
                  
                  
                  FortheSixMonthsEndedJune30,2010
                  
                  
                  2009
                  
                  
                  
                  
                  
                  2010
                  
                  
                  2009$
                  
                  
                  %of
                    Gross
                  
                  
                  $
                  
                  
                  %of
                    Gross
                  
                  
                  %
                    Change
                  
                  
                  $
                  
                  
                  %of
                    Gross
                  
                  
                  $
                  
                  
                  %of
                    Gross
                  
                  
                  %
                    ChangeRevenue:Gross
      revenue
                  
                  $
                  2,752
                  
                  
                  
                  
                  
                  $
                  232,719
                  
                  
                  
                  
                  
                  
                  98.8
                  %
                  
                  $
                  213,998
                  
                  
                  
                  
                  
                  $
                  369,744
                  
                  
                  
                  
                  
                  
                  42.1
                  %Promotion
      allowance
                  
                  
                  (963
                  )
                  
                  
                  -35
                  %
                  
                  
                  (26,548
                  )
                  
                  
                  -11
                  %
                  
                  
                  96.4
                  %
                  
                  
                  (74,171
                  )
                  
                  
                  -35
                  %
                  
                  
                  (35,531
                  )
                  
                  
                  -10
                  %
                  
                  
                  -108.8
                  %Net
      revenue
                  
                  $
                  1,789
                  
                  
                  
                  
                  
                  
                  $
                  206,171
                  
                  
                  
                  
                  
                  
                  
                  99.1
                  %
                  
                  $
                  139,827
                  
                  
                  
                  
                  
                  
                  $
                  334,213
                  
                  
                  
                  
                  
                  
                  
                  58.2
                  %





FortheThreeMonthsEndedJune30,
                  
                  
                  FortheSixMonthsEndedJune30,2010
                  
                  
                  2009
                  
                  
                  
                  
                  
                  2010
                  
                  
                  2009$
                  
                  
                  %ofNet
                    Rev
                  
                  
                  $
                  
                  
                  %of
                    Net
                    Rev
                  
                  
                  %
                    Change
                  
                  
                  $
                  
                  
                  %ofNet
                    Rev
                  
                  
                  $
                  
                  
                  %ofNet
                    Rev
                  
                  
                  %
                    ChangeGross
      Profit:Net
      revenue
                  
                  $
                  1,789
                  
                  
                  
                  
                  
                  $
                  206,171
                  
                  
                  
                  
                  
                  
                  99.1
                  %
                  
                  $
                  139,827
                  
                  
                  
                  
                  
                  $
                  334,213
                  
                  
                  
                  
                  
                  
                  58.2
                  %Cost
      of goods sold
                  
                  
                  13,506
                  
                  
                  
                  755
                  %
                  
                  
                  120,664
                  
                  
                  
                  58.5
                  %
                  
                  
                  88.8
                  %
                  
                  
                  97,768
                  
                  
                  
                  70
                  %
                  
                  
                  199,282
                  
                  
                  
                  59.6
                  %
                  
                  
                  50.9
                  %Gross
      profit (loss)
                  
                  $
                  (11,717
                  )
                  
                  
                  -655
                  %
                  
                  $
                  85,507
                  
                  
                  
                  41.5
                  %
                  
                  
                  113.7
                  %
                  
                  $
                  42,059
                  
                  
                  
                  30
                  %
                  
                  $
                  134,931
                  
                  
                  
                  40.4
                  %
                  
                  
                  68.8
                  %Selling,
      general and administrative expense
                  
                  
                  696,829
                  
                  
                  
                  38951
                  %
                  
                  
                  268,019
                  
                  
                  
                  130
                  %
                  
                  
                  -160.0
                  %
                  
                  
                  757,961
                  
                  
                  
                  542
                  %
                  
                  
                  472,651
                  
                  
                  
                  141.4
                  %
                  
                  
                  -60.4
                  %Abnormal
      producition losses
                  
                  
                  -
                  
                  
                  
                  
                  
                  
                  
                  -
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  -
                  
                  
                  
                  
                  
                  
                  
                  28,415Write-off
      of inventory
                  
                  
                  28,613
                  
                  
                  
                  
                  
                  
                  
                  -
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  28,613
                  
                  
                  
                  
                  
                  
                  
                  -Operating
      loss
                  
                  $
                  (737,159
                  )
                  
                  
                  -41205
                  %
                  
                  $
                  (182,512
                  )
                  
                  
                  -89
                  %
                  
                  
                  -303.9
                  %
                  
                  $
                  (744,515
                  )
                  
                  
                  -532
                  %
                  
                  $
                  (366,135
                  )
                  
                  
                  -109.6
                  %
                  
                  
                  -103.3
                  %




The
results of operations for three and six months ended June 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.  As a
result of this decision, we depleted our finished goods inventory by March
31, 2010.




Gross
profit for the three months ended June 30, 2010 was negative as a result of
uncapitalized storage costs for raw materials.  These costs also
caused gross profit for the six months ended June 30, 2010 to be lower than the
comparable period in 2009.




Selling,
general and administrative costs increased significantly for the three and six
months ended June 30, 2010 relative to the comparable periods 2009 due to legal
and accounting costs incurred in the second quarter 2010 as part of our share
exchange and financing efforts.




With our
recapitalization completed, we have started the initial stages of our next
production as part of our restocking of Safeway stores.  We expect
this production to be completed in September 2010.  Because our racks
at Safeway hold 12 cases of our product and the Safeway warehouses hold
additional back-stock of our product,  most Safeway stores have
maintained our product on the floor, however, many stores are either running low
or our out of certain SKU’s, especially Chardonnay.   We expect a
spike in revenue for Q3 and/or Q4 as we restock Safeway stores.  We
expect our revenues to normalize in 2011 as typical reorder patterns are
established.




In
addition, we incurred significant legal and accounting costs in the second
quarter 2010 as part of our share exchange and financing efforts.  We
continued to incur significant legal costs in July and August as a result of our
financing efforts and expect to continue incurring these costs through the rest
of 2010.


17


Liquidity
and Capital Resources





For the Six Months EndedJune30,2010
                  
                  
                  2009Cash
      flow used by operating activities:Cash
      collected from customers
                  
                  $
                  162,362
                  
                  
                  $
                  108,800Cash
      paid to suppliers
                  
                  
                  (70,717
                  )
                  
                  
                  (111,370
                  )Cash
      paid for employees & management services
                  
                  
                  -
                  
                  
                  
                  (348,003
                  )Cash
      paid for other selling, general & administrative costs
                  
                  
                  (193,811
                  )
                  
                  
                  (231,322
                  )Net
      cash used by operating activities
                  
                  $
                  (102,166
                  )
                  
                  $
                  (581,895
                  )





Activity
for the six months ended June 30, 2010 relative to the six months ended June 30,
2009 is as follows:





·
            Cash
      collected from customers – We collected more cash from customers in 2010
      because of the increase in sales to one of our key
    accounts.





·
            Cash
      paid to suppliers – We paid less to suppliers in 2010 as we used inventory
      on hand for sales.





·
            Cash
      paid for management services – We paid no cash for management services as
      we terminated consultants in response to the economic crisis and paid for
      other management and administrative services by increasing our notes
      payable.





·
            Cash
      paid for other selling, general & administrative costs – We paid less
      in 2010 as we pared down operations in response to the economic
      crisis.





As of
June 30, 2010, we had approximately $238,000 of current assets, approximately $0
of which was cash and the rest of which was receivables and inventory. On
average, our receivables are collected in approximately 30 days. Total current
liabilities at June 30, 2010 totaled approximately $2,208,000 of which
approximately $566,000 are trade and operating payables. At June 30, 2010, we
had a net working capital deficiency of approximately
$1,884,000.   Our need for cash during the six months ended June
30, 2010 was primarily funded through operations and borrowings.





As of
June 30, 2010 we had outstanding borrowings on our note payable to RHG of
approximately $955,000 and under that note have unused availability of
$45,000.  The note and all unpaid and accrued interest is due on the
sooner of 30 days demand notice or December 31, 2010.  In addition we
have $100,000 note payable to a related party that is due on
demand.  Both notes are secured by substantially all of our
assets.





Subsequent
to June 30, 2010 we have incurred significant legal and consulting fees in our
attempts to raise additional capital.





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 (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 pursuant to a
Guarantee.





We used
the proceeds of the Private Placement to repay (i) all amounts outstanding under
our $100,000 Senior Secured Promissory Note, dated June 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 is
$192,876.  We may make additional borrowings under the RHG Note in the
future.





We are
continuing our efforts to raise capital to pay our remaining current liabilities
and provide capital for future expansion.


18


Off-Balance-Sheet
Arrangements





As of
June 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. Quantitative and Qualitative Disclosures About Market Risk.





Not
applicable.





Item
4. Controls and Procedures.





Disclosure
Controls and Procedures





As of
June 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 June 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.


19


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.


20


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:  August
      23, 2010
            FIRST
      BLUSH BRANDS, INC./s/ Barrett CarrereBarrett
      Carrere, Chief Financial Officer and
              Secretary
      (principal executive and financial
officer)


21


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.


22