Written by Janice Shell
July 12, 2014: Marani Brands, Inc. (MRIB) sells vodka. It is one of the very few Pump & Dump operations that actually does what it says it does, but so far it's been unable to do it successfully.
Vodka is far from being an exotic and-hard-to-find tipple, but MRIB CEO Margrit Eyraud is trying to pitch her product, which she calls a hand crafted, ultra-premium vodka spirit, as something very special.
Shareholders haven't found their investment particularly rewarding, but hope springs eternal in Pennyland. They hope this time Margrit can get it right.
Marani's flagship product has a tale to tell. It isn't made in a soulless plant on the outskirts of a big city in the United States. Far more romantically, it's concocted and bottled in a distillery in the town of Eraskh, Armenia. Eyraud is of Armenian descent, and has strong ties to the Armenian community in the Los Angeles area, but she also recognizes a good story when she sees it. The company website rhapsodizes about the "pristine Ararat Valley" where the distillery is located, and informs interested readers that Marani Vodka is made with "only 100% late-harvest winter wheat and natural spring water" from the area. It's triple-distilled and filtered 25 times, until its "preferred clarity is revealed." The next step is the most important: a "confidential" aging process involving skim milk and honey is used to smooth the drink, "imparting a remarkably rounded taste and aroma which has become the Marani signature." A "whisper of sweetness" is meant to be a big selling point.
|The Ararat Valley, from the MRIB website|
All this may sound a bit familiar. Certainly it seems that the example of Grey Goose vodka must have been at the forefront of Eyraud's mind when she laid her plans to market Marani in the U.S. Grey Goose was the brainchild of Sidney Frank, an American entrepreneur who dreamed up the name of the extraordinarily successful product before he'd made any plans to begin producing it. He decided to distill it in France, simply because France is associated in the minds of those upwardly mobile consumers with quality and luxury.
Grey Goose is, like Marani, made with pristine spring water, and it's filtered through Champagne limestone. What does that do? It makes it possible for Grey Goose to be considered a "super premium" liquor, which means it can be priced higher than vodkas without a similarly seductive story. In an evident attempt to outdo Frank, Eyraud calls Marani an "ultra premium" brand. Taking into account the fact that until very recently Marani was only available in a 1 liter bottle, while Grey Goose comes in fifths and half-gallons, the cost is about the same.
What about the taste? Perhaps it doesn't really matter, as long as buyers think it must be superior. According to an expert beverage marketer quoted in a New York Magazine article about Frank, some may actually taste a difference when comparing an "ordinary" vodka to a super premium, but "you're talking about a grain-neutral spirit. The FDA definition is pretty narrow. At the fundamental level, there is no difference." Except, perhaps, for a "whisper of sweetness."
Both Grey Goose and Marani have nonetheless won awards. Marani is still talking about the gold medals it received at the San Francisco World Spirit Competition in 2004 and 2007. In 2008 and 2009, a Star Diamond Award was conferred by the American Academy of Hospitality Sciences.
The lesson is that given a story about a fancy process, and an eye-catching bottle, people will be pleased to pay more than they need to for vodka to use in a cocktail. Eyraud hopes that marketing strategy will work for her as well as it did for Frank.
Marani Brands the public company
As the 10-K for fiscal year 2006 explains, the company that now trades as MRIB was formed in Nevada in 2011 as Elli Taab, Inc. In April 2004, it changed its name to Patient Data Corporation, and in September of the same year it completed a reverse merger transaction with an Australian company called Fit for Business, which was headed by Mark Poulsen. The company's initial SB-2, filed on 7 March 2005, resulted in a lengthy correspondence with the SEC, and nine amendments to the filing. The problem had to do with the company's dealings with a Cayman Islands firm called Fort Street Equity, Inc. According to the SEC, Section 5 violations--violations having to do with the improper sale of unregistered stock--may have been committed. It is unclear whether the matter was ever satisfactorily resolved.
Evidently Poulsen wasn't entirely happy with his role as long distance manager of a U.S. company, and so on 4 April 2008, a merger was effected between a Fit for Business subsidiary, FFBI Merger Sub Corp., a California corporation, and Margrit Enterprises International, Inc. (MEI), also a California company, with MEI emerging as the surviving entity. The MEI shareholders then exchanged their common stock in MEI for shares of Fit for Business. Margrit Eyraud received 42.6 million shares in the new company, which would be called Marani Brands, Inc. At the same time, a total of 15,120,000 shares, and an equal number of warrants, was distributed to four additional investors: Julus Baer Multistock SICAV Black Sea Fund; Condor Wealth, Valter Maldacea, and Andrea Franzese. The largest amount--14.6 million shares--went to Julius Baer. The four investors paid $3.78 million cash, or $0.35 a share. Poulsen's stock was cancelled, and his Australian assets were returned to him.
What was now Marani Brands had already been doing business as Margrit Enterprises, and had a contract with the Eraskh distillery, which would be paid a royalty of 10 percent of sales. Eyraud seems to have had no intention of starting slowly: she was "in the process of identifying appropriate distributors of Marani Vodka in Italy, Switzerland, Monaco, Germany, Mexico, and parts of Asia." Although MEI had set up in business in 2001, it had "generated little revenue" by 2008.
By 30 June 2009, the end of that fiscal year, the company had an accumulated deficit of $24.4 million, and a net loss for the year of $6.7 million. Revenues were a meager $402,373. Things did not improve subsequently. The SEC requested amendments of Ks and Qs, and the company found itself unable to keep up. No 10-K was filed for 2010 or 2011. The company was seriously delinquent. That meant Rule 144 was not available to holders of restricted stock, and had not been since 24 May 2010, as MRIB noted in an 8-K from October 2011. Anyone holding restricted stock--which would include officers, directors, and lenders--was unable to free it up and sell it.
Eyraud evidently threw in the towel. The company went dark. It wasn't heard from again until 30 September 2013, when it filed a Form 15 to terminate its SEC registration. Eyraud was lucky registration hadn't been revoked.
A new beginning
Although Marani effectively dropped out of sight in 2010, making no filings and issuing no press releases, it did engage in some activity in that year and in 2011. In April 2010, it finally shipped some vodka from Eraskh to Margrit Enterprises in Los Angeles.
|Bill of lading for 2010 shipment|
In the fall of 2013, Marani began "filing" with OTCMarkets. Things got off to a bad start; quite a few initial efforts were dumped into the "inactive" folder. The documents that eventually became active aren't materially different, however; it seems the problem was chiefly typos and omissions. On 2 November, a pair of filings finally took: a financial report and an initial disclosure statement. The financial report was dismal. The company had only $564 cash, and no revenues for 2012 or 2013. The disclosure statement showed no stock issuances from 2012 or 2013, and reported only one greater than five percent owner, RBC Dexia Investor Services Bank in Luxembourg, care of Bank Julius Baer in Zurich. The number of shares held was 21,744,440, or 6 percent of the company. It seems Baer must have exercised the warrants it received back in 2008 along with stock, and sold some of its stake. As of 31 March 2014, when Marani's most recent disclosure was filed, its position had not changed. Oddly, in the fall of 2013, Eyraud was not named as a beneficial owner. Perhaps that was a mistake; she's now said to hold 35,333,330 shares, or 7.69%.
On 4 October 2013, Eyraud issued a press release heralding the return of Marani Brands. The PR didn't say much, but considering that the company had only $564 in the bank, what it did say sounded more than a bit grandiose. Eyraud, it announced, had spent the past two years restructuring the company, and planned to "redirect" it for worldwide distribution of its ultra premium vodka. She quickly rolled out a new bottle design--featuring a "refined look"--and made a new best friend, Don Baillargeon. Baillargeon's services aren't free: three months of "exposure" on MoneyTV costs $11,995.
|Margrit Eyraud, center|
Activities like these are expensive. AlphaTrade (APTD; registration revoked), once a successful financial data provider, drove itself into the ground with extravagant sports sponsorships. Universal Express (USXP; registration revoked) and CMKM Diamonds (CMKX; registration revoked) made names for themselves doing the same thing, though they didn't bother to pay for the advertising they purchased, or the teams they supposedly supported. Marani's financial statements offer no clue as to who may have picked up the tab for its own sponsorships. In the past, Eyraud had lent the company money--in September 2013, MRIB issued 6.5 million shares of preferred stock to her for cancellation of a $760,000 debt--and perhaps she continues to do so.
She also signed distribution agreements with Brazil, the Dominican Republic, and Mexico, registered trademarks for the Marani brand in Spain and Monaco, and began collecting licenses to distribute the product in California and other states (its earlier California license had lapsed). The announcement of what she described as $40 million and $30 million deals with Brazil and the Dominican Republic, respectively, caused a stir. Shareholders were thrilled, but FINRA had questions.
|Margrit Eyraud and Dan Senters|
OFDMI is FINRA's Office of Fraud Detection and Market Intelligence, run by Cameron Funkhouser. OFDMI sometimes investigates penny stocks and, on the basis of what turns up, sometimes makes referrals to the SEC's Division of Enforcement. Eyraud says the documentation she sent them was found to be satisfactory, but that kind of attention from a regulator is never a good thing.
The pump jobs
Back in the late summer of 2013, when the company was dormant, its stock price was flat and volume was extremely low. Curiously, though, it began to climb on significantly higher volume on 16 August, more than six weeks before Eyraud announced the company's resurrection on 4 October.
|MRIB chart, 14 August 2013 to 4 October 2013|
There were no paid promotions; word seems to have spread through the message boards. On 11 September, a new pre-promo service called AllVipAlerts recommended MRIB as a potential runner, claiming no compensation, but it doesn't seem to have attracted much attention. After Eyraud made her big announcement on 4 October, the stock continued to rise, still without the benefit of any promotion except Eyraud's appearances on MoneyTV and her frequent press releases.
The paid promos didn't begin until April 2014, when a number of newsletters were compensated to pump the stock by Blanca Solutions. Blanca is apparently a Delaware company formed in October 2013; of late it's been the third party payor for a number of penny promos. Other promoters were compensated by 007 StockChat, LLC and DF Media LLC, about which nothing is known. Most of the touts received $5000. Only one, Smart OTC, got more--$10,000--and it got it from Eco Investments Property Corp., a Nevada company that, like Marani, is located in Tustin, California. Eco was one of Marani's creditors: on 7 November 2013, the company issued it 30 million free trading shares at a cost of $0.001 per share, in repayment of a $30,000 note. There's no way to know whether it's yet sold all of those shares, or whether McCallan Partners, LLC, which received 6.5 million shares at the end of March, had any responsibility for the recent pumps. The promotional activity continued through the first half of June, and will probably resume at some point.
The Bodie lawsuit
Another of Marani's creditors was Bodie Investment Group, Inc., a financial firm about which little is known. It was formed in Delaware in 2010, and is located in Oak Park, Michigan.
On 3 March 2014, it brought suit against the company. Bodie invested $100,000 in Marani in February 2010, and received a convertible note and a common stock purchase warrant in exchange. In its complaint, Bodie charged that by the terms of the parties' agreement, Marani was required to inform Bodie of "any and all issuances of stock and other securities at prices below Bodie's conversion price, and, whenever such an event occurred, that Bodie was automatically entitled thereafter to the benefit of the lowest price applicable to any third party, if lower than Bodie's conversion price." Apparently Bodie feels Marani failed to give notice of its financing arrangements with other firms and individuals; no doubt Asher was among them. So, according to a recently filed document, was Eco Investments.
According to Bodie, in the case of two conversions, in November 2010 and November 2011, Marani refused to offer the right price because, it said, it was prevented by its bylaws from issuing stock below its par value of $0.001. Bodie notes that in the third paragraph of its subscription agreement, the par value of Marani's stock is given as $0.00001, not $0.001. It believes that if the par value fixed in the company's bylaws was different, Marani ought to have changed it. Bodie itself made a mistake when computing the number of shares it was owed upon the exercise of its cashless warrant, and apparently feels Marani should make up the difference. Bodie asserts that it's suffered damages in excess of $1 million.
A table included in the complaint shows Bodie's conversions: the firm converted debt into stock--and presumably sold that stock--in late 2010, late 2011, and early 2012. The subscription agreement specifies that the company would either issue the stock with a restrictive legend and also instruct counsel to issue an opinion letter freeing it up, or would simply issue the shares as free trading if a registration including them were in effect. Marani has filed no registration statement between early 2010 and the present, so it's difficult to see how the Rule 144 problem was avoided, unless Bodie converted shares at the dates given in the table, but didn't sell them until after 30 September 2013, when the company terminated its SEC registration.
Oddly, Bodie seems to have missed something, or at least overlooked it. One provision of the subscription agreement specifies that Marani would be in default in the event of a "failure of the Borrower's Common Stock to be listed for trading or quotation on the OTC BB for any reason." MRIB was in fact delisted from the OTCBB on 16 November 2010. Perhaps Bodie preferred to convert at ever-declining stock prices than to demand cash.
In its response and counterclaim, Marani denies any wrongdoing, and goes on to explain that it, not Bodie, is the victim, because Bodie received more, not less, stock that it should have, having used "improper accounting and conversion methods." Better yet, Marani insists that Bodie was "improperly shorting or manipulating Marani's stock in order to increase the amount of common stock that would convert to Bodie in exchange for its debt and under the Warrant." How was that manipulation accomplished? Marani says Bodie did so "by publishing in public investor fora false or misleading statements of material fact, which it knew or had reasonable ground to believe was false or misleading, designed to lower Marani's stock price."
Of course the allegations of shorting and manipulation are "on information and belief," which is another way of saying, "it's what we think and hope to prove in discovery." Marani offers no examples of the dastardly message board posts that supposedly drove down stock price, nor does it suggest when those messages were posted. Needless to say, every company has its critics, and MRIB came in for a lot of criticism when it virtually disappeared in 2010. It's scarcely surprising that ordinary investors would have complained about that.
A new shipment
Since the fall of 2013, Eyraud's been promoting her product without having a great deal of it to sell. As of 30 September 2013, the company had inventory of $105,316. Assuming a price per bottle of about $30, that would be approximately 3500 bottles. But it would be retail price; if the figure assumes a wholesale price, the number of bottles would be greater. Either way, the product could be purchased in some liquor stores and online.
|Bill of lading for new shipment|
It's still unclear whether the Eraskh distillery sent the old 1 liter bottles, which come four to a case, or the new 750 ml bottles, which come 12 to a case. It isn't certain whether the shipment, whatever it contains, has yet been released from customs.
There's other "big" news, though, which Eyraud "shared" with Baillargeon on 16 May: Marani Vodka would soon be on sale at Costco.
Shareholders were ecstatic, and rushed out to take photos, and, of course, to buy some Ultra Premium Vodka Spirit. That bounty was only available at 12 Southern California stores, but in time the number will surely increase, assuming the Eraskh distillery can keep up with what Eyraud seems to think will be universal demand. No production statistics for the plant are available.
Marani Vodka at Costco
Money will have to be raised. According to the quarterly, none was in the first quarter of this year. Although Bodie probably doesn't want to offer money to Marani again, perhaps Asher will have another go. One way or another, the company will most likely have to take a bite out of the toxic financing apple once more. And tasty as the apple is, it'll bring with it dilution, which is harder for investors to swallow.