UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended: September 30, 2005MARCH 31, 2006
Commission File Number: 000-28027
GLOBAL BEVERAGE SOLUTIONS, INC.
-------------------------------
(Exact name of registrant as specified in its charter)
PACIFIC PEAK INVESTMENTS
(Former name of registrant as specified in its charter)
NevadaNEVADA 90-0093439
------ ----------
(State or Jurisdiction of (IRS Employer ID No)
Incorporation or Organization)
7633 East 63rd Place, SuiteEAST 63RD PLACE, SUITE 220, Tulsa,TULSA, OK 74133
------------------------------------------------
(Address of principal executive office) (zip code)
4020 Birch Street, Suite 103, Newport Beach, CA 92660
(Former address of principal executive office) (zip code)
(918) 459-8469
--------------
(Issuer's telephone number)
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 periods as the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X[X] No --- ---[ ].
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No X
--- ---[X].
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No X
--- ---[X].
The number of shares outstanding of registrant's common stock, par value $.001
per share, as of September 30, 2005March 31, 2006 was 31,975,96943,439,105 shares.
Global Beverage Solutions, Inc.
INDEX
Page
No.
----
Part I Financial Information (unaudited)
Item 1. Financial Statements
Balance Sheets as of September 30, 2005 and December 31, 2004 3
Statements of Operations - For the Three Months Ended
September 30, 2005 and 2004 4
Statements of Operations - For the Nine Months Ended September
30, 2005 and 2004 5
Statements of Cash Flows - For the Nine Months Ended September
30, 2005 and 2004 6
Statements of Changes in Net Assets - For the Nine Months Ended
September 30, 2005 and 2004 7
Financial Highlights for the Nine Months Ended September 30,
2005 and 2004 8
Schedule of Investments as of September 30, 2005 and
December 31, 2004 9-10
Notes to Financial Statements 11-21
Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations 22-25
Item 3. Quantitative and Qualitative Disclosure about Market Risk 26-27
Item 4. Controls and Procedures 28
Part II Other Information 29-34
GLOBAL BEVERAGE SOLUTIONS, INC.
INDEX
Page
No.
---
Part I Financial Information
Item 1. Condensed Financial Statements
Statements of Net Assets as of March 31, 2006 and December 31, 2005 3
Statements of Operations - For the Three Months Ended March 31, 2006 and 2005 4
Statements of Cash Flows - For the Three Months Ended March 31, 2006 and 2005 5
Statements of Changes in Net Assets - For the Three Months Ended March 31, 2006
and 2005 6
Financial Highlights for the Three Months Ended March 31, 2006 and 2005 7
Schedule of Investments as of March 31, 2006 and December 31, 2005 8-9
Notes to Financial Statements 10-17
Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations 18-20
Item 3. Quantitative and Qualitative Disclosure about Market Risk 21-22
Item 4. Controls and Procedures 23
Part II Other Information 24-29
Item 1. Legal Proceedings
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits
Signatures
Exhibits
2
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GLOBAL BEVERAGE SOLUTIONS, INC.
Consolidated Balance Sheets
As of September 30,CONDENSED STATEMENTS OF NET ASSETS
MARCH 31, 2006 AND DECEMBER 31, 2005
and December 31, 20042006 2005
2004
----------- ----------------------- ------------
(Unaudited)
ASSETS
Investments in portfolio companies (cost $1,005,177$6,500,000 at September 30,
2005March 31,
2006 and $377,478$5,915,000 at December 31, 2004)2005) $ 600,0006,300,000 $ 377,4785,715,000
Cash and cash equivalents 79,405 43,466
Deferred financing costs -- 28,125190,255 245,370
Interest and fees receivable from portfolio companies 23,325 13,889
Deposits and prepaid expenses 1,940 49,006
Property and equipment, net -- 25,720
----------- -----------4,835 13,072
------------ ------------
TOTAL ASSETS 681,345 523,795
----------- -----------6,518,415 5,987,331
------------ ------------
LIABILITIES
Accounts payable 145,363 118,97015,615 25,857
Accrued expenses 41,017 --
Advances from related parties 11,500 --
Convertible debentures, net of discount -- 8,824
----------- -----------36,888 134,350
------------ ------------
TOTAL LIABILITIES 197,880 127,794
----------- -----------52,503 160,207
------------ ------------
NET ASSETS $ 483,4656,465,912 $ 396,001
=========== ===========5,827,124
============ ============
Commitments and contingencies (Note 4)
Composition of net assets:
Convertible preferred Series A,Preferred stock, $.001 par value; 400,00050,000,000 shares
authorized; no shares issued and outstanding $ --- $ --
Convertible preferred Series B, $.001 par value; 610,000 shares
authorized; 132,500 and 190,000 shares issued and outstanding at
September 30, 2005 and December 31, 2004, respectively 133 190
Convertible preferred Series C, $.001 par value; 10,000,000 shares
authorized; none and 10,000,000 shares issued and outstanding at
September 30, 2005 and December 31, 2004, respectively -- 10,000-
Common stock, $.0001 par value, authorized 950,000,000 shares;
31,975,96943,439,105 and 185,89641,312,391 shares issued and outstanding at
September 30,
2005March 31, 2006 and December 31, 2004,2005, respectively 31,976 186
Common stock held in escrow -- (69,643)
Common stock subscriptions receivable (9,600) (9,600)43,439 41,312
Additional paid in capital 9,814,806 8,416,41216,185,975 15,443,102
Accumulated deficit:
Accumulated net operating loss (7,467,036) (6,539,732)(7,685,087) (7,578,875)
Net realized loss on investments (1,481,637) (1,411,812)(1,878,415) (1,878,415)
Net unrealized appreciation (depreciation)depreciation of investments (405,177) --
----------- -----------(200,000) (200,000)
------------ ------------
Net assets $ 483,4656,465,912 $ 396,001
=========== ===========5,827,124
============ ============
Net asset value per share $ 0.01510.1489 $ 2.1302
=========== ===========
0.1411
============ ============
See accompanying notes to condensed financial statements.
3
GLOBAL BEVERAGE SOLUTIONS, INC.
Statements of Operations
Three Months Ended September 30,CONDENSED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2006 AND 2005
and 2004
(Unaudited)(UNAUDITED)
2006 2005 2004
------------ ------------
IncomeINCOME FROM OPERATIONS:
Interest income from operations:
Investmentportfolio companies $ 3,436 $ -
Management income $ -- $ --from portfolio companies 6,000 -
------------ ------------
-- --
Expenses:9,436 -
EXPENSES:
Selling, general and administrative expense 110,082 170,958
Loss on sale of furniture and fixtures 12,874 --115,648 143,129
Interest expense - 306,500
------------ ------------
122,956 170,958115,648 449,629
------------ ------------
Loss before income taxes (122,956) (170,958)
Income taxes -- --LOSS BEFORE INCOME TAXES (106,212) (449,629)
INCOME TAXES - -
------------ ------------
Net loss from operations (122,956) (170,958)NET LOSS FROM OPERATIONS (106,212) (449,629)
------------ ------------
Net unrealized losses:
Change in unrealized depreciation of non-controlled affiliate
investments, net of deferred tax expense of $0 in 2005 and
2004, respectively (405,177) (300,000)
------------ ------------
Net decrease in net assets from operations $ (528,133) $ (470,958)
============ ============
Net decrease in net assets from operations per share,
basic and diluted $ (0.0188) $ (4.2993)
============ ============
Weighted average shares outstanding 28,074,230 109,542
============ ============
See accompanying notes to financial statements.
4
GLOBAL BEVERAGE SOLUTIONS, INC.
Statements of Operations
Nine Months Ended September 30, 2005 and 2004
(Unaudited)
2005 2004
------------ ------------
Income from operations:
Investment income $ -- $ --
------------ ------------
-- --
Expenses:
Selling, general and administrative expense 607,930 673,052
Interest expense 306,500 --
Loss on sale of furniture and fixtures 12,874 --
------------ ------------
927,304 673,052
------------ ------------
Loss before income taxes (927,304) (673,052)
Income taxes -- --
------------ ------------
Net loss from operations (927,304) (673,052)
------------ ------------
Net realized and unrealized losses:NET REALIZED LOSSES:
Net realized loss on investments, net of income tax benefit
of $0 (69,825) --
Change in unrealized depreciation of non-controlled affiliate
investments, net of deferred tax expense of $0 infor 2005 and
2004, respectively (405,177) (300,000)- (69,826)
------------ ------------
Net realized losses - (69,826)
------------ ------------
Net decrease in net assets from operations $ (1,402,306)(106,212) $ (973,052)(519,455)
============ ============
NET DECREASE IN NET ASSETS FROM OPERATIONS PER SHARE,
BASIC AND DILUTED $ (0.0026) $ (2.7045)
============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING 41,319,513 192,069
============ ============
See accompanying notes to condensed financial statements.
4
GLOBAL BEVERAGE SOLUTIONS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2006 AND 2005
(UNAUDITED)
2006 2005
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net decrease in net assets from operations per share,
basic and diluted $ (0.1184)(106,212) $ (10.0467)
============ ============
Weighted average shares outstanding 11,848,650 96,853
============ ============
See accompanying notes to financial statements.
5
GLOBAL BEVERAGE SOLUTIONS, INC.
Statements of Cash Flows
Nine Months Ended September 30, 2005 and 2004
(Unaudited)
2005 2004
----------- -----------
Cash flows from operating activities:
Net decrease in net assets from operations $(1,402,306) $ (973,052)(519,455)
Adjustments to reconcile net decrease in net assets from
operations to net cash used in operating activities:
Change in unrealized depreciation of investments 405,177 300,000
Depreciation 12,546 9,131- 4,182
Amortization of deferred financing costs - 28,125 --
Amortization of beneficial conversion feature on convertible
debentures - 234,926 --
Loss on sale of furniture and fixtures 12,874 --
Forgiveness of notes payable -- (14,000)
Changes in operating assets and liabilities:
Other assets 47,368 (5,557)
Bank overdraft -- 15,702Interest and fees receivable from portfolio companies (9,436) -
Deposits and prepaid expenses 8,237 43,449
Accounts payable 84,760 20,946
Accruedand accrued expenses (17,351) --
Loans payable -- (12,000)
----------- -----------(3,704) 42,394
------------ ------------
Net cash used in operating activities (593,881) (658,830)
----------- -----------
Cash flows from investing activities:
Purchase of equipment -- (39,033)(111,115) (166,379)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in and advances to portfolio investment companies (627,699) (731,848)
----------- -----------(585,000) (9,000)
------------ ------------
Net cash used in investing activities (627,699) (770,881)
----------- -----------
Cash flows(585,000) (9,000)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Common stock issued for cash 641,000 -
Proceeds from financing activities:convertible debenture - 50,000
Proceeds from sale of common stock 1,105,000 1,403,849
Proceeds from convertible debenture 50,000 --
Additional proceeds from sale of common stock in prior year- 91,019
--
Loan proceeds from related parties 11,500 --
Purchase of Series B preferred stock -- (30,000)
Stock issued for redemption of Series B preferred stock -- 50,000
Legal and other expense associated with stock issuances -- 5,345
----------- ----------------------- ------------
Net cash provided by financing activities 1,257,519 1,429,194
----------- -----------641,000 141,019
------------ ------------
Net increase (decrease)decrease in cash and cash equivalents 35,939 (517)(55,115) (34,360)
Cash and cash equivalents, beginning of period 245,370 43,466
517
----------- ----------------------- ------------
Cash and cash equivalents, end of period 79,405 --
=========== ===========$ 190,255 $ 9,106
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Issuance of common stock for accounts payable and
accrued expenses $ 104,000 $ -
See accompanying notes to condensed financial statements.
5
See accompanying notes to financial statements.
6
GLOBAL BEVERAGE SOLUTIONS, INC.
Statements of Changes in Net Assets
Nine Months Ended September 30,CONDENSED STATEMENTS OF CHANGES IN NET ASSETS
THREE MONTHS ENDED MARCH 31, 2006 AND 2005
and 2004
(Unaudited)(UNAUDITED)
2006 2005
2004
----------- ----------------------- ------------
Changes in net assets from operations:CHANGES IN NET ASSETS FROM OPERATIONS:
Net loss from operations $ (927,304)(106,212) $ (673,052)(449,629)
Net realized loss on sale of investments, net (69,825) --- (69,826)
Change in net unrealized depreciation of investments, net (405,177) (300,000)
----------- ------------ -
------------ ------------
Net decrease in net assets from operations (1,402,306) (973,052)
----------- -----------
Capital stock transactions:(106,212) (519,455)
------------ ------------
CAPITAL STOCK TRANSACTIONS:
Common stock issued for cash 1,105,000 1,403,849641,000 -
Common stock issued for liabilities 104,000
Conversion of convertible debentures 293,751 --
Additional proceeds- 273,750
Proceeds from sale of common stock in prior year- 91,019
--
Common stock issued in acquisition of investments -- 372,000
Series B preferred stock transactions -- 20,000
Legal and other expense associated with stock issuances -- 5,345
----------- ----------------------- ------------
Net increase in net assets from stock transactions 1,489,770 1,801,194
----------- -----------745,000 364,769
------------ ------------
Net increase in net assets 87,464 828,142638,788 (154,686)
Net assets, beginning of period 5,827,124 396,001
427,766
----------- ----------------------- ------------
Net assets, end of period $ 483,4656,465,912 $ 1,255,908
=========== ===========
241,315
============ ============
See accompanying notes to condensed financial statements.
6
GLOBAL BEVERAGE SOLUTIONS, INC.
Financial Highlights
Three Months Ended March 31, 2006 and 2005
(Unaudited)
2006 2005
------------ ------------
PER SHARE INFORMATION
Net asset value, beginning of period $ 0.1411 $ 2.13
Net decrease from operations (0.0026) (2.34)
Net change in realized losses and unrealized
depreciation of investments, net - (0.36)
Net increase from stock transactions 0.0104 1.68
------------ ------------
Net asset value, end of period $ 0.1489 $ 1.11
============ ============
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period $ 6,465,912 $ 241,315
Average net assets 5,962,391 442,369
Ratio of expenses to average net assets 1.9% 117.4%
Ratio of net loss to average net assets 1.8% 117.4%
Shares outstanding at end of period 43,439,105 217,185
Weighted average shares outstanding during period 41,319,513 192,069
See accompanying notes to condensed financial statements.
7
GLOBAL BEVERAGE SOLUTIONS, INC.
Financial Highlights
Nine Months Ended September 30, 2005 and 2004
(Unaudited)
2005 2004
----------- -----------
PER SHARE INFORMATION
Net asset value, beginning of period $ 2.1302 $ 19.70
Net decrease from operations (0.0783 (6.95)
Net change in realized losses and unrealized
appreciation (depreciation) of investments, net (0.0401 (3.09)
Net increase (decrease) from stock transactions (1.9967 (0.19)
----------- -----------
Net asset value, end of period $ 0.0151 $ 9.47
=========== ===========
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period $ 483,465 $ 396,001
Average net assets 367,783 939,961
Ratio of expenses to average net assets 252% 72%
Ratio of net loss to average net assets 381% 104%
See accompanying notes to financial statements.
8
GLOBAL BEVERAGE SOLUTIONS, INC.
Schedule of Investments
September 30,
2005March 31, 2006
(Unaudited)
Date of Original Fair
Shares Acquisition Cost Value
COMMON STOCK IN PORTFOLIO COMPANIES
8% Jun-05 Titanium Design Studio, Inc., privately held;
41% of net assets; a titanium jewelry manufacturer $ 200,000 $ 200,000
9% Jul-05 EON Beverage Group, Inc., privately held;
83%11% of net assets; manufactures structured water
pursuant to proprietary process 400,000 400,000$ 725,000 $ 725,000
80% Nov-05 Rudy Beverage, Inc., privately held; 86% of net
assets; manufactures and sells beverages higher in
nutritional value and lower in sugar than existing
brands 5,575,000 5,575,000
Investments with $0 value - see schedule below 405,177 --
----------- -----------200,000 -
------------ ------------
Total investments at September 30, 2005March 31, 2006 $ 1,005,177 600,000
===========6,500,000 6,300,000
============
Cash and other assets, less liabilities (116,535)
-----------165,912
------------
Net assets at September 30, 2005March 31, 2006 $ 483,465
===========6,465,912
============
SCHEDULE OF INVESTMENTS WITH $0 VALUE
8% Jun-05 Titanium Design Studio, Inc., privately held;
a titanium jewelry manufacturer $ 200,000 $ -
------------ ------------
$ 200,000 $ -
============ ============
See accompanying notes to condensed financial statements
8
GLOBAL BEVERAGE SOLUTIONS, INC.
Schedule of Investments
December 31, 2005
Date of Historical Fair
Shares Acquisition Cost Value
COMMON STOCK IN PORTFOLIO COMPANIES
9% Jul-05 EON Beverage Group, Inc., privately held;
10% of net assets; manufactures structured water
pursuant to proprietary process $ 585,000 $ 585,000
80% Nov-05 Rudy Beverage, Inc., privately held; 85% of net
assets; manufactures and sells beverages higher in
nutritional value and lower in sugar than existing
brands 5,130,000 5,130,000
Investments with $0 value - see schedule below 200,000 -
------------- -------------
Total investments at December 31, 2005 $ 5,915,000 5,715,000
=============
Cash and other assets, less liabilities 112,124
-------------
Net assets at December 31, 2005 $ 5,827,124
=============
SCHEDULE OF INVESTMENTS WITH $0 VALUE
8% Jun-05 Titanium Design Studio, Inc., privately held;
a titanium jewelry manufacturer $ 200,000 $ -
51% Aug-04 Island Tribe, Inc., privately held; 0% of net assets;
distributor of extreme sports apparel $ 405,177 $ --396,777 -
100% Costs associated with previously discontinued - -
businesses, Unboxed Distribution, Inc., a wholly owned
subsidiary; 0% of our net assets; inactive
distributor of extreme sports apparel 927,154 --
100% and Total
Sports Distribution, Inc., a wholly owned
subsidiary; 0% of our net assets; inactive
distributor of extreme sports apparel 484,658 -- 69,826 -
Discontinued investments (1,411,812) --
----------- -----------(466,603)
------------- -------------
$ 405,177200,000 $ --
=========== ===========
-
============= =============
See accompanying notes to condensed financial statements.
9
GLOBAL BEVERAGE SOLUTIONS, INC.
Schedule of Investments
December 31,
2004
Date of Original Fair
Shares Acquisition Cost Value
COMMON STOCK IN PORTFOLIO COMPANIES
51% Aug-04 Island Tribe, Inc., privately held; 95% of net
assets; distributor of extreme sports apparel $ 377,478 $ 377,478
Investments with $0 value - see schedule below -- --
----------- -----------
Total investments at December 31, 2004 $ 377,478 377,478
===========
Cash and other assets, less liabilities 18,523
-----------
Net assets at December 31, 2004 $ 396,001
===========
SCHEDULE OF INVESTMENTS WITH $0 VALUE
100% Unboxed Distribution, Inc., a wholly owned
subsidiary; 0% of our net assets; inactive
distributor of extreme sports apparel $ 927,154 $ --
100% Total Sports Distribution, Inc., a wholly owned -- --
subsidiary; 0% of our net assets; inactive
distributor of extreme sports apparel 484,658 --
Discontinued investments (1,411,812)
----------- -----------
$ -- $ --
=========== ===========
See accompanying notes to financial statements.
10
GLOBAL BEVERAGE SOLUTIONS, INC.
Notes to Financial Statements
(Unaudited)NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(1) DESCRIPTION OF BUSINESS
(A) ORGANIZATION AND BUSINESS
- ---------------------------------------------------------------
The condensed financial statements include the accounts of Global Beverage
Solutions, Inc. ("Global" or the "Company"). Pursuant to Regulation S-X Rule 6,
the Company will operate on a non-consolidated basis. Operations of the
portfolio companies will be reported at the subsidiary level and only the
appreciation or impairment of these investments in portfolio companies will be
included in the Company's financial statements.
On June 19, 2003, the Company became a business development company" ("BDC")
pursuant to applicable provisions of the Investment Company Act of 1940. Until
June 19, 2003 the Company was a development stage enterprise under the
provisions of Statement of Financial Accounting Standards ("SFAS") No. 7,
"Accounting and Reporting by Development Stage Enterprises." Upon commencing
their operations as a BDC, the Company no longer qualified under the guidelines
of SFAS No. 7.
Mercury Software, a Nevada corporation, was incorporated on January 29, 1997 and
its name was changed to MedEx Corp. on June 24, 2002. Aussie Apparel Group, Ltd.
("Aussie Apparel" or the "Company"), a Nevada corporation, was incorporated on
August 26, 2002. In October 2002, MedEx Corp. issued an aggregate of 2,6006,500,000
(pre-stock split) shares (6,500,000 pre reverse stock split) of its common stock to the shareholders of the Company
in connection with the merger of the Company with MedEx Corp., whose name was
then changed to "Aussie Apparel Group, Ltd" on October 21, 2002. Since the
shareholders of the Company became the controlling shareholders of MedEx Corp. after
the exchange, the Company was treated as the acquirer for accounting purposes.
Accordingly, the financial statements, as presented herein,here, are the historical
financial statements of the Company and include the transactions of MedEx Corp. only
from the date of acquisition, using reverse merger accounting.
On June 19, 2003, the Company became a "Business Development Company" ("BDC")
pursuant to applicable provisions of the Investment Company Act of 1940 (the
"Investment Company Act").
The Company's name was changed to Bluetorch Inc. (hereinafter "Bluetorch" or the
"Company"("Bluetorch"), effective
November 3, 2003. On March 12,April 25, 2005, the Company changed its name to Pacific
Crest Investments and oneas a result of a conflict in name with an existing company
changed its wholly-owned portfolio investment
companies, Unboxed Distribution, Inc. ("Unboxed"), signed a Mutual Settlement
and Release Agreement with Gotcha Brands Inc., the Bluetorch licensor. This
agreement required Unboxedname to cease the selling and marketing of Bluetorch
apparel and the Company also agreed to change its corporate name by April 20,Pacific Peak Investments on May 5, 2005. On March 22,October 10,
2005, the Company changed its name to Global Beverage Solutions, Inc. and one of its wholly-owned portfolio investment
companies, Total Sports Distribution, Inc., ("Total Sports") signed a Mutual
Settlement and Release Agreement with Collective Licensing International, LLC,began
trading on the licensor ofOTC Bulletin Board under the Airwalk apparel brand. This agreement required Total Sports
to cease selling and marketing Airwalk apparel.
Effectivesymbol GBVS.OB.
On April 18, 2005, the Company implementedcompleted a 2500-to-12,500-to-1 reverse stock split. The
accompanying financial statements have been restated to reflect this stock split
for all periods presented.
10
(B) CONDENSED FINANCIAL STATEMENTS
- ----------------------------------
The accompanying condensed financial statements have been prepared by the
Company without audit. In the opinion of management, all adjustments (which
include only normal recurring adjustments) necessary to present fairly the
financial position as of March 31, 2006, and the results of operations and cash
flows for all periods presented have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America have been condensed or omitted. It is suggested
that these condensed financial statements be read in conjunction with the
financial statements and notes thereto included in the Company's December 31,
2005 audited financial statements on Form 10-K. The results of operations for
the interim periods presented are not necessarily indicative of the operating
results for the full years.
(C) RECLASSIFICATIONS
- ---------------------
Certain reclassifications have been made to the prior period financial
statements to conform to the current period presentation.
(D) GOING CONCERN
- -----------------
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern, which contemplates, among other things, the
realization of assets and satisfaction of liabilities in the normal course of
business. As of March 31, 2006, the Company has an accumulated deficit of
$9,763,502 and had net losses totaling $106,212 for the three months ended March
31, 2006. Additionally, as of March 31, 2006, the Company had limited working
capital. These factors, among others, raise substantial doubt about the
Company's ability to continue as a going concern. The Company intends to fund
operations through debt and equity financing arrangements which management
believes should be sufficient to fund its capital expenditures, working capital
and other cash requirements for the next twelve months. The successful outcome
of future activities cannot be determined at this time and there is no assurance
that, if achieved, the Company will have sufficient funds to execute its
intended business plan or generate positive operating results.
The Company currently estimates it will require a total of approximately
$1,100,000 to meet its operating cash flow requirements and its currently
committed follow-on investments in 2006. The operating cash flow requirement
estimate is approximately $435,000 and the committed follow-on investments are
approximately $665,000. As of March 31, 2006, including cash on-hand at December
31, 2005, the Company had raised approximately $860,000 of this amount and had
issued common stock in exchange for assumption of $104,000 of liabilities.
During April 2006, the Company raised an additional $60,000.
Management plans to take the following steps in response to these issues:
It has been determined that, as an investment company, the Company will
only invest in/acquire businesses which are cash flow positive and
profitable or businesses which projections indicate can become cash flow
11
positive and profitable within a reasonable period. These entities will
have good growth potential as a result of access to additional capital
and/or additional management acumen.
As part of this strategic process, the Company has decided to concentrate
its efforts in the beverage industry. It is believed that this new
direction will both reduce the risk for the Company and its shareholders as
well as provide the best opportunity for long-term shareholder value.
On March 14, 2006, the Company filed a new Offering Circular that
authorized the Company to raise up to $1,500,000 via sale of its common
stock. Immediately following this reverse stock split, there were
218,500 common shareswith a minimum share price of $.90. As of March 31, 2006, the Company
issuedhad raised $641,000 against this limit.
Whereas the Company believes it will be successful with its plans, due to market
factors and outstanding.economic conditions, no assurance can be given that financing will
be available on favorable terms or at all.
The financial statements do not include any adjustments related to
recoverability and classification of assets carrying amounts or the amount and
classification of liabilities that might result should the Company be unable to
continue as a going concern.
(2) INVESTMENTS
RUDY BEVERAGE, INC.
- -------------------
On April 19,November 17, 2005, in accordancethe Company executed a Stock Purchase Agreement with the
above Mutual Settlement and Release
Agreement,shareholders ("Sellers") of Rudy Beverage, Inc. ("Rudy"), a Nevada corporation,
whereby the Company amended its articlesexchanged 6,000,000 shares of incorporation to implement a name
change of the Company. Effective April 25, 2005 the Company's new name became
"Pacific Crest Investments" (the "Company") and its common stock beganfor 80% of
the issued and outstanding common stock of Rudy. The Company's investment was
valued at $4,860,000 based upon the trading under this new name with a new exchange symbol.
11
Following the public announcementprice of the Company's common stock
on the date of the transaction. The Sellers can receive up to 10,000,000
additional shares of our common stock if Rudy achieves certain sales and net
revenue goals by the twelve month periods ended June 30, 2007 and 2008. Rudy was
founded by Rudy Ruettiger and Drew Carver to create a unique line of beverages
higher in nutritional value but lower in sugar than existing brands. Rudy
currently has developed two distinct products: Rudy Flying Colors, catering to
children K1 through 8; and Rudy Revolution, a sport drink aimed at athletes
across the board. The goal of the Rudy line of beverages is to create flavorful
juice blends, some of which will incorporate the hydration capabilities of EON
Structured Water. Rudy had product available for sale in April 2006. The Company
has made follow-on investments in the form of loans in the total amount of
$715,000 as of March 31, 2006, to Rudy.
EON BEVERAGE GROUP, INC.
- ------------------------
On July 8, 2005, we consummated the transactions contemplated by the Share
Purchase Agreement (dated June 28, 2005) with EON Beverage Group, Inc. ("EON")
and, as a result, we invested $400,000 in exchange for 9% of the issued and
outstanding common stock of EON. EON manufactures structured water through a
proprietary process (patent pending) which alters the molecular structure of
12
purified water. Structured water is a relatively new name,concept which is generally
defined as water molecules organized through hydrogen bonding into distinct
molecular structures. This allows the users of EON water to achieve enhanced
intra-cellular hydration through significant absorption capability that is
crucial for maximum biological activity and improved athletic performance, based
on the representations of EON. The Company has made follow-on investments in the
form of loans in the total amount of $325,000 as of March 31, 2006, to EON.
On January 23, 2006, the Company received notice that another corporation hadexecuted a name similar to Pacific Crest
Investments. In order to avoid potentially prolonged and expensive litigation,
the Company agreed to change its name from Pacific Crest Investments. Effective
May 5, 2005,letter of intent with certain
shareholders of EON which could increase the Company's new name is Pacific Peak Investments (hereinafter the
"Company").ownership of EON to 53%,
subject to due diligence and a definitive contract. The agreement has been
delayed pending completion of additional due diligence.
TITANIUM DESIGN STUDIO, INC.
- ----------------------------
On June 6, 2005, the Companywe signed a Share Purchase Agreement with Titanium Design
Studio, Inc. ("TDS"), a Nevada corporation, whereby the Companywe invested $200,000 in cash
in exchange for 8% of the issued and outstanding common stock of TDS. TDS has a
proprietary manufacturing process which allows it to cast precision titanium
jewelry resulting in a level of detail not obtainable by milling titanium. TDS
can economically produce and supply jewelry in shapes and patterns which were
previously considered to be impossible or uneconomical to manufacture. TDS
believes its technology has applications in other industries, including
aerospace, dentistry, sporting goods (fishing rods) and commemorative coins.
Early in 2006, TDS relocated its operations to Thailand in order to access
cheaper labor. The Board of Directors of the Company recorded a reserve in the
amount of $200,000 relating to this investment at December 31, 2005.
INVESTMENTS DISCONTINUED IN 2004 AND 2005
-----------------------------------------
UNBOXED DISTRIBUTION, INC.
- --------------------------
On July 1,August 21, 2003, the Company formed Unboxed Distribution, Inc. ("Unboxed")
for the purpose of owning and operating the Bluetorch license agreement.
On March 12, 2005, the Company and one of its wholly-owned portfolio investment
companies, Total Sports,subsidiary, Unboxed
Distribution, Inc., signed a Mutual Settlement and Release Agreement with KrashGotcha
Brands Inc., the Bluetorch licensor, and this agreement requires the Company's
subsidiary, Unboxed Distribution, Inc., the licensor of TSABrand apparel. This agreement
required Total Sports to cease the selling and marketing of
TSABrandBluetorch apparel. On July 8, 2005,In keeping with this agreement, the Company consummated the transactions contemplatedalso agreed to
change its corporate name by the
Share Purchase Agreement (dated June 28, 2005) with EON Beverage Group, Inc.
("EON") and, as a result,April 20, 2005.
TOTAL SPORTS DISTRIBUTION, INC.
- -------------------------------
On October 21, 2003, the Company has invested $400,000 in exchangeformed Total Sports Distribution, Inc. ("Total
Sports") for 9%the purpose of owning and operating the issued and outstanding common stock of EON. EON manufactures structured
water throughTrue Skate Apparel brand
("TSABrand)". Furthermore, on February 19, 2004 Total Sports signed a proprietary process (patent pending) which altersdefinitive
agreement with Collective Licensing International, LLC to license the molecular
structure of purified water. Structured water is a relatively new concept which
is generally defined as water molecules organized through hydrogen bonding into
distinct molecular structures. This allows the users of EON water to achieve
enhanced intra-cellular hydration through significant absorption capability that
is crucialAirwalk
brand for maximum biological activity and improved athletic performance.
On October 10, 2005, the Company changed its name to Global Beverage Solutions,
Inc. and began trading on the OTC Bulletin Board under the symbol GBVS.OB.
Pursuant to Regulation S-X Rule 6, the Company will operate on a
non-consolidated basis. Operations of the portfolio companies will be reported
at the subsidiary level and only the appreciation or impairment of these
investments in portfolio companies will be included in the Company's financial
statements.
(B) CONDENSED FINANCIAL STATEMENTS
- ---------------------------------------
The accompanying condensed financial statements have been prepared by the
Company without audit. In the opinion of management, all adjustments (which
include only normal recurring adjustments) necessary to present fairly the
financial position as of September 30, 2005 and the results of operations and
cash flows for all periods presented have been made.
12
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally acceptedapparel in the United States of America have been condensed or omitted. It is suggested
that these condensed financial statements be read in conjunction with the
financial statements and notes thereto included in the Company's December 31,
2004 audited financial statements on Form 10-K. The results of operations for
the interim periods presented are not necessarily indicative of the operating
results for the full years.
(C) RECLASSIFICATIONS
- --------------------------
Certain reclassifications have been made to the prior period financial
statements to conform to the current period presentation.
(D) GOING CONCERN
- ----------------------
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern, which contemplates, among other things, the
realization of assets and satisfaction of liabilities in the normal course of
business. As of September 30,market.
On March 22, 2005, the Company has an accumulated deficit of
$9,353,850 and had net losses totaling $1,402,306 for the nine months ended
September 30, 2005. Additionally, as of September 30, 2005, the Company had
negative working capital of $116,535. These factors, among others, raise
substantial doubt about the Company's ability to continue as a going concern.
The Company intends to fund operations through debt and equity financing
arrangements which management believes may be insufficient to fund its capital
expenditures, working capital and other cash requirements for the next twelve
months. Therefore, the Company will be required to seek additional funds to
finance its long-term operations. The successful outcome of future activities
cannot be determined at this time and there is no assurance that, if achieved,
the Company will have sufficient funds to execute its intended business plan or
generate positive operating results.
Management plans to take the following steps in response to these issues:
(i) Revenue
It has been determined that, as an investment company, the Company will
only invest in/acquire cash flow positive and profitable businesses or
businesses most likely to generate positive cash flow in the
foreseeable future. It is intended that these entities will have good
growth potential as a result of access to capital and/or additional
management acumen.
As part of this strategic process, the Company will look beyond action
sports apparel for acquisition opportunities so as to include all
consumer product categories that have the potential for a positive
return on investment. It is believed that this new direction will both
reduce the risk for the Company and its shareholders as well as provide
the best opportunity for long-term shareholder value.
13
Regarding two of the Company's portfolio investment companies, Unboxed
andwholly-owned subsidiary, Total Sports
it had become clear that profitability in both
entities was not possible in the near future. As noted above, the
Company hasDistribution, Inc., signed a Mutual Settlement and Release AgreementsAgreement with
Collective Licensing International, LLC, the licensor of the Airwalk apparel
brand, and this agreement requires the Company's subsidiary, Total Sports
Distribution, Inc., to cease the licensing agreements with the licensors for theselling and marketing of Airwalk Bluetorch
and TSABrand labels. There were significant future guaranteed royalty
amounts payable by these portfolio investment companies in accordance
with the existing licensing agreements and so it was in the best
interests of the Company and the portfolio investment companies to
mitigate the substantial potential losses. Accordingly, it has been
determined that it is not in the best interests of the Company's
shareholders to continue the flow of capital to these two portfolio
investment companies.
In addition, it was determined that future prospects for Island Tribe,
Inc. ("Island Tribe") were unlikely to provide profitability in the
foreseeable future sufficient to provide a return on the Company's
investment. Accordingly, the Company fully reserved its investment in
Island Tribe and is pursuing a transaction which would result in the
return of 12,000 shares of the Company's common stock in exchange for
the Company returning its investment in Island Tribe.
The Company will, however, continue to fund and invest in Titanium
Design Studio, Inc. and EON Beverage Group, Inc. (see Note 2).
(ii) Financing
On June 19, 2003, an Offering Circular was filed authorizing the
Company to raise up to $3,000,000 via sale of its common stock. Through
June 30, 2005, the Company has raised $2,267,057 against this limit.
This sum includes both cash proceeds and conversion of debt.
On June 24, 2004, another Offering Circular was filed authorizing the
Company to raise up to $5,000,000 via sale of its common stock.
On May 18, 2005, the Company signed a non-binding Term Sheet ("TS")
with Interim Capital Corp. ("Interim"), representing certain investors.
This TS summarized the basic terms and conditions for the sale of a
total of 20,800,000 common shares of the Company for a total of
$1,040,000. As of September 30, 2005, the Company had sold 20,700,000
shares for a total of $1,035,000, leaving a balance of 100,000 shares
on this TS.
On June 25, 2005, the Company filed a new Offering Circular to raise an
additional $5,000,000 via sale of its common stock.
On July 5, 2005, in an additional transaction to the TS, the Company
and Interim Capital Corp., an agent for certain investors, signed a
funding agreement for the sale of a total of 14,200,000 common shares
of the Company for a total of $994,000. As of September 30, 2005, the
Company had collected $70,000 for 1,000,000 common shares.
14apparel.
13
Whereas the Company believes it will be successful with its plans, due to Market
factors and economic conditions, no assurance can be given that additional
financing will be available on favorable terms or at all.
The financial statements do not include any adjustments related to
recoverability and classification of the carrying amounts of assets or the
amounts and classification of liabilities that might result should the Company
be unable to continue as a going concern.
(2) INVESTMENTS
TITANIUM DESIGN STUDIO, INC. ("TDS")
- ------------------------------------
On June 6, 2005, the Company signed a Share Purchase Agreement with TDS, a
Nevada corporation, whereby the Company invested $200,000 in cash in exchange
for 8% of the issued and outstanding common stock of TDS.
TDS has a proprietary manufacturing process which allows it to cast precision
titanium jewelry resulting in a level of detail not obtainable by milling
titanium. TDS can economically produce and supply jewelry in shapes and patterns
which were previously considered to be impossible or uneconomical to
manufacture. TDS believes its technology has applications in other industries,
including aerospace, dentistry, sporting goods (fishing rods) and commemorative
coins.
EON BEVERAGE GROUP, INC. ("EON")
- ---------------------------------
On July 8, 2005, the Company consummated the transactions contemplated by the
Share Purchase Agreement (dated June 28, 2005) with EON and, as a result, the
Company has invested $400,000 in exchange for 9% of the issued and outstanding
common stock of EON.
EON manufactures structured water through a proprietary process (patent pending)
which alters the molecular structure of purified water. Structured water is a
relatively new concept which is generally defined as water molecules organized
through hydrogen bonding into distinct molecular structures. This allows the
users of EON water to achieve enhanced intra-cellular hydration through
significant absorption capability that is crucial for maximum biological
activity and improved athletic performance.
ISLAND TRIBE, INC.
("ISLAND TRIBE")
- -----------------------------------
As noted above,------------------
Effective August 1, 2004, the Company purchasedacquired a 51% interest in Island Tribe,
Inc., ("Island Tribe") a surf apparel company. The considerationcompany in exchange for this investment was $372,000, consisting12,000 (30,000,000
shares pre-split) shares of 12,000the restricted common shares (30,000,000 pre reverse stock split) inof the Company, being issuedwhich
was valued at a pre-split per-share price$372,000, based on the current trading value of $0.0124. The effective
date of this transaction was August 1, 2004.the Company's
common stock. Over the next 4 years, this purchase agreement provided for the
Company to receive an additional 24% ownership of Island Tribe. TheTribe, Inc. Effective
November 20, 2005, the Company was obligated to pay certain royalty
commissions on future sales ofexchanged its 51% ownership in Island Tribe product for
the duration of the
agreement, which commenced in 2004 and would conclude in 2016. These royalty
commissions range from 8% in 200412,000 restricted common shares originally issued to 2% in 2016 and would only become due and
payable each year when annual sales of $372,000 were achieved.
15
acquire Island Tribe.
VALUATION OF INVESTMENTS
- ------------------------
As required by the SEC's Accounting Series Release ("ASR") 118, the investment
committee of the Company is required to assign a fair value to all investments.
To comply with Section 2(a) (41) of the Investment Company Act and Rule 2a-4
under the Investment Company Act, it is incumbent upon the board of directors to
satisfy themselves that all appropriate factors relevant to the value of
securities for which market quotations are not readily available have been
considered and to determine the method of arriving at the fair value of each
such security. To the extent considered necessary, the board may appoint persons
to assist them in the determination of such value and to make the actual
calculations pursuant to the board's direction. The board must also, consistent
with this responsibility, continuously review the appropriateness of the method
used in valuing each issue of security in the Company's portfolio. The directors
must recognize their responsibilities in this matter and whenever technical
assistance is requested from individuals who are not directors, the findings of
such individuals must be carefully reviewed by the directors in order to satisfy
themselves that the resulting valuations are fair.
No single standard for determining "fair value in good faith" can be laid down,
since fair value depends upon the circumstances of each individual case. As a
general principle, the current "fair value" of an issue of securities being
valued by the board of directors would appear to be the amount that the owner
might reasonably expect to receive for them upon their current sale. Methods
that are in accord with this principle may, for example, be based on a multiple
of earnings, or a discount from market of a similar freely traded security, or
yield to maturity with respect to debt issues, or a combination of these and
other methods. Some of the general factors that the directors should consider in
determining a valuation method for an individual issue of securities include: 1)
the fundamental analytical data relating to the investment, 2) the nature and
duration of restrictions on disposition of the securities, and 3) an evaluation
of the forces which influence the market in which these securities are purchased
and sold. Among the more specific factors which are to be considered are: type
of security, financial statements, cost at date of purchase, size of holding,
discount from market value of unrestricted securities of the same class at time
of purchase, special reports prepared by analysis,analysts, information as to any
transactions or offers with respect to the security, existence of merger
proposals or tender offers affecting the securities, price and extent of public
trading in similar securities of the issuer or comparable companies and other
relevant matters.
The Board of Directorsboard has arrived at the following valuation method for its investments.
Where there is not a readily available source for determining the market value
of any investment, either because the investment is not publicly traded or is
thinly traded and in the absence of a recent appraisal, the value of the investmentsinvestment
shall be based on the following criteria:
14
1. Total amount of the Company's actual investment ("AI"). This amount
shall include all loans, purchase price of securities and fair value
of securities given at the time of exchange.
16
2. Total revenues for the preceding twelve months ("R").
3. Earnings before interest, taxes and depreciation ("EBITD")
4. Estimate of likely sale price of investment ("ESP")
5. Net assets of investment ("NA")
6. Likelihood of investment generating positive returns (going concern).
The estimated value of each investment shall be determined as follows:
- - Where no or limited revenues or earnings are present, then the value shall be
the greater of the investment's a) net assets, b) estimated sales price, or c)
total amount of actual investment.
- - Where revenues and/or earnings are present, then the value shall be the
greater of one-time (1x) revenues or three times (3x) earnings, plus the greater
of the net assets of the investment or the total amount of the actual
investment.
- - Under both scenarios, the value of the investment shall be adjusted down if
there is a reasonable expectation that the Company will not be able to recoup
the investment or if there is reasonable doubt about the investment's ability to
continue as a going concern.
Based on the previous methodology, the Company determined that its investments
in its portfolio companies should be valued at September 30, 2005March 31, 2006 as follows:
- UNBOXED DISTRIBUTION,o RUDY BEVERAGE, INC.
("UNBOXED")
--------------------------------------
UnboxedRudy has not yet developed revenues and is currently testing its
products and developing marketing plans and made its first shipment in
April 2006. Accordingly, based upon the established valuation method,
Rudy is valued at its cost of $4,860,000 at March 31, 2006.
o EON BEVERAGE GROUP, INC.
EON has been involved in test marketing its structured water produce
and has had limited revenues during this testing phase. On January 23,
2006, the Company entered into a letter of intent with certain
shareholders of EON which would increase the Company's ownership from
9% to 53%, in exchange for 1,750,000 shares of Global common stock.
The agreement is subject to due diligence and a definitive contract.
In addition, EON expects to sell a substantial volume of its
structured water to Rudy for use in certain of its drinks.
Accordingly, based on the established valuation method, EON is valued
at $0 dueits cost of $400,000 at March 31, 2006.
o TITANIUM DESIGN STUDIO, INC.
Early in 2006, TDS relocated its operations to the Company's decisionThailand in order to
discontinue the flow of capital to this entity. The sales for Unboxed
were progressing slowly and not fast enough to justify the minimum
royalties due in 2005 ($130,000) and 2006 ($300,000).access cheaper labor. As previously
noted, on March 12, 2005, Unboxed and Bluetorch signed a Mutual
Settlement and Release Agreement with the licensor of the Bluetorch
label. The write down in the investment in Unboxed for the year ended
December 31, 2004 totaled $927,154.
- TOTAL SPORTS DISTRIBUTION, INC. ("TOTAL SPORTS")
---------------------------------------------
Total Sports has been valued at $0, due to the Company's decision to
discontinue the flow of capital to this entity. It had become apparent
that the anticipated revenue flow for 2005 was not progressing at the
rate the board of directors and management anticipated and would fall
well short of expectations. As the board of directors and management
looked at the Company's contractual royalty minimums for the Airwalk
label for 2005 and beyond, it became clear that the Company was not
going to be able to meet the revenue objectives from which the royalty
minimums were based. These minimums were $920,000 in 2005 with an
additional $3,960,000 due between 2006 and 2008. In addition, this
situation was going to negatively impact Total Sport's ability to
market and sell the TSABrand label. As previously noted, on March 22,
2005, Total Sports and Bluetorch signed a Mutual Settlement and Release
Agreement with the licensor of the Airwalk label. The write down in the
investment in Total Sports for the year ended December 31, 2004 totaled
$484,658.
17
- ISLAND TRIBE, INC. ("ISLAND TRIBE")
----------------------------------
Island Tribe has been valued at $0, due to the Company's decision to
discontinue the flow of capital to this entity. It was determined that
future prospects for Island Tribe were unlikely to provide
profitability in the foreseeable future sufficient to provide a return
on the Company's investment. Accordingly,result, the Company fully reserved its
investment of $200,000.
15
INVESTMENTS DISCONTINUED IN 2004 AND 2005
o ISLAND TRIBE, INC.
As noted above, the Company sold its interest in Island Tribe on
November 20, 2005.
o UNBOXED DISTRIBUTION, INC. AND TOTAL SPORTS DISTRIBUTION, INC.
Unboxed and is pursuing a transaction which
would result in the return of 12,000 shares of the Company's common
stock in exchange forTotal Sports were fully reserved at December 31, 2004. the
Company returning its investment in Island
Tribe.
- TITANIUM DESIGN STUDIO, INC. ("TDS")
------------------------------------
Titanium Design Studio, Inc. has been valued at $200,000, being the
price paid by the Company on June 6, 2005 forrealized an 8% ownershipadditional loss of TDS.
The fair value of $200,000 represents the Company's actual investment,
in accordance with the valuation model described above.
- EON BEVERAGE GROUP, INC. ("EON")
--------------------------------
On July 8, 2005, the Company consummated the transactions contemplated
by the Share Purchase Agreement (dated June 28, 2005) with EON and, as
a result, the Company has invested $400,000 in exchange for 9% of the
issued and outstanding common stock of EON.
(3) DEBT
As of December 31, 2004, the Company had convertible debentures of $8,824, net
of discount of $234,926. The debenture holder converted these debentures into
common stock$69,826 during the first six months of 2005.
The convertible feature of the above convertible debentures provides for a rate
of conversion that is below market value. Such feature is normally characterized
as a "beneficial conversion feature" ("BCF"). Pursuantthree month
period ended March 31, 2005, relating to Emerging Issues Task
Force ("EITF") Issue No. 98-5, "Accounting For Convertible Securities with
Beneficial Conversion Features or Contingently Adjustable Conversion Ratio" and
EITF Issue No. 00-27, "Application of EITF Issue No. 98-5 To Certain Convertible
Instruments," the Company has estimated the fair value of such BCF to be
approximately $375,000 related toliquidating these debentures and recorded such amount as a
debt discount. Such discount is being amortized to interest expense over the
term of the notes. Amortization expense during the nine months ended September
30, 2005 was $306,500 (all fully amortized by June 30, 2005).
18
(4)businesses.
(3) EQUITY
COMMON STOCK:
- -------------
Effective April 18, 2005, the Company implemented a 2500-to-1 reverse split of
its common stock. Immediately following this reverse stock split, there were
218,500 issued and outstanding common shares of the Company.
During the three months ended September 30, 2005,March 31, 2006, the Company issued 21,700,000641,000 shares
of its common stock all issued after the 2500-to-1 reverse stock split which
became effective on April 18, 2005, resulting in exchange for cash received by the Company of $1,105,000. The stock subscription receivable at June 30, 2005, was collected
during the quarter ended September 30, 2005.
On March 17, 2005, the Company$641,000
pursuant to its current Offering Circular. In addition, 1,485,714 shares were
issued a convertible debenturefor $104,000 in a principal
amount of $50,000, convertible into 20,000 common shares (50,000,000 pre reverse
split). During the three months ended March 31, 2005, the debenture holder
converted $30,000 of the debenture into 12,000 shares of common stock
(30,000,000 pre reverse split). During the three months ended June 30, 2005, the
debenture holder had converted the remaining $20,000 of the debenture into 8,000
common shares (20,000,000 pre reverse split), which were previously issuedaccounts payable and held in escrow.
On May 18, 2005, the board of directors of the Company adopted a resolution
instructing the management of the Company to discuss, with the holders of shares
of preferred series C stock ("Series CPS"), a recommendation of the Company's
board of directors that the holders of Series CPS agree to convert Series CPS to
restricted common shares, which would be issued with the restrictive legend
under Rule 144, and so could not be sold for at least twelve (12) months.
The purpose of the above resolution was to provide the Company the opportunity
to secure capital financing to allow the Company to survive and move forward for
the benefit of all shareholders.
Furtheraccrued expenses pursuant to the
subsequent discussions by Company management with the holders of
Series CPS, all 10,000,000 Series CPS were converted to 10,000,000 common
shares, the substantial majority of which were restricted common shares.previous Offering Circular.
PREFERRED STOCK:
- ---------------
The Company is authorized to issue up to 50,000,000 shares of preferred stock at
$0.001 par value.
Convertible preferred series A stock ("Series APS")
---------------------------------------------------
o 400,000 shares originally authorized.
o None issued or outstanding at September 30, 2005.
19
Convertible preferred series B stock ("Series BPS")
---------------------------------------------------
o 610,000 shares authorized.
o 132,500 issued and outstanding at June 30, 2005.
o During the nine months ended September 30, 2005, 57,500 BPS
shares were converted into 68,757 shares of common stock.
o The holders of the Series BPS are entitled to receive
dividends on the number of shares of Series BPS, which are
converted into shares of Company common stock, at the dividend
rate of 6% of the conversion price for the number of shares
converted, payable in cash or in common stock. The dividend
rate is based upon the ten (10) day average of the lowest
closing bid price prior to the date of conversion ("Market
Price").
o The Series BPS are convertible into common stock based upon a
conversion price equal to the number of shares being converted
divided by 80% of the Market Price described in the preceding
paragraph. All shares of Series BPS outstanding three (3)
years from the date of issuance shall automatically be
converted into common stock based upon the foregoing formula.
o Series BPS have preferred treatment upon liquidation of the
Company. The holders of Series BPS are entitled, upon
liquidation, dissolution or winding up of the Company, to
receive 120% of the outstanding unconverted principal amount
of the Series BPS before the holders of common shares and any
other class or series of preferred stock.
o Series BPS holders are entitled to one vote per share of
Series BPS.
o Series BPS, voting together as a class, have the right to
elect one (1) director.
Convertible preferred series C stock ("Series CPS")
---------------------------------------------------
o 10,000,000 shares authorized.
o None issued or outstanding at June 30, 2005.
o As noted above, during the three months ended June 30, 2005,
all 10,000,000 Series CPS were converted to 10,000,000 common
shares, the substantial majority of which were restricted
common shares.
o The holders of the Series CPS were not entitled to receive
dividends and were convertible into common stock of the
Company in an amount equal to the number of Series CPS being
converted. In connection with any reorganizations, merger,
consolidation or sale of assets involving the Company, the
number of Series CPS shares outstanding and the number of
shares of common stock into which the Series CPS are
convertible will not be affected by any such capital
reorganization.
o There is no liquidation preference for Series CPS holders.
o Series CPS, voting together as a class, had the right to elect
two (2) directors but had no other voting rights.
20
(5)(4) COMMITMENTS AND CONTINGENCIES
General - ------- The Company's commitments and contingencies include the usual
obligations of a BDC in the normal course of business. In the opinion of
management, these matters are not expected to have a material adverse effect on
the Company's financial position and results of operations. In addition, whereas
the Company may be indirectly impacted by claims and other obligations that
arise at its portfolio companies, management is not aware of any such claims.
Regulatory Compliance - ---------------------
As a BDC, the Company operates in a highly regulated
environment and must comply with the requirements of the 1940 Act. The Company
endeavors to be in compliance with the requirements of the Act as part of its
investment strategy and oversight functions. Whereas compliance with such laws
and regulations requires interpretation, the Company believes it is in
compliance with such requirements at September 30, 2005.March 31, 2006. However, no assurances can
be given that such requirements will not change or that differing
interpretations could result in non-compliance or that such matters, if they
arise, will be insignificant to the Company's financial position or results of
operations.
16
Legal - -----
The Company was served on October 20,On September 23, 2005, withGolden Gate Investors, Inc. filed a complaint which had been
filedfor
breach of contract and specific performance of contract, Case No. GIC 854356 in
the Superior Court of the State of California, County of San Diego, County Court, San Diego, CaliforniaCentral
Division, against the Company. Plaintiff claims that they are owed $53,768 in
actual losses and has further claimed they had damages in the amount of $24,851
as a result of an alleged breach of contract by Golden Gate Investors.
In the complaint, Golden GateCompany. Plaintiff has alleged thatbeen
granted a judgment in the Company owes underamount of approximately $60,000, which amount was
included in accrued expenses on the statements of net assets at December 31,
2005. The $60,000 liability was a promissory note which also entitlespart of the plaintiff to enter into similar future
transactions.$104,000 in accounts payable and
accrued expenses exchanged for the Company's common stock during the three
months ended March 31, 2006.
Other Items - The Company has undertaken discussionsa month-to-month agreement with its chief
executive officer which provides for payment of compensation of $10,000 per
month, commencing in January 2006.
As a part of its January 23, 2006, letter of intent to increase its ownership of
EON to 53%, the plaintiff
regarding settlement.Company agreed to loan EON an additional $350,000. The loan was
scheduled to be advanced at the rate of $70,000 per month commencing February 1,
2006. The Company advanced $140,000 as a part of this agreement in January 2006.
The remaining $210,000 has been delayed pending completion of additional due
diligence.
The Company leases its office facility on a month-to-month basis at the rate of
$1,000 per month.
The Company has takenagreed to loan Rudy $525,000 during its initial start-up. As of
March 31, 2006, the position that the terms of the
transaction were not approved by its board of directors nor terms under which it
could accept, in part because of restrictions on debt issuances and issuances of
stock without consideration. The Company believes its prospects for settlementhad advanced $445,000 of this action are good and have included discussions regarding reformation of
the terms of the original transaction as well as terms for possible new
transactions with the plaintiff.
21amount.
17
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This information statement contains forward-looking statements. For this
purpose, any statements contained herein that are not statements of historical
fact may be deemed to be forward-looking statements. These statements relate to
future events or our future financial performance. In some cases, you can
identify forward-looking statements by terminology such as "may", "will",
"should", "expects", "plans", "anticipates", "believes", "estimates",
"predicts", "potential", "continue" or the negative of such terms or other
comparable terminology. These statements are only predictions. Actual events or
results may differ materially. There are a number of factors that could cause
our actual results to differ materially from those indicated by such
forward-looking statements.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, we do not assume responsibility
for the accuracy and completeness of such forward-looking statements. We are
under no duty to update any of the forward-looking statements after the date of
this information statement to conform such statements to actual results.
Management's discussion and analysis should be read in conjunction with our
financial statements and the notes herein.
Critical Accounting Policies and Estimates
- ------------------------------------------
Management's Discussion and Analysis of Financial Condition and Results of
Operations section discusses our financial statements, which have been prepared
in accordance with accounting principles generally accepted in the United States
of America. The preparation of these financial statements requires us to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting periods. On an on-going basis, we
will evaluate our estimates and judgments, including those related to revenue
recognition, valuation of investments in portfolio companies, accrued expenses,
financing operations, contingencies and litigation. We will base our estimates
and judgments on historical experience and on various other factors that are
believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying value of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions. The most significant
accounting estimates inherent in the preparation of our financial statements
include estimates as to the appropriate carrying value of certain assets and
liabilities which are not readily apparent from other sources, such as the
investments in portfolio companies. These accounting policies are described at
relevant sections in this discussion and analysis and in the "Notes to Financial
Statements" included in our Annual Report on Form 10-K for the fiscal year ended
December 31, 2004.2005.
18
Results of Operations
- ---------------------
Three months ended September 30, 2005March 31, 2006 as compared to the three months ended September 30, 2004March
31, 2005 -
22
o During the three months ended September 30, 2005,March 31, 2006, selling, general and
administrative expense declined $60,876 (36%$27,482 (19%) to $110,082$115,647 from
$170,958$143,129 in the prior year period. For the 20052006 period, professional
services, including accounting, legal, investment and other declined
$57,169, which accounts$13,091, accounting for the
majorityapproximately one-half of the decrease. o DuringThe
remainder of the 2005 period, we recognized a loss of $12,874 from
sale of our surplus furnituredecrease is primarily due to lower travel and fixtures.office
costs.
o During the 2005 period, we recorded an unrealized loss$306,500 in interest expense
relating to amortization of the amount of $405,177, as compared to an unrealized loss of
$300,000 in the prior year period. The loss in 2005 is the
resultbeneficial conversion feature of our
decision to fully reserve our investment and
advances to Island Tribe. The loss in 2004 was based on an
inventory valuation for Unboxed and Total Sports.
Nine months ended September 30, 2005 as compared to the nine months ended
September 30, 2004 -
o During the 2005 period, selling general and administrative
expense declined $65,122 (10%) to $607,930 from $673,052 in
the year earlier period. During 2005, professional fees
declined $49,478, miscellaneous charges declined $80,722 and
professional fees incurred for due diligence were $75,000 with
none in the prior year period. These items represent the
primary changes in 2005 as compared to 2004.convertible debentures.
o During the 2005 period, we recorded amortization expense of
$306,500 from the beneficial conversion feature on convertible
debentures. There was no amortization during the 2004 period.
o During the 2005 period, we recognized a loss of $12,874 from
sale of our surplus furniture and fixtures.
o During the 2005 period, we recognized a realized loss in the amount of
$69,825 from net expenses paid relating$69,826, which is related to the two portfolio
companies we discontinued at the end of 2004 (Unboxed and
Total Sports).
o During the 2005 period, we recognized an unrealized loss of
$405,177 as compared to $300,000 in the 2004 period. The loss
in 2005 is the result of our decision to fully reserve our
investment and advances to Island Tribe. The loss in 2004 was
based on an inventory valuationnet shut-down costs for Unboxed and
Total Sports.
Liquidity and Capital Resources
- -------------------------------
o At September 30, 2005,March 31, 2006, we had net assets of $483,465$6,465,912 as compared to net
assets of $396,001$5,827,124 at December 31, 2004.2005. During the 20052006 period,
cash increased $35,939decreased $55,115 to $79,405$190,255 and our investments in portfolio
companies increased $222,522,$585,000, net, from $377,478$5,715,000 to $600,000. Other assets, consisting of
prepaid expenses, deferred financing costs and property and
equipment$6,300,000.
Liabilities have decreased $100,914$107,704 during 2006, primarily as a result of
converting the convertible debenturesdue to
issuing common stock andfor the saleassumption of surplus furniture and fixtures. Liabilities have
increased $70,086 during 2005.$104,000 in liabilities.
Accordingly, the total asset increase of $157,550,$531,084, when reducedincreased by
the liability increasedecline in liabilities of $70,086$107,704 resulted in a increase in net
assets of $87,464.
23
$638,788.
o As of September 30, 2005,March 31, 2006, the Company had nolimited revenues and had an
accumulated deficit totaling $9,353,850$9,763,502 for the period from August 26,
2002 (inception) through September 30, 2005.March 31, 2006. Additionally, as of September 30, 2005,March 31,
2006, the Company had negativelimited working capital of $116,535.capital. These factors, among
others, raise substantial doubt about the Company's ability to
continue as a going concern. The Company intends to fund operations
through debt and equity financing arrangements which management
believes mayshould be insufficientsufficient to fund its capital expenditures,
working capital and other cash requirements for the next twelve
months. Therefore, the
Company will be required to seek additional funds to finance
its long-term operations. The successful outcome of future activities cannot be
determined at this time and there is no assurance that, if achieved,
the Company will have sufficient funds to execute its intended
business plan or generate positive operating results.
Our Plan of Operation for the Next Twelve Months
- ------------------------------------------------
o As stated above, it has been determinedGlobal provides equity and debt investment capital to fund growth, acquisitions
and recapitalizations of small market companies primarily located in the United
States. We are looking to invest in companies that as an investment
company, we will only invest in/acquire cash floware cash-flow positive and
profitable businesses or businesses mostare
likely to generatebecome cash-flow positive cash flows in the foreseeable future.future based on sound
economic fundamentals. These entities will have good growth potentialthe prospect for expansion as a
result of access to capital and/or additional management acumen.
oacumen provided by
Global. As part of this strategic process, we will look beyond action
sports apparelare looking for acquisitioninvestment
opportunities so as to include
all consumerin the beverage product categories and/or services that have the
19
potential for a positive return on investment.investment, both in terms of current income
and capital appreciation. Our investments can take the form of common and
preferred stock and warrants or rights to acquire equity interests, senior and
subordinated loans, or convertible securities.
The boardCompany currently estimates it will require a total of directorsapproximately
$1,100,000 to meet its operating cash flow requirements and management believe that this new direction will both reduceits currently
committed follow-on investments in 2006. The operating cash flow requirement
estimate is approximately $435,000 and the risk forcommitted follow-on investments are
approximately $665,000. As of March 31, 2006, including cash on-hand at December
31, 2005, the Company had raised approximately $860,000 of this amount and its shareholders as well as
providehad
issued common stock in exchange for assumption of $104,000 of liabilities.
During April 2006, the best opportunity for long-term shareholder value.
oCompany raised an additional $60,000.
Regarding two of our portfolio investment companies, Unboxed and Total Sports,
it was clear that profitability in both entities was not possible in the near
future. As noted above,
itIt was determined that it iswas not in the best interests of our
shareholders to continue the flow of capital to these two portfolio investment
companies and these investments were written-off as of December 31, 2004.
o In addition, it was determined that future prospects for Island Tribe were
unlikely to provide profitability in the foreseeable future sufficient to
provide a return on our investment. Accordingly,On November 20, 2005, we fully reservedreturned our investment51%
interest in Island Tribe and we are pursuing a transaction which would
result in the return of 12,000 shares of our common stock in exchange for the return of our investment in Island Tribe.
o The Company will, however, continue to fund and invest in
Titanium Design Studio, Inc. and EON Beverage Group, Inc.
24
12,000 restricted shares we had
originally issued for the acquisition.
Off Balance Sheet Arrangements
- ------------------------------
o None.
Contractual Obligations
- -----------------------
o None.
2520
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's business activities contain elements of risk. Company management
considers the principal types of risk to be valuations of investments in
portfolio companies and fluctuations in interest rates. We consider the
management of risk essential to conducting our business. Accordingly, our risk
management systems and procedures are designed to identify and analyze our
risks, to set appropriate policies and limits and to continually monitor these
risks and limits by means of reliable administrative and information systems and
other policies and programs.
As a BDC, we plan to invest in liquid securities including debt and equity
securities of primarily private companies. Our investments are generally subject
to restrictions on resale and generally have no established trading market. Our
policy is to value our investments at fair value. There is no single standard
for determining fair value in good faith. As a result, determining fair value
requires that judgment be applied to the specific facts and circumstances of
each portfolio investment while employing a consistently applied valuation
process for each type of investment.
The board of directors determine fair value to be the amount for which an
investment could be exchanged in an orderly disposition over a reasonable period
of time between willing parties other than in a forced or liquidation sale. The
Company's valuation policy considers the fact that no ready market exists for
substantially all of the securities in which the Company invests. The Company's
valuation policy is intended to provide a consistent basis for determining the
fair value of the portfolio. The Company will record unrealized depreciation on
investments when the Company believes that an equity security is doubtful or
when the enterprise value of the company does not currently support the cost of
the Company's debt or equity investment. Conversely, the Company will record
unrealized appreciation if it determines that the underlying portfolio company
has appreciated in value and, therefore, the Company's equity security has also
appreciated in value. The values of any investments in public securities are
determined using quoted market prices discounted for restrictions on resale.
Without a readily ascertainable market value and because of the inherent
uncertainty of valuation, the fair value of the Company's investments in its
portfolio companies, determined in good faith by the board of directors, may
differ significantly from the values that would have been used had a ready
market existed for the investments and the differences could be material.
In addition, the illiquidity of the Company's existing investments may adversely
affect its ability to dispose of debt and equity securities at times when it may
be otherwise advantageous for the Company to liquidate such investments. In
addition, if the Company was forced to immediately liquidate some or all of the
investments in the portfolio companies, the proceeds of such liquidation may be
significantly less than the current value of such investments.
21
Because the Company may borrow money to make investments, the Company's net
investment income before net realized and unrealized gains or losses, or net
investment income, is dependent upon the difference between the rates at which
the Company borrows funds and the rate at which the Company invests these funds.
26
As a result, there can be no assurance that a significant change in market
interest rates will not have a material adverse effect on the Company's net
investment income. In periods of rising interest rates, the Company's cost of
funds would increase, which would reduce the Company's net investment income.
The Company may use a combination of long-term and short-term borrowings and
equity capital to finance its investing activities.
2722
ITEM 4: CONTROLS AND PROCEDURES
Evaluation of Controls and Procedures
- -------------------------------------
The Company's board of directors and management, including the Chief Executive
Officer ("CEO") and Chief Financial Officer ("CFO"), evaluated the effectiveness
of the design and operation of the Company's disclosure controls and procedures,
as defined in Rule 13(a)-15(e) and 15(d)-15(e) of the Exchange Act. Based upon
that evaluation, the Company's board of directors and management, including the
CEO and CFO, concluded that, as of September 30, 2005,March 31, 2006, the Company's disclosure
controls and procedures were effective in alerting management on a timely basis
to material Company information that would be required to be included in our
periodic filings with the SEC.
Based on their most recent evaluation as of the Evaluation Date, the CEO and the
CFO have also concluded that the other controls and procedures, that are
designed to ensure that information required to be disclosed in our periodic
filings with the SEC, are adequate.
Changes in Internal Control
- ---------------------------
There were no significant changes made in the Company's internal controls over
financial reporting, during the three months ended September 30, 2005, that have
materially affected, or are reasonably likely to materially affect, these
internal controls. Thus, no corrective actions, with regard to significant
deficiencies or material weaknesses, were necessary.
On September 14, 2005, both the CEO and CFO resigned. Mr. Richard T. Clark has
been appointed to serve as President, Chief Executive Officer and Director. Mr.
Bryce Knight has been appointed to serve as Vice-President, Chief Financial
Officer, Treasurer and Secretary.
At the time of its election as a business development company, the Company
adopted what it considered to be adequate controls and procedures (the "Old
Controls"). These Old Controls lacked time constraints that would force timely
posting of transactions and, as a result, the Company has been late with the
preparation of its financial disclosures on numerous occasions. The Company has
undertaken a review of its controls to determine what additional controls should
be implemented to insure timely filings in the future. The Company has
determined that it will retain outside `bookkeeping services' under a
contractual relationship that includes timeliness as a contractual obligation
and may adopt additional controls in the future. In the preliminary review of
the Old Controls, the Company determined that both assets of the Company and the
quality of its financial information are safeguarded but the issue of timeliness
has been problematic and requires being addressed. The Company has also
determined that it should employ adesignated its
Chief Executive Officer with the added responsibility of its Chief Compliance
OfficerOfficer.
The Company updated its internal controls as quickly as
practical and intendsof December 31, 2005, at which time
they were adopted by the Board of Directors. There were no significant changes
made in the Company's internal controls over financial reporting since that time
that have materially affected, or are reasonably likely to designate an individualmaterially affect,
these internal controls. Thus, no corrective actions, with this responsibility.
28regard to significant
deficiencies or material weaknesses, were necessary.
23
PART II - OTHER INFORMATION
---------------------------
ITEM 1. LEGAL PROCEEDINGS
The Company was served on October 20,On September 23, 2005, withGolden Gate Investors, Inc. filed a complaint which had been
filedfor breach
of contract and specific performance of contract, Case No. GIC 854356 in the
Superior Court of the State of California, County of San Diego, County Court, San Diego, CaliforniaCentral
Division, against the Company. Plaintiff claims that they are owed $53,768 in
actual losses and has further claimed they had damages in the amount of $24,851
as a result of an alleged breach of contract by Golden Gate Investors.
In the complaint, Golden GateCompany. Plaintiff has alleged thatbeen
granted a judgment in the Company owes underamount of approximately $60,000, which amount was
included in accrued expenses on the statements of net assets at December 31,
2005. The $60,000 liability was a promissory note which also entitles the plaintiff to enter into similar future
transactions. The Company has undertaken discussions with the plaintiff
regarding settlement. The Company has taken the position that the termspart of the transaction were not approved$104,000 in accounts payable and
accrued expenses assumed in exchange for the Company's common stock during the
three months ended March 31, 2006, and will be paid by its board of directors nor terms under which it
could accept, in part because of restrictions on debt issuances and issuances of
stock without consideration. The Company believes its prospects for settlement
of this action are good and have included discussions regarding reformation of
the terms of the original transaction as well as terms for possible new
transactions with the plaintiff.these shareholders.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Not applicable.In March 2006, the Company issued 641,000 shares of its common stock in exchange
for $641,000 in cash. In addition, the Company issued 1,485,714 shares of its
common stock in exchange for $104,000 in accounts payable and accrued expenses.
All of the shares issued were sold pursuant to an exemption from registration
under Section 4(2) promulgated under the Securities Act of 1933, as amended.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS
The following exhibits are filed with this report on Form 10-Q.
Exhibit 31 Certifications pursuant to 18 U.S.C. Section 1350 Section
302 of the Sarbanes-Oxley Act of 2002
Exhibit 32 Certifications pursuant to 18 U.S.C. Section 1350 Section
906 of the Sarbanes-Oxley Act of 2002
2924
SIGNATURE
---------
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.
GLOBAL BEVERAGE SOLUTIONS, INC.
Date: November 11, 2005May 5, 2006 By: /s/ Richard T. Clark
------------------------------------------------------
Richard T. Clark,
Chief Executive Officer
25