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: JUNESEPTEMBER 30, 2008
Commission File Number: 000-28027
GLOBAL BEVERAGE SOLUTIONS, INC.
(Exact name of registrant as specified in its charter)
NEVADA 90-0093439
------ ----------
(State or Jurisdiction of (IRS Employer ID No)
Incorporation or Organization)
1595 N. W. 1ST COURT BOCA RATON, FL 33432
(Address of principal executive office) (Zip code)
(954) 473-0850
(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] No [ ].
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer," and "smaller
reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [ X ]
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X].
The number of shares outstanding of registrant's common stock, par value $0.001
per share, as of August 12,November 8, 2008 was 98,760,09499,160,094 shares.
GLOBAL BEVERAGE SOLUTIONS, INC. AND SUBSIDIARIES
INDEX
Page
No.
------
Part I Financial Information (unaudited)
Item 1: Condensed Consolidated Financial Statements
Balance Sheets as of JuneSeptember 30, 2008 and December 31, 2007 3
Statements of Operations - For the Three and SixNine Months
Ended JuneSeptember 30, 2008 and 2007 45
Statements of Cash Flows - For the SixNine Months Ended
March 31,September 30, 2008 and 2007 6
Notes to Condensed Financial Statements 8
Item 2: Management's Discussion and Analysis of Financial Condition and Results of
Operations 20
Item 3: Quantitative and Qualitative Disclosure about Market Risk 25
Item 4T: Controls and Procedures 25
Part II Other Information 26
Item 1: Legal Proceedings 26
Item 1A: Risk Factors 26
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds 26
Item 3: Defaults Upon Senior Securities 26
Item 4: Submission of Matters to a Vote of Security Holders 26
Item 5: Other Information 26
Item 6: Exhibits 2628
2
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
GLOBAL BEVERAGE SOLUTIONS, INC.
Condensed Consolidated Balance Sheets
JuneSeptember 30, 2008 and December 31, 2007
(Unaudited)
2008 2007
------------ ------------
ASSETS
Cash and cash equivalents $ 2,6003,000 $ 3,383
Accounts receivable, net of allowance of $18,000 at
JuneSeptember 30, 2008 and December 31, 2007, respectively 310,131310,884 364,225
Inventory, principally finished goods 562,744581,347 1,211,293
Prepaid expenses and other assets 41,54233,492 38,184
------------ ------------
Total current assets 917,017928,723 1,617,085
Property and equipment, net 34,09260,227 58,176
Goodwill 2,063,054 1,990,804
Other, net 73,385 73,426
------------ ------------
Total assets $ 3,087,5483,125,389 $ 3,739,491
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 1,067,6791,005,330 $ 1,511,740
Accrued expenses 1,806,2871,950,850 1,630,349
Cash overdraft --42,744 64,945
Non-interest bearing advances from officer 123,900116,250 36,900
Notes payable 5,480,6865,700,384 4,509,386
------------ ------------
Total current liabilities 8,478,5528,815,558 7,753,320
------------ ------------
Commitments and contingencies (Note 6)
Stockholders' Deficit
Preferred stock; $0.001 par value; 50,000,000 shares authorized;
no shares issued and outstanding -- --
Common stock; $0.001 par value; 950,000,000 shares authorized;
159,260,094159,660,094 shares issued and 98,760,09499,160,094 shares outstanding
at JuneSeptember 30, 2008; 147,567,501 shares issued and outstanding
at December 31, 2007 159,260159,660 147,567
Additional paid in capital 30,710,10830,711,067 30,486,962
Deferred option compensation -- (40,449)
Accumulated deficit (35,560,372)(35,860,896) (34,607,909)
Treasury stock (60,500,000 shares, at cost) (700,000) --
------------ ------------
(5,391,004)(5,690,169) (4,013,829)
------------ ------------
Total liabilities and stockholders' deficit $ 3,087,5483,125,389 $ 3,739,491
============ ============
See accompanying notes to condensed consolidated financial statements.
3
GLOBAL BEVERAGE SOLUTIONS, INC.
Condensed Consolidated Statements of Operations
For the Three Months Ended JuneSeptember 30, 2008 and 2007
(Unaudited)
2008 2007
------------- -------------
REVENUES:
Product sales $ 2,178,2561,817,603 $ 2,859,7032,702,176
Cost of product sold 1,280,090 2,140,3281,162,631 1,978,596
------------- -------------
898,166 719,375654,972 723,580
------------- -------------
OPERATING EXPENSES:
Officer and employee compensation and benefits 544,001 550,963487,733 522,745
Professional fees 80,540 106,69024,381 119,774
Amortization of intrinsic value of common stock options 20,225-- 20,225
Rent and utilities 116,744 107,827104,367 114,865
Asset impairment -- 7,901,152
Other selling, general and administrative expense 204,478 459,606167,888 420,998
------------- -------------
965,988 1,245,311784,369 9,099,759
------------- -------------
OPERATING LOSS FROM CONTINUING OPERATIONS (67,822) (525,936)(129,397) (8,376,179)
------------- -------------
OTHER EXPENSE
Interest expense (163,968) (154,137)
Loss(174,629) (180,286)
Other income 3,500 --
Gain on sale of subsidiaryinvestment -- (669,853)150,000
------------- -------------
Total other expense (163,968) (823,990)(171,129) (30,286)
------------- -------------
LOSS BEFORE INCOME TAXES FROM CONTINUING OPERATIONS (231,790) (1,349,926)(300,526) (8,406,465)
INCOME TAXES -- --
------------- -------------
LOSS FROM CONTINUING OPERATIONS (231,790) (1,349,926)(300,526) (8,406,465)
DISCONTINUED OPERATIONS:
Loss from discontinued operations with no tax benefit -- (153,313)
------------- -------------
NET LOSS $ (231,790)(300,526) $ (1,503,239)(8,559,778)
============= =============
Net loss per common share, basic and diluted
Continuing operations $ (0.002)(0.003) $ (0.009)(0.057)
Discontinued operations -- (0.001)
------------- -------------
$ (0.002)(0.003) $ (0.010)(0.058)
============= =============
Weighted average common shares outstanding 98,760,094 147,267,50198,855,746 147,454,458
============= =============
See accompanying notes to condensed consolidated financial statements.
4
GLOBAL BEVERAGE SOLUTIONS, INC.
Condensed Consolidated Statements of Operations
For the SixNine Months Ended JuneSeptember 30, 2008 and 2007
(Unaudited)
2008 2007
------------- -------------
REVENUES:
Product sales $ 4,750,5126,568,115 $ 3,671,3986,373,575
Cost of product sold 2,997,897 2,759,4694,160,528 4,738,065
------------- -------------
1,752,615 911,9292,407,587 1,635,510
------------- -------------
OPERATING EXPENSES:
Officer and employee compensation and benefits 1,070,740 761,4251,558,473 1,282,669
Non-cash compensation 78,000 1,500
Professional fees 274,793 268,174299,174 387,948
Amortization of intrinsic value of common stock options 165,387 40,45060,675
Rent and utilities 189,277 110,433293,644 225,298
Asset impairment -- 7,901,152
Other selling, general and administrative expense 559,280 585,800727,167 1,008,298
------------- -------------
2,337,477 1,767,7823,121,845 10,867,540
------------- -------------
OPERATING LOSS FROM CONTINUING OPERATIONS (584,862) (855,853)(714,258) (9,232,030)
------------- -------------
OTHER EXPENSE
Interest expense (367,600) (220,179)(528,229) (400,465)
Other expense (14,000) --
Other income 3,500 --
Loss on sale of investments -- (669,853)(519,853)
------------- -------------
Total other expense (367,600) (890,032)(538,729) (920,318)
------------- -------------
LOSS BEFORE INCOME TAXES FROM CONTINUING OPERATIONS (952,462) (1,745,885)(1,252,987) (10,152,348)
INCOME TAXES -- --
------------- -------------
LOSS FROM CONTINUING OPERATIONS (952,462) (1,745,885)(1,252,987) (10,152,348)
DISCONTINUED OPERATIONS:
Loss from discontinued operations with no tax benefit -- (988,430)
------------- -------------
NET LOSS $ (952,462)(1,252,987) $ (2,734,315)(11,140,778)
============= =============
Net loss per common share, basic and diluted
Continuing operations $ (0.009)(0.012) $ (0.015)(0.080)
Discontinued operations -- (0.009)(0.008)
------------- -------------
$ (0.009)(0.012) $ (0.024)(0.088)
============= =============
Weighted average common shares outstanding 102,890,635 115,674,456101,535,855 126,384,200
============= =============
See accompanying notes to condensed consolidated financial statements.
5
GLOBAL BEVERAGE SOLUTIONS, INC.
Condensed Consolidated Statements of Cash Flows
For the SixNine Months Ended JuneSeptember 30, 2008 and 2007
(Unaudited)
2008 2007
----------- ----------------------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (952,462) $(2,734,315)(1,252,987) $(11,140,778)
Discontinued operations -- 988,430
----------- -----------
(952,462) (1,745,885)------------ ------------
(1,252,987) (10,152,348)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Amortization of intrinsic value of common stock options 165,387 40,45060,675
Depreciation 25,126 161,50726,794 273,211
Common stock issued for services 78,000 1,500
Amortization of notes payable discount 95,315 69,281102,070 120,790
Loss on sale of subsidiary -- 669,853519,853
Asset impairment -- 7,901,152
Common stock issued for interest 900 --
Changes in operating assets and liabilities:
Accounts receivable 28,385 33,23943,861 163,147
Inventory 648,549 1,082629,946 (54,001)
Deposits and prepaid expenses 66,019 (69,243)106,017 (737)
Accounts payable (302,167) (277,839)(197,313) (216,525)
Accrued expenses 219,184 222,836283,621 447,732
Non-interest bearing advances from an officer 62,00054,350 --
----------- ----------------------- ------------
Net cash provided by operating activities 134,236 (893,219)
----------- -----------40,646 (935,550)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid in excess of cash received in acquisitions -- (298,976)
Earn-out provision of Aqua Maestro, Inc. acquisition (72,251) --
Purchase of property and equipment (1,000) (1,590)
----------- -----------(28,901) (5,415)
------------ ------------
Net cash provided byused in investing activities (73,251) (300,566)
----------- -----------(101,152) (304,391)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Common stock issued for cash -- 2,210,8982,484,348
Cash overdraft (50,469) (37,196)(42,744) (165,024)
Loan proceeds 4,450 74,900118,616 323,450
Repayment of notes payable (15,749) (1,053,120)
----------- -----------(1,375,071)
------------ ------------
Net cash provided by financing activities (61,768) 1,195,482
----------- -----------60,123 1,267,704
------------ ------------
Net increase (decrease) in cash and cash equivalents (783) 1,697(383) 27,762
Cash and cash equivalents, beginning of period 3,383 472
----------- ----------------------- ------------
Cash and cash equivalents, end of period $ 2,6003,000 $ 2,169
=========== ===========28,234
============ ============
(Continued)
See accompanying notes to condensed consolidated financial statements.
6
GLOBAL BEVERAGE SOLUTIONS, INC.
Condensed Consolidated Statements of Cash Flows, Continued
For the SixNine Months Ended JuneSeptember 30, 2008 and 2007
(Unaudited)
2008 2007
---------- ----------
Supplemental Cash Flow Information:
Cash paid for interest and income taxes:
Interest $ 26,85027,625 $ 27,470
Income taxes -- --
Non-cash investing and financing activities: Common stock issued for:
Convertible debt 31,00063,260 --
Amounts due Rudy Ruettiger by Rudy Beverage, Inc. -- 625,000
Acquisition of Beverage Networks of Maryland, Inc. -- 8,896,500
Acquisition of Aqua Maestro, Inc. -- 1,431,250
Liability of Rudy Beverage, Inc. -- 7,458
Notes payable issued as partial consideration for:
Acquisition of Beverage Networks of Maryland, Inc. -- 3,704,652
Acquisition of Aqua Maestro, Inc. -- 190,356
See accompanying notes to condensed consolidated financial statements.
7
GLOBAL BEVERAGE SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) DESCRIPTION OF BUSINESS
(A) ORGANIZATION AND BUSINESS
The condensed consolidated financial statements include the accounts of Global
Beverage Solutions, Inc. ("Global") and its wholly-owned subsidiaries, Beverage
Network of Maryland, Inc. ("BNM"), Aqua Maestro, Inc. ("AM") and Rudy Beverage,
Inc. ("Rudy") (until its sale in May 2007) (collectively the "Company"). The
Company distributes imported bottled water and alternative or "New Age"
beverages through BNM and AM. The Company's strategy is to develop and acquire
bottled water and "New Age" beverage brands. "New Age" beverages include
non-carbonated ready-to-drink iced teas, lemonades, juice cocktails, single
serve juices, ready-to-drink iced coffees, energy drinks, sports drinks, soy
drinks, natural bottled water and sodas as well as sparkling juices. The Company
believes that the combined distribution and customer base of its two
subsidiaries provides an established platform from which to acquire and develop
brands. Additionally, strategic opportunities may exist to acquire and further
develop existing distribution platforms.
Aqua Maestro, Inc. is based in Boca Raton, Florida and imports and sells bottled
water through a company-owned distribution center to retailers and consumers in
south Florida, direct to retailers outside of south Florida, direct to consumers
through its website at www.aquamaestro.com and to third party distributors.
Beverage Network of Maryland, Inc. is a New Age beverage distributor based in
Jessup, Maryland which distributes brands such as Welch's to retailers in
Washington, DC, northern Virginia, and the entire state of Maryland.
Our business strategy involves growing the third party branded revenue base in
each of these entities while developing and/or acquiring bottled water or New
Age beverage brands. Thus, through these entities we plan to sell our own
proprietary brands as well as third party brands.
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.
Beginning with the original incorporation on January 29, 1977, the Company has
had several name changes, including, Mercury Software, MedEx Corp., Aussie
Apparel Group, Ltd., Bluetorch, Inc., Pacific Crest Investments and Pacific Peak
Investments.
8
(B) CONDENSED(B )CONDENSED FINANCIAL STATEMENTS
The accompanying condensed financial statements have been prepared by the
Company and are presented in accordance with accounting principles generally
accepted in the United States of America for interim financial information and
pursuant to the requirements for reporting on Form 10-Q and Article 10 of
Regulation S-X without audit. Except as discussed below under "Operation as a
BDC" and disclosed herein, there has been no material change in the information
disclosed in the notes to the financial statements included in the Company's
December 31, 2007 Form 10-K as filed with the SEC. However, the Form 10-K was
not on a consolidated basis due to the Company's business development company
("BDC") reporting status and the March 31,September 30, 2008 Form 10-Q is on a
consolidated basis as the Company is no longer a BDC. As discussed under
"Operation as a BDC" below, the December 31, 2007 and JuneSeptember 30, 2007 amounts
disclosed in this 10-Q have been retrospectively applied to be comparable with
the JuneSeptember 30, 2008 amounts. In the opinion of management, all adjustments
(which include only normal recurring adjustments) necessary to present fairly
the Company's financial position as of the three and sixnine months ended JuneSeptember
30, 2008 and JuneSeptember 30, 2007, and the results of operations and cash flows
for all periods presented have been made.
Certain information and footnote disclosures normally included in annual
financial statements prepared in accordance with accounting principles generally
accepted in the United States of America have been condensed or omitted. These
condensed financial statements should be read in conjunction with the financial
statements and notes thereto included in the Company's December 31, 2007 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) OPERATION AS A BDC
On June 19, 2003, the Company filed a Form N-54A with the Securities and
Exchange Commission ("SEC") to be regulated as a BDC under the Investment
Company Act of 1940, as amended (the "1940 Act").
On October 2, 2007, the Company reported in a Definitive Information Statement
on Schedule 14C that a majority of its shareholders approved and authorized the
Board to withdraw the Company's election to be treated as a BDC under the 1940
Act. On January 2, 2008, the Company filed a Form N-54C to withdraw its election
to be regulated as a BDC and as of that date, is no longer a BDC under the 1940
Act. The Company is no longer a BDC with unconsolidated majority-owned portfolio
companies but rather will be a distributor of imported bottled water and
alternative or "New Age" beverages through its two wholly-owned subsidiaries,
BNM and AM.
As a result of the Company's conversion from a BDC to a beverage distributor,
the change in accounting is considered a change in reporting entity. Statement
of Financial Accounting Standard No. 154, "Accounting for Changes and Error
Correction," requires that a change in reporting entity be retrospectively
applied to all prior periods presented. Accordingly, the Company's financial
statements are presented on an operating and consolidated basis for all current
and prior periods presented on a retrospective basis without regard to the BDC
9
method of accounting. The Company does not believe that withdrawing its election
9
to be regulated as a BDC will have any impact on its federal income tax status,
because the Company never elected to be treated as a regulated investment
company under Subchapter M of the Internal Revenue Code. Instead, the Company
has always been subject to corporate level federal income tax on its income as a
regular corporation under Subchapter C of the Internal Revenue Code.
(D) RECLASSIFICATIONS
Certain reclassifications have been made to the prior period financial
statements to conform to the current period presentation.
(E) 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 JuneSeptember 30, 2008, the Company has an accumulated deficit of
$35,560,372$35,860,896 and had net losses totaling $952,462$1,252,987 for the sixnine months ended
JuneSeptember 30, 2008. Additionally, as of JuneSeptember 30, 2008, the Company had
total current assets of $917,017$928,723 and had total current liabilities of
$8,478,552.$8,815,558. The Company intends to engage in private placement offerings from
time to time to provide it with working capital to pay down certain of its debt
obligations, for other general corporate and operations uses, and to enable the
Company to pursue ourits strategy to develop and acquire bottled water and New Age
beverage brands and distribution platforms. In the event that the Company cannot
obtain additional funds when needed, it may be forced to renegotiate some or all
of its debt and curtail or cease some or all of its activities.
The Company's subsidiaries did have $146,087$142,414 in earnings during the sixnine months
ended JuneSeptember 30, 2008; however, that profit came from the termination of the
FIJI distribution agreement, in which FIJI forgave $304,542.81$304,543 in accounts payable
and provided $151,472.50$151,473 of inventory. In order to maintain profitability the
subsidiaries will require approximately $500,000 in additional funding for
inventory and working capital to achieve profitability. In addition, the Company
will require over $4,000,000 to satisfy its debt service requirements and
approximately $600,000 to meet its corporate overhead.
Although the Company believes it will be successful with its plans, due to
market factors and economic conditions, no assurance can be given that financing
will be available to the Company on favorable terms or at all.
The financial statements do not include any adjustments related to
recoverability and classification of asset carrying amounts or the amount and
classification of liabilities that might result should the Company be unable to
continue as a going concern.
10
(2) ACQUISITIONS AND DISPOSITIONS
BEVERAGE NETWORK OF MARYLAND, INC.
On February 23, 2007, the Company completed the purchase of BNM from XStream
Beverage Network, Inc. ("XStream"). The transaction was structured as a merger
of BNM into the Company's wholly owned subsidiary Global Merger Corp., a Nevada
corporation, pursuant to the Agreement and Plan of Merger between the parties
dated January 31, 2007, and as amended and completed on February 23, 2007.
Based in Jessup, Maryland, BNM engages in the distribution of beverages in the
Mid-Atlantic States.
As a part of the transaction, the Company issued 60,500,000 shares of its common
stock and a $2,000,000 note payable to XStream. At closing, the Company paid
$229,000 on the note and pursuant to the agreements was required to pay a
percentage of any subsequent cash proceeds received from subsequent raises of
equity capital to reduce the note balance.
AQUA MAESTRO, INC. ("AM")
On March 29, 2007, the Company completed the purchase of AM from the
shareholders of AM. The transaction was structured as a merger of AM into the
Company's wholly owned subsidiary, Global Beverage Acquisition Corp., a Florida
corporation, pursuant to the Agreement and Plan of Merger and Reorganization
between the parties dated March 29, 2007.
With its business office in Boca Raton, Florida and logistics in Fort
Lauderdale, Florida, AM is engaged in the wholesale and retail distribution of
domestic and imported bottled water, comprising forty-four brands and over one
hundred-seventy different items. Its wholesale client base is across North
America and the Caribbean, including well-known hotels and resorts. In its
retail home delivery division, AM provides its products through its Internet
site aquamaestro.com.
Consideration for the acquisition of AM included $500,000 in cash, 10,000,000
shares of the Company's common stock and an earn-out. The cash was payable
$300,000 at closing and the balance in equal monthly installments of $22,222
beginning April 15, 2007. The earn-out is a percentage of defined gross profit
equal to 10% of calendar 2008 gross profit, 5% of calendar 2009 gross profit and
3% of calendar 2010 gross profit. In accordance with SFAS 141, additional cost
will not be recognized untilOn December 12, 2007 the earn-out amountwas replaced
with an increase in amounts outstanding to a total of exactly $100,000 and to be
paid out at the rate of exactly $4,000 per week beginning Friday December 14,
2007 and ending Friday May 30, 2008. These payments have been completed and
there is determinable.no longer an earn- out due as part of the consideration for the
acquisition of AM.
The acquisitions were accounted for using the purchase method of accounting and,
accordingly, the condensed consolidated statements of operations include the
results of BNM beginning February 23, 2007 and AM beginning March 29, 2007. The
assets acquired and liabilities assumed were recorded at estimated fair values
as determined by the Company's management based on information currently
11
available and on current assumptions as to future operations. A summary of the
estimated fair value of assets acquired and liabilities assumed in the
acquisitions follows:
11
BNM AM TOTAL
Current assets, excluding cash
and cash equivalents $ 917,221 $ 430,014 $ 1,347,235
Property and equipment 88,848 17,387 106,235
Deposits and other assets 46,372 27,221 73,593
Customer list 920,845 -- 920,845
Goodwill 12,752,323 1,799,433 14,551,756
------------ ------------ ------------
14,725,609 2,274,055 16,999,664
------------ ------------ ------------
Liabilities assumed 1,095,228 352,536 1,447,764
Notes payable 3,766,818 190,356 3,957,174
Guaranty accrued 968,000 -- 968,000
Common stock issued 8,896,500 1,431,250 10,327,750
------------ ------------ ------------
14,726,546 1,974,142 16,700,688
------------ ------------ ------------
Cash acquired in excess of
cash (paid) $ 937 $ (299,913) $ (298,976)
============ ============ ============
Unaudited pro forma results of operations for the sixnine months ended JuneSeptember
30, 2007, as if the BNM and AM acquisitions occurred at the beginning of the
period follows. The pro forma results include estimates and assumptions which
management believes are reasonable. However, pro forma results are not
necessarily indicative of the results that would have occurred if the business
combinations had been in effect on the date indicated, or which may result in
the future. The results of BNM and AM are included for the 2008 period, as
reported; accordingly the 2008 period is not included below.below in the reported
values for the 2007 third quarter 10Q.
Net revenues $ 5,650,4288,346,133
Loss from continuing operations (483,819)
===========(676,997)
=============
Loss from continuing operations per common share,
basic and diluted $ (0.004)
===========(0.005)
=============
Weighted average common shares 147,454,458
SALE OF RUDY BEVERAGE, INC.
On January 18, 2007, the Company executed an agreement with Rudy Partners, Ltd.
("Partners") wherein the Company agreed to sell its 80% interest in Rudy
Beverage, Inc. ("Rudy") for an 8% secured promissory note in the amount of
$6,000,000 plus assumption of the advances and receivables owed to the Company
by Rudy. The agreement closed on May 11, 2007. The note is collateralized by
11,000,000 shares of the Company's common stock held by Partners' owners and was
scheduled to be paid in six annual installments of $1,000,000 commencing January
31, 2008. The Company sold the $6,000,000 note for $100,000 in cash and a note
receivable in the amount of $600,000 on October 9, 2007. The note was scheduled
to be paid in weekly installments of $75,000 commencing October 22, 2007, and
the final payment was due December 10, 2007. Only $12,000 of the $600,000 was
12
paid and the Company fully reserved the $588,000 balance at December 31, 2007.
As of JuneSeptember 30, 2008 the Company has not been paid the amount owed.
12
The assets and liabilities of Rudy at March 31, 2007, are as follows:
Current assets $ 452,348
Property and equipment 88,889
Goodwill 950,000
-----------
Total assets 1,491,237
Current liabilities (502,971)
-----------
Net assets of discontinued operations $ 988,266
===========
The loss from operation of discontinued operations at March 31, 2007, may be
summarized as follows:
2007
---------
Revenues $ 26,893
Cost of sales 30,989
---------
Gross profit (4,096)
Operating expenses 206,022
Consulting fees 625,000
---------
Net loss $(835,118)
=========
In addition, expenses of $153,313 were taken in the three months ended June 30,
2007, for a total of $988,430 for losses from discontinued operations. There
were zero expenses taken in the three month period ended September 30, 2007
(3) ACCRUED EXPENSES
Accrued expenses at JuneSeptember 30, 2008 and December 31, 2007 consist of the
following:
2008 2007
---------- ----------
Accured interest $ 302,485344,295 $ 310,3255
Accrued salaries 503,685593,983 250,439
Guaranty to note holder for stock issued
in acquisition of BNM 968,000 968,000
Other 32,11744,572 101,585
---------- ----------
Total $1,806,287$1,950,850 $1,630,349
========== ==========
13
(4) NOTES PAYABLE
Notes payable at JuneSeptember 30, 2008 (substantially all delinquent) and December
31, 2007, consist of the following:
Secured convertible promissory notes payable (1) $1,326,000 $1,326,000
Note payable to XStream Beverage Network, Inc. with interest
at 6% (2) 1,145,6311,152,605 1,072,453
Convertible note payable to XStream, with interest at prime
plus 2% (2) 700,000722,954 --
Note payable to a profit sharing plan with interest at 14% 71,52246,522 71,522
Demand notes payable to individuals with interest at 12% 4,450-- 25,000
Note payable to an individual 100,000 --
Note payable for truck financed at 9.45% for 48 months 18,616 --
Note payable to stockholder with interest at 14% due
February 17, 2008 20,000 20,000
---------- ----------
3,267,6033,386,697 2,514,975
---------- ----------
DISCOUNTED NOTES
Non-interest bearing note payable to Master Distributor which
was assumed as a part of the acquisition of BNM (3) 1,995,3022,090,653 1,740,132
Non-interest bearing notes payable to the former stockholders
of Aqua Maestro, Inc.; payable in 9 equal monthly payments
of $22,222 commencing on April 15, 2007; discounted at 12%;
collateralized by inventory of Aqua Maestro -- 15,749
Non-interest bearing note payable to a company (4) 217,781223,034 238,530
---------- ----------
2,213,0832,313,687 1,994,411
---------- ----------
Total notes payable $5,480,686$5,700,384 $4,509,386
========== ==========
(1) During the year ended December 31, 2006, the Company issued 8%,
one-year secured convertible promissory notes payable ("Convertible
Notes") to a group of investors in the aggregate amount of $1,335,000.
The notes were convertible into restricted common shares at an initial
rate of $.50 per share. Management has determined that these notes
qualify as conventional convertible debt pursuant to APB No. 14,
"Accounting for Convertible Debt and Debt Issued with Stock Purchase
Warrants" and EITF 98-5, "Accounting for Convertible Securities with
Beneficial Conversion Features or Contingently Adjustable Conversion
Ratios," accordingly the embedded conversion option is not a
derivative. The Company computed an intrinsic value of the beneficial
conversion of $538,000 based on the quoted stock price on the grant
14
dates. The beneficial conversion feature was credited to additional
paid-in capital and charged to interest expense when the agreement
commenced since the Convertible Notes could be converted when issued.
14
The Convertible Notes include certain anti-dilutive provisions, such as
an adjustment for stock splits and business combinations, adjustment
for common stock dividends and distributions, adjustment for issuance
of additional shares of common stock at a price per share less than the
initial conversion price, and issuance of common stock equivalents at a
price per share less than the initial conversion price.
As of December 31, 2007, Convertible Notes in the aggregate principal
amount of $1,326,000 are in default as the interest due, commencing
November 1, 2006, has not been paid. The default rate of interest of
12% is in effect for these Convertible Notes and is included in accrued
expenses on the condensed consolidated balance sheets.
As of February 13, 2008, the Convertible Notes were convertible into
common stock at the rate of $0.00675 per share as a result of the
conversion of $31,000 principal of the note discussed in (4) below.
(2) The collateralized note with XStream required payment of 40% of any
cash proceeds received by Global from its February 5, 2007 1-E Offering
with the remainder payable in monthly installments of $25,000
commencing September 1, 2007. In a Master Security Agreement, Global
granted XStream a continuing security interest in substantially all of
its assets as collateral as long as any obligation arising from the
Agreement and Plan of Merger, as amended remained outstanding. In
addition, pursuant to a Stock Pledge Agreement, the BNM stock owned by
Global was pledged as additional collateral on the obligations of
Global to XStream, and BNM guarantees the Global obligations to
XStream.
On January 23, 2008, the Company entered into a Stock Repurchase
Agreement with XStream by which we repurchased the 60,500,000 shares of
our common stock originally issued to XStream. As consideration for the
purchase, we issued a convertible note in the principal amount of
$700,000. The convertible note bears interest at the prime rate plus 2%
and matures on October 31, 2008 and is convertible into shares of our
common stock as the conversion price specified in the Stock Repurchase
Agreement with XStream if we default in the repayment of amounts due
under the convertible note or if we fail to pay $500,000 to Laurus
Master Fund, Ltd. ("Laurus") on or before May 1, 2008 pursuant to the
letter agreement described in the following paragraph. Global is
delinquent on the May 1, 2008 payment.
On January 23, 2008, and in conjunction with the stock repurchase
described in the previous paragraph, we entered into a letter agreement
with Laurus and XStream (the "Letter Agreement"). In connection with
the Letter Agreement, XStream collaterally assigned both a secured
promissory note that we issued to XStream in connection with our
purchase of BNM from XStream and the convertible note discussed in the
preceding paragraph. Under the Letter Agreement, we agreed to pay to
Laurus $500,000 in repayment of a portion of the outstanding balance of
the secured note by May 1, 2008. Upon making the $500,000 payment,
15
Laurus agreed to release certain liens it has on the inventory of BNM
and XStream, and Laurus and XStream agreed to terminate the stock
pledge agreement with respect to the stock of BNM and the master
security agreement securing collateral on our obligations under the
secured note.
15
Simultaneously, and in conjunction with, the stock repurchase and the
Letter Agreement discussed above, we entered into a second amendment
("Amendment No. 2") to the secured note originally issued to XStream
and which was part of collateral assigned by XStream to Laurus.
Amendment No. 2 accelerated the maturity date of the note from March
31, 2011 to October 31, 2008 and removed the requirement for monthly
payments of $25,000. The secured note had a principal balance of
$1,072,453 and accrued interest of $29,079 at December 31, 2007.
(3) The Master Distributors note has scheduled monthly payments of $83,333
for two years; discounted at 12%; penalty provisions require a late
charge of $5,000 plus interest of 1 1/2% per month for all payments
made after the 15th of the month; the Company guarantees that the note,
with a face value of $2,000,000 plus the proceeds from 4,000,000 shares
of its common stock will equal at least $3,000,000 total; and note is
past due at December 31, 2007, with $175,000 applied to total scheduled
principal payments of $833,333. At December 31, 2007, the Company has
accrued $968,000 as an estimate of this guarantee.
(4) On July 6, 2007, the Company entered into a Note Purchase Agreement
("Agreement") with a certain accredited investor ("Investor") for the
private placement of a promissory note ("Note") in the principal amount
of $259,202 for a purchase price of $233,450. The maturity date of the
Note is August 31, 2008. Upon the withdrawal of the Company's election
to be treated as a BDC under the 1940 Act, the note became convertible
at the option of the Investor into a number of shares of the Company's
common stock as determined in accordance with a formula set forth in
the Agreement (at a conversion rate of 75% of the average of the lowest
trade price of the common stock during any three business days for the
ten business day period prior to such conversion election, as reported
by Bloomberg L.P.).
In connection with the Agreement, the Company entered into a letter
agreement with Palladium Capital Advisors, LLC as placement agent,
pursuant to which the Company paid the placement agent for its
services, a cash fee of $33,333. In addition, $16,667 is payable within
120 days of the date of the Agreement either in cash or through the
issuance of the Company's common stock.
The Company and the Investor also entered into a Registration Rights
Agreement ("RRA") pursuant to which the Company has agreed to provide
certain registration rights with respect to shares of its common stock
issuable upon the Investor's election to exercise the conversion right
contained in the Note. Pursuant to the RRA, the Company is required to
file a Registration Statement no more than 60 days after filing to
withdraw its election to be regulated as a BDC under the 1940 Act and
is required to have the Registration Statement declared effective no
more than 75 days after filing the Registration Statement. In the event
16
the Company does not meet the required dates, the Company would be
required to pay a cash fee of 1% of the outstanding loan balance for
each of the first two months the Company is late and 2% for each
subsequent month the Company is late, and the maximum exposure to the
Company should be approximately $31,000. This requirement should end
when the stock can become free trading pursuant to Rule 144.
A total of $31,000 in principal of this note was converted into
4,592,593 shares of the Company's common stock on February 13, 2008.
The three discounted notes may be summarized as follows at JuneSeptember 30, 2008
and December 31, 2007:
2008 2007
----------- -----------
Face value of discounted notes payable $ 2,053,2022,346,161 $ 2,099,951
Discount (66,918)(32,474) (105,540)
----------- -----------
Present value of discounted notes $ 1,986,2842,313,687 $ 1,994,411
=========== ===========
(5) EQUITY
COMMON STOCK:
- ------------
The Company is authorized to issue up to 950,000,000 shares of common stock, par
value $.001. There were 159,260,094 shares issued and 98,760,09499,160,094 shares
outstanding and 60,500,000 shares in treasury at JuneSeptember 30, 2008 and
147,567,501 issued and outstanding at December 31, 2007.
STOCK REPURCHASE AGREEMENT:
- --------------------------
On January 23, 2008, we entered into a Stock Repurchase Agreement with XStream
by which we repurchased the 60,500,000 shares of our common stock originally
issued to XStream. As consideration for the purchase, we issued a convertible
note in the principal amount of $700,000 (the "XStream Convertible Note"). The
XStream Convertible Note bears interest at the prime rate plus 2% and matures on
October 31, 2008. The XStream Convertible Note is convertible into shares of our
common stock as the conversion price specified in the Stock Repurchase Agreement
with XStream if we default in the repayment of amounts due under the XStream
Convertible Note or if we fail to pay $500,000 to Laurus Master Fund, Ltd.
("Laurus") on or before May 1, 2008 pursuant to the letter agreement described
in the following paragraph.
On January 23, 2008, and in conjunction with the stock repurchase described in
the previous paragraph, we entered into a letter agreement with Laurus and
XStream (the "Letter Agreement"). In connection with the Letter Agreement,
17
XStream collaterally assigned both the XStream Secured Note and the XStream
Convertible Note to Laurus. Under the Letter Agreement, we agreed to pay to
Laurus $500,000 in repayment of a portion of the outstanding balance of the
XStream Secured Note by May 1, 2008. Upon making the $500,000 payment, Laurus
17
agreed to release certain liens it has on the inventory of BNM and XStream, and
Laurus and XStream agreed to terminate a stock pledge agreement with respect to
the stock of BNM and a master security agreement securing collateral on our
obligations under the Secured Note.
Simultaneously, and in conjunction with, the stock repurchase and the Letter
Agreement discussed above, we entered into a second amendment ("Amendment No.
2") of the XStream Secured Note. Amendment No. 2 accelerated the maturity date
of the note from March 31, 2011 to October 31, 2008 and removed the requirement
for monthly payments of $25,000. The XStream Secured Note has a principal
balance of $1,072,453$1,040,765 and accrued interest of $62,475$111,840 at JuneSeptember 30, 2008.
PREFERRED STOCK:
- ---------------
The Company is authorized to issue up to 50,000,000 shares of preferred stock at
$0.001 par value. At JuneSeptember 30, 2008, there were no preferred shares issued
or outstanding.
OPTIONS:
The Company recognizes amortization expense on a straight-line basis over the
requisite service period for each stock option grant. Total stock-based
amortization expense recognized was zero $20,225 and $20,225 during the three months
ended JuneSeptember 30, 2008 and 2007, respectively. Total stock-based amortization
expense was $165,387 and $40,450$60,675 during the sixnine months ended JuneSeptember 30, 2008
and 2007, respectively. The 2008 amount includes $124,938 calculated using the
Black Scholes method for 12,620,000 options granted to employees on January 2,
2008.
(6) COMMITMENTS AND CONTINGENCIES
GENERAL - The Company's commitments and contingencies include the usual
obligations which arise 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.
OTHER ITEMS -
On June 1, 2008 Global consolidated its previous corporate office with the Aqua
Maestro office which requires monthly rental of $2,100 through May 31, 2008 and
$2205$2,205 through May 31, 2009.
Aqua Maestro also has a warehouse lease which requires monthly rental of $4,938 through October 2008 and $5,089
through December 2008. Beverage Network of Maryland has an office and warehouse
lease which begins April 1, 2008 at $26,284 per month. The lease is with Master
Distributors, a note holder and is for a five year term with annual 3%
increases.
18
Future minimum lease payments, arepayments: 2008 (nine(three months) - $319,000;$91,000; 2009 - $406,000;
2010 - $376,000; 2011 - $371,000; 2012 - $352,000; and 2013 - $89,000.
GUARANTY - The Company issued a non-interest bearing note in the amount of
$2,000,000 together with 4,000,000 shares of the Company's common stock to a
creditor of BNM. The Company has guaranteed that the creditor will receive at
least $3,000,000 from the note and the stock, providing the shares are sold by
18
February 23, 2009. The Company also guaranteed payment of salary to two
individuals by BNM in the total amount of $134,000 for 2007 and $26,000 for
2008, 2009 and 2010 and guaranteed reimbursement of expenses and payment of
health benefits for the same periods. Included in accrued expenses is $968,000
as an estimate of the potential cost of satisfying the guaranty.
19
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Form 10-Q 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 Form 10-Q 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 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. 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, 2007.
20
WITHDRAWAL OF ELECTION TO BE TREATED AS A BDC
On July 13, 2007, we filed our preliminary information statement on Schedule 14C
and on October 2, 2007, we filed our definitive information statement on
Schedule 14C which was provided on behalf of our board of directors ("Board") to
record holders of shares of our common stock ("Shareholders") as of the close of
business on the record date of July 12, 2007. This information statement
provided notice that the Board has recommended, and holders of a majority of the
voting power of our common stock have voted to approve authorization to the
Board to withdraw our election to be treated as a business development company
under the 1940 Act. The action became effective upon our filing a Form N-54C
with the Securities and Exchange Commission on January 2, 2008.
OVERVIEW AND BUSINESS STRATEGY
Subsequent to the filing of the Form N-54C on January 2, 2008, the Company
intendswe intend to
pursue a business model whereby it would acquire majority ownership stakes in
beverage-related companies (the "New Business Model"). In this regard, the Companywe would
remain active in the imported bottled water category and New Age beverage
category through itsour two wholly owned entities: Aqua Maestro and Beverage
Network of Maryland.
Under the New Business Model, the Companywe will at all times conduct itsour activities in
such a way that itwe will not be deemed an "investment company" subject to
regulation under the 1940 Act. Thus, it will not hold itself out as being
engaged primarily in the business of investing, reinvesting or trading in
securities. In addition, the Companywe will conduct itsour business in such a manner as to
ensure that itwe will at no time own or propose to acquire investment securities
having a value exceeding 40 percent of the Company'sour total assets at any one time.
Aqua Maestro is based in Boca Raton, FL and imports and sells bottled water
through company owned distribution to retailers and consumers in South Florida,
direct sales to retailers outside of South Florida, direct sales to consumers
generated through its website at aquamaestro.com and sales to third party
distributors.
Beverage Network of Maryland is a New Age distributor based in Jessup, Maryland
and distributes brands such as Welch's to retailers in Washington DC, Northern
Virginia, and the entire state of Maryland.
Our strategy is to grow the third party branded revenue base in each of these
entities while developing and/or acquiring bottled water or New Age beverage
brands. Thus, through these entities, we will sell our own proprietary brands as
well as third party brands.
21
RESULTS OF OPERATIONS
COMPARISON OF THREE AND SIXNINE MONTHS ENDED JUNESEPTEMBER 30, 2008 AND 2007
Product sales and cost of product sold for the three months ended JuneSeptember 30,
2008 and 2007 are as follows:
2008 2007
---------- ----------
(PRO FORMA)(pro forma)
Product sales $2,178,256 $2,859,703$1,817,603 $2,702,176
Cost of product sold 1,280,090 2,140,3291,162,631 1,978,596
---------- ----------
Gross profit $ 898,166654,972 $ 719,374723,580
========== ==========
Gross profit percentage 41.2% 25.2%36.0% 26.8%
Product sales and cost of product sold for the sixnine months ended JuneSeptember 30,
2008 and the pro forma product sales and cost of product sold for the sixnine
months ended JuneSeptember 30, 2007 as if the acquisitions of BNM and AM had
occurred at January 1, 2007 are as follows:
2008 2007
---------- ----------
(PRO FORMA)(pro forma)
Product sales $4,750,512 $5,643,957$6,568,115 $8,346,133
Cost of product sold 2,997,897 4,096,0314,160,528 6,217,869
---------- ----------
Gross profit $1,752,615 $1,547,926$2,407,587 $2,128,264
========== ==========
Gross profit percentage 36.9% 27.4%36.7% 25.5%
Product sales declined $681,447 (23.8%$884,573 (32.7%) for the three months ended JuneSeptember 30,
2008 as compared to the same period in 2007. For the sixnine month period ended
JuneSeptember 30, 2008, product sales were $893,445$1,778,018 lower, or (15.8%(21.3%), as compared
to the same period in 2007. Sales for BNM were $3,700,678$6,695,088 for September 30, 2007
compared to $4,489,834,$5,022,561, for the sixnine month period ended JuneSeptember 30, 2008. The
decline in BNM sales is primarily due to dropping a higher volume product with
lower gross profit margin. This sales decline was partially offset by sales of
higher margin products and resulted in an increase in gross profit percentage
from 36.9%25.5% to 27.4%36.7% for the six months ended JuneSeptember 30, 2008 and 2007. During
the three month period ended JuneSeptember 30, 2008, gross profit was significantly
higher in part due to the termination of the agreement with FIJI which included
inventory valued at $151,472.50$151,473 at no cost to us. AM sales were approximately,
$100,000 less in the company. .AMnine months ended September 30, 2008 than as reported in
the pro forma sales remained relatively stable betweenfor the two periods ended June 30, 2008.same period in 2007.
22
Operating expenses for the three months ended JuneSeptember 30, 2008 and 2007 are as
follows:
2008 2007
---------- ----------
(PRO FORMA)
Compensation and benefits $ 544,001 $ 550,962
Professional fees 80,540 106,690
Amortization of intrinsic value of common stock options 20,225 20,225
Rent and utilities 116,744 107,827
Other selling, general and administrative expenses 204,478 459,606
---------- ----------
Total $ 965,988 $1,245,3102008 2007
---------- ----------
(pro forma)
Compensation and benefits $ 487,733 $ 522,745
Professional fees 24,381 119,774
Amortization of intrinsic value of common stock options -- 20,225
Rent and utilities 104,367 114,865
Asset impairment -- 7,901,152
Other selling, general and administrative expenses 167,888 420,997
---------- ----------
Total $ 784,369 $9,099,758
========== ==========
Operating expenses for the sixnine months ended JuneSeptember 30, 2008 and the pro
forma operating expenses for the sixnine months ended JuneSeptember 30, 2007 as if the
acquisitions of BNM and AM had occurred at January 1, 2007 are as follows:
2008 2007
---------- ----------
(PRO FORMA)
Compensation and benefits $1,070,740 $1,119,452
Non-cash compensation 78,000 1,500
Professional fees 274,793 278,288
Amortization of intrinsic value of common stock options 165,387 40,450
Rent and utilities 189,277 179,995
Other selling, general and administrative expenses 559,280 861,439
---------- ----------
Total $2,337,477 $2,481,1242008 2007
---------- ----------
(Pro Forma)
Compensation and benefits $1,558,472 $1,689,452
Non-cash compensation 78,000 1,500
Professional fees 299,174 398,288
Amortization of intrinsic value of common stock options 165,387 60,675
Rent and utilities 293,645 294,995
Other selling, general and administrative expenses 727,167 1,261,439
---------- ----------
Total $3,121,845 $3,706,349
========== ==========
Operating expenses decreased $279,322 (22.4%$414,237 (34.6%) for the three months ended
JuneSeptember 30, 2008 compared to the same period in 2007.2007 if we did not include the
$7,901,152 in asset impairment. Operating expenses decreased $143,647 (5.8%$584,504 (15.8%)
for the sixnine months ended JuneSeptember 30, 2008 compared to the same period in
2007. The amortization of the intrinsic value of stock options increased
$124,937$104,712 and other non-cash compensation amounted to an increase of $76,500 for
a total of $201,437$181,212 in non-cash compensation increases. Professional fees were
higher in 2007 primarily due to the acquisitions in 2007, the withdrawal as a
BDC effective at the beginning of 2008 and negotiating debt extensions.
Interest expense was $367,600$528,229 in 2008 as compared to $220,179$400,465 in 2007. The
increase is primarily due to the debt incurred in the acquisition of BNM which
was outstandingand AM
that accrued interest for a longer period 2007in 2008 than in 2008.2007.
23
Loss on investments was incurred in the threenine months ended JuneSeptember 30, 2007 for
$669,853$519,853 due to an unrealized depreciation in the note with Rudy Partners of
$1,658,283.
23
Discontinued operations consist of the operations of Rudy Beverage, Inc. for the
three and sixnine months ended JuneSeptember 30, 2007, as discussed in Note 2.
LIQUIDITY AND CAPITAL RESOURCES
At JuneSeptember 30, 2008, we had a working capital deficit of $7,561,536$7,886,835 as
compared to $6,136,234$6,136,235 at December 31, 2007. The increase in working capital
deficit of $1,425,302$1,750,600 during 2008 was primarily the result of using working
capital to acquire treasury stock in the amount of $700,000, the net loss of
$952,462$1,252,987 and less the increases to common stock and additional paid-in capital
in the amount of $255,053$236,198 as a result of stock and options issued. Net cash
used inprovided by operating activities was $134,236.$40,646.
As of JuneSeptember 30, 2008, the Companywe had an accumulated deficit totaling $35,560,372. The Company$35,860,896. We
also had a net loss of $952,462$1,252,987 during the sixnine months ended JuneSeptember 30,
2008.
These factors, among others, raise substantial doubt about the Company'sour ability to
continue as a going concern. The Company intendsWe intend 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 Companywe will
have sufficient funds to execute itsour intended business plan or generate positive
operating results. (See Note 1E)
OFF BALANCE SHEET ARRANGEMENTS
o None.
CONTRACTUAL OBLIGATIONS
o See Note 6 regarding operating leases.
24
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4: CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
The Company'sOur Chief Executive Officer has reviewed and evaluated the effectiveness of the Company'sour
disclosure controls and procedures (as defined in Rules 240.13a-15(e) and
15d-15(e) promulgated under the Securities Exchange Act of 1934) as of March 31,
2008. Based on that review and evaluation, which included inquiries made to
certain of our other employees, of the Company, the CEO concluded that the Company'sour current disclosure
controls and procedures, as designed and implemented, are effective in ensuring
that information relating to the Companyour required to be disclosed in the reports the Company filesthat we
file or submitssubmit under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the Securities and
Exchange Commission's rules and forms, including ensuring that such information
is accumulated and communicated to the Company'sour management, including the CEO, as
appropriate to allow timely decisions regarding required disclosure. However, the Companywe
had a personnel change in the first quarter, which did delay completion of the
information relating to the Companyour required to be discloseddisclosure in reports to be filed with the
SEC.
(b) Changes in Internal Controls
There have been no changes in our internal controls over financial reporting
that occurred during the quarter ended JuneSeptember 30, 2008 that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
25
PART II - OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
Although we may, from time to time, be involved in litigation arising out of our
operations in the normal course of business or otherwise, we are currently not a
party to any pending material legal proceeding.
ITEM 1A: RISK FACTORS
There were no material changes from the risk factors previously disclosed in our
2007 annual report on Form 10-K.
ITEM 2: UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
During the three months ended March 31,September 30, 2008, we issued our common stock in
the following transactions:
o 4,000,000 shares were issued to directors and employees for
past services;
o 3,000,000 shares were issued to a consultant for services to
be performed during 2008;
o 4,592,593 shares were issued in exchange for $31,000 in
convertible debt; and
o 100,000400,000 shares were issued to a note holder of Aqua Maestro as
consideration for delaying the due date of the note.
All shares were issued 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.
26
ITEM 6: EXHIBITS
The following exhibits are filed with this report on Form 10-Q.
26
Exhibit 31 Certifications pursuant to Rule 13a-14 of
the Securities Exchange Act of 1934, as
amended, pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
Exhibit 32 Certifications pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
27
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: August 19,November 18, 2008 By: /s/ Jerry Pearring
----------------------------------------------------
Jerry Pearring,
President and Chief
Executive Officer
28