UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________
FORM 10-Q
(Mark One) | |
[ X ] | Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended September 30, 2009 | |
[ ] | Transition Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from to |
Commission File Number:333-138672
Legacy Wine & Spirits International Ltd.
(Exact name of small business issuer as specified in it’s charter)
Nevada
(State or other jurisdiction of incorporation or organization)
91-1963840
(I.R.S. Employer Identification No.)
719 30th Ave., Pointe-Calumet
Quebec, Canada, J0N 1G1
(Address of principal executive offices)
514-688-3289
(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 period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
[X] Yes [ ] No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). [ ]Yes[ ]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.
Large accelerated filer [ ] | Accelerated filer [ ] |
Non-accelerated filer [ ] (Do not check if a smaller reporting company) | Smaller reporting company [X] |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). [ ] Yes [ X] No
APPLICABLE ONLY TO CORPORATE ISSUERS
On September 30, 2009 there were 21,399,085 shares outstanding of the issuer’s common stock.
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TABLE OF CONTENTS PAGE
Item 1. Financial Statements. | F-1 |
Balance Sheet as of September 30, 2009 (Unaudited) and December 31, 2008 | F-1 |
Statements of Operations (Unaudited) For the Three and Nine Months Ended September 30, 2009 and 2008, and the Period from February 18, 1999 (Inception) through June 30, 2009 | F-2 |
Statements of Cash Flows (Unaudited) For the Nine Months Ended September 30, 2009 and 2008, and the Period from February 18, 1999 (Inception) through September 30, 2009 | F-3 |
Notes To Condensed Financial Statements (Unaudited). | F-4 |
Item 2. Management's Discussion and Analysis or Plan of Operation. | 3 |
Item 3. Quantitative and Qualitative Disclosures About Market Risk | 7 |
Item 4T Controls and Procedures | 7 |
Part II. OTHER INFORMATION | 8 |
Item 1. Legal Proceedings | 8 |
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | 8 |
Item 3. Defaults Upon Senior Securities | 10 |
Item 4. Submission of Matters to a Vote of Security Holders | 10 |
Item 5. Other Information | 10 |
Item 6. Exhibits | 10 |
SIGNATURES | 10 |
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
LEGACY WINE & SPIRITS INTERNATIONAL LTD.
(A development stage company)
CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2009
CONSOLIDATED BALANCE SHEETS........................................F-1
CONSOLIDATED STATEMENTS OF OPERATIONS..............F-2
CONSOLIDATED STATEMENTS OF CASH FLOWS.............F-3
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS...F-4-13
LEGACY WINE & SPIRITS INTERNATIONAL LTD.
(A development stage Company)
CONSOLIDATED BALANCE SHEETS
September 30, 2009 (Unaudited) | December 31, 2008 | |||
CURRENT ASSETS | ||||
Cash | $ 7,596 | $ 13,432 | ||
Taxes Recoverable | 2,224 | - | ||
Inventory, at cost | 53,730 | 66,082 | ||
Prepaid Expenses | 12,867 | 11,494 | ||
TOTAL CURRENT ASSETS | 76,417 | 91,008 | ||
DEPOSIT ON LEASEHOLD IMPROVEMENTS | 85,000 | 85,000 | ||
LEASEHOLD IMPROVEMENTS, net of depreciation of $5,942 (2008 - $719) | 112,844 | 118,786 | ||
FURNITURE AND FIXTURES, net of depreciation of $32,431 (2008 - $32,112) | 1,097 | 1,415 | ||
OTHER INTANGIBLE ASSETS,net of amortization of $56,950 (2008 - $5,695) | 968,150 | 1,019,405 | ||
TOTAL ASSETS | $ 1,243,508 | $ 1,315,614 | ||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||
CURRENT LIABILITIES | ||||
Accounts payable and accrued liabilities | $ 30,900 | $ 35,923 | ||
Due to Golden Spirit Enterprises Ltd. | 71,091 | 31,331 | ||
Due to Organa Gardens International Inc. | 167,172 | 116,631 | ||
Due to related parties | 3,574 | 20,003 | ||
TOTAL CURRENT LIABILITIES | 272,737 | 203,888 | ||
COMMITMENTS AND CONTINGENCIES | ||||
STOCKHOLDERS’ EQUITY | ||||
Common stock, $.0001 par value, 100,000,000 shares authorized | ||||
Issued and outstanding: 21,399,085 (2008 – 20,596,085) common shares | 2,140 | 2,060 | ||
Additional paid-in capital | 4,366,874 | 3,972,424 | ||
Deferred compensation | (130,000) | - | ||
Common stock to be issued | - | 20,000 | ||
Deficit accumulated during the development stage | (3,268,243) | (2,882,758) | ||
TOTAL STOCKHOLDERS’ EQUITY | 970,771 | 1,111,726 | ||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ 1,243,508 | $ 1,315,614 |
The accompanying notes are an integral part of these consolidated financial statements
F-1
LEGACY WINE & SPIRITS INTERNATIONAL LTD.)
(A development stage company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended September 30, |
Nine months ended September 30, | Cumulative from February, 19, 1999 (inception) to September 30 , | |||||
2009 | 2008 | 2009 | 2008 | 2009 | |||
REVENUES | |||||||
Wine sales | $ 5,755 | $ - | $ 27,954 | $ - | $ 30,009 | ||
COST OF GOOD SOLD | 2,720 | - | 11,982 | - | 12,656 | ||
GROSS PROFIT | 3,035 | - | 15,972 | - | 17,353 | ||
GENERAL AND ADMINISTRATIVE. EXPENSES | |||||||
Consulting | 105,345 | 66,722 | 170,810 | 171,295 | 600,672 | ||
Depreciation and Amortization | 19,171 | 151 | 57,511 | 455 | 96,037 | ||
Exploration costs | - | - | - | 17,214 | |||
Investor Relations | 15,000 | - | 47,500 | - | 57,500 | ||
Management fees | - | - | - | 131,200 | |||
Office and general | 17,400 | 22,712 | 60,314 | 38,753 | 394,131 | ||
Professional fees | 18,039 | 20,070 | 34,274 | 41,208 | 291,302 | ||
Store supplies selling expenses | 908 | - | 2,514 | - | 7,034 | ||
Travel and accommodation | 3,085 | 13,828 | 8,047 | 19,660 | 102,614 | ||
Wages and salaries | 6,699 | 4,031 | 20,487 | 22,781 | 104,130 | ||
Website development costs | - | - | - | - | 158,772 | ||
Write-down of technology license | - | - | - | - | 912,653 | ||
Write-down of URL’s | - | - | - | - | 247,500 | ||
TOTAL EXPENSES | 185,647 | 127,514 | 401,457 | 294,152 | 3,120,759 | ||
OTHER INCOME (EXPENSES) | |||||||
Property Option Loss | - | - | - | (15,500) | (15,500) | ||
Interest on settlement of due to related parties | - | (17,000) | - | (132,337) | (149,337) | ||
TOTAL OTHER INCOME (EXPENSES) | - | (17,000) | - | (147,837) | (164,837) | ||
Loss before Income Taxes | (182,612) | (144,514) | (385,485) | (441,989) | (3,268,243) | ||
Income Tax Provision | - | - | - | - | - | ||
NET LOSS | $ (182,612) | $ (144,514) | $ (385,485) | $ (441,989) | $ (3,268,243) | ||
BASIC AND DILUTED INCOME (LOSS) PER SHARE | $ (0.01) | $ (0.01) | $ (0.02) | $ (0.02) | |||
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING - BASIC AND DILUTED | 21,295,172 | 20,377,150 | 21,069,341 | 19,030,482 |
The accompanying notes are an integral part of these consolidated financial statements.
F-2
LEGACY WINE & SPIRITS INTERNATIONAL Ltd.
(A development stage company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine months ended September 30, 2009 | Nine months ended September 30, 2008 | Cumulative from February, 19, 1999 (inception) to September 30 , 2009 | ||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||
Net loss | $ (385,485) | $ (441,989) | $ (3,268,243) | |
Adjustments to reconcile net loss to net cash (used in) operating activities: | ||||
-depreciation and amortization | 57,511 | 455 | 96,038 | |
- fees and services paid with shares | 107,830 | 18,800 | 201,505 | |
- interest on settlement of due to related parties | - | 149,337 | 149,337 | |
- non-cash exploration costs | - | - | 9,500 | |
- write down of technology license | - | - | 912,654 | |
- write off of website development costs | - | - | 158,772 | |
- write down of URLs | - | - | 247,500 | |
- net changes in working capital items | 3,736 | (24,151) | 411,719 | |
NET CASH FLOWS (USED IN) OPERATING ACTIVITIES | (216,408) | (297,548) | (1,081,218) | |
CASH FLOWS FROM INVESTING ACTIVITIES | ||||
Acquisition of furniture and equipment | - | - | (24,317) | |
Deposit on Leasehold improvements | - | (191,272) | (85,000) | |
Leasehold improvements | - | - | (119,505) | |
Deposits on Inventory purchase | - | (47,800) | - | |
Website development costs | - | (65,100) | (223,872) | |
NET CASH FLOWS USED IN INVESTING ACTIVITIES | - | (304,172) | (452,694) | |
CASH FLOWS FROM FINANCING ACTIVITIES | ||||
Net advances (to) from related parties | 197,072 | 164,271 | 707,508 | |
Share subscription proceeds | - | 3,000 | - | |
Proceeds on sale of common stock | 13,500 | 460,000 | 834,000 | |
NET CASH FLOWS PROVIDED BY FINANCING ACTIVITIES | 210,572 | 627,271 | 1,541,508 | |
NET (DECREASE) INCREASE IN CASH | (5,836) | 25,551 | 7,596 | |
CASH, BEGINNING OF PERIOD | 13,432 | 6,014 | - | |
CASH, END OF PERIOD | $ 7,596 | $ 31,565 | $ 7,596 |
The accompanying notes are an integral part of these consolidated financial statements.
F-3
LEGACY WINE & SPIRITS INTERNATIONAL LTD.-
(A development stage company)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2009
(Unaudited) |
NOTE 1 – NATURE OF OPERATIONS AND BASIS OF PRESENTATION
Legacy Wine & Spirits International Ltd. (“Legacy” or the “Company”) was incorporated on February 19, 1999 in the State of Nevada as Power Direct Tech.com. On February 23, 1999, the Company changed its name to PD Tech.com and on June 8, 1999 the Company changed its name to Cardstakes.com to reflect management’s decision to shift the Company’s focus to internet-based business development. On January 13, 2004, the Company changed its name to Legacy Mining Ltd. to reflect management’s decision to shift the Company’s focus to mineral exploration and development. In 2007, the Company filed a Registration Statement Form SB-2/A to become a fully reporting Company on the OTC: BB and on October 30, 2007, began trading under the symbol “LEYM”. In 2008, due to uncertainties in the financing of mineral exploration and development, management decided to shift the Company focus to the wine & spirits industry. On May 2 , 2008, the Company changed its name to Legacy Wine & Spirits International Ltd. and on May 27, 2008, the Company began trading under the symbol “LWSP”.
Going concern
These financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America applicable to a going concern which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. The Company is a development stage company and its general business is the operation of a wine store in Tianjin, China. The Company will depend almost exclusively on outside capital through the issuance of common shares to finance ongoing operating losses and to fund the wine operations The Company has incurred losses of $3,268,243 from inception to September 30, 2009 and has a working capital deficiency of $196,320. The ability of the Company to continue as a going concern is dependent on raising additional capital and ultimately on generating future profitable operations. There can be no assurance that the Company will be able to raise the necessary funds when needed to finance its ongoing costs.
The Company's future capital requirements will depend on many factors, including cash flow from operations, costs to complete property development, if warranted, and competition and global market conditions. The Company's anticipated recurring operating losses and growing working capital needs will require that it obtain additional capital to operate its business. Given the Company's limited operating history, lack of revenues, and its operating losses, there can be no assurance that it will be able to achieve or maintain profitability. Accordingly, these factors raise substantial doubt about the Company’s ability to continue as a going concern.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The financial statements include the accounts of the Company and its subsidiary, a 100% interest in Tianjin Legacy Wine Trading Co. Ltd. – All significant intercompany transactions and balances have been eliminated in consolidation.
F-4
LEGACY WINE & SPIRITS INTERNATIONAL LTD.-
(A development stage company)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2009
(Unaudited) |
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (con’t.)
Basis of presentation
The accompanying financial statements are presented in United States dollars and are prepared in accordance with accounting principles generally accepted in the United States.
The unaudited interim financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Regulation S-X Article 8 “Financial Statements of Smaller Reporting Companies” as promulgated by the Securities and Exchange Commission ("SEC"). Accordingly, these financial statements do not include all of the disclosures required by generally accepted accounting principles for complete financial statements. These unaudited interim financial statements should be read in conjunction with the audited financial statements for the period ended December 31, 2008 indexed in Form 10-K. In the opinion of management, the unaudited interim financial statements furnished herein include all adjustments, all of which are of a normal recurring nature, necessary for a fair statement of the results for the interim period presented.
Operating results for the nine month period ended September 30, 2009 are not necessarily indicative of the results that may be expected for the year ending December 31, 2009.
Use of Estimates and Assumptions
Preparation of the Company’s financial statements in conformity with United States generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.
Equipment
Equipment is carried at acquisition cost less accumulated depreciation. Depreciation is provided over the estimated useful lives of the assets on a straight line basis – generally from 3-5 years.
Leasehold Improvements
Leasehold Improvements is carried at acquisition cost less accumulated depreciation. Depreciation is provided over the shorter of the lease term, which generally includes reasonably assured option periods, or the estimated useful lives of the assets on straight line basis per annum.
Intangible Assets
Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 350 , “Intangibles-Goodwill and Other” requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually in accordance with the provisions of ASC 350. This standard also requires that intangible assets with definite useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment. As of June 30, 2009, the Company believes there is no impairment of its intangible assets. The Company's intangible assets consist of the acquisition of the license to import and distribute wine & liquor products and various brands and labels. The Company determined that the intangibles have an estimated useful life of 15 years and will be reviewed annually for impairment. Amortization will be recorded over the estimated usef ul life of the assets using the straight-line method for financial statement purposes. The Company commenced amortization when the economic benefits of the assets begin to be consumed in December 2008. Other intangibles are carried at acquisition cost less accumulated amortization. Amortization is provided over the estimated useful lives of the assets on straight line basis per annum.
Concentration of Credit Risk
Cash in bank accounts is at risk to the extent that it exceeds U.S. Federal Deposit Insurance Corporation and Canadian Deposit Insurance Corporation insured amounts. To minimize risk, the Company places its cash with high credit quality institutions. All cash is deposited in one prominent Canadian financial institution.
F-5
LEGACY WINE & SPIRITS INTERNATIONAL LTD.-
(A development stage company)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2009
(Unaudited) |
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (con’t.)
Fair Value of Financial Instruments
The estimated fair value amounts have been determined by the Company, using available market information and appropriate valuation methodologies. The fair value of financial instruments classified as current assets or liabilities, including cash, notes receivable, accounts payable, and amounts due to related parties approximate their carrying value due to the short-term maturity of the instruments.
Inventory
Inventory is recorded at the lower of cost or net realizable value
Revenue Recognition
Sales are recognized upon purchase by customers at our retail store. All sales at our retail store are final, allowing for no sales returns.
Foreign Currency Translation
The financial position and results of operations of the Tianjin Wine Trading Co. Ltd. operations are measured using the parent’s currency as the functional currency. Non monetary assets and liabilities of these operations are translated at the exchange rate in effect at the transaction date. Monetary assets and liabilities of these operations are translated at the exchange rate in effect at the balance sheet date. Income statement accounts, with the exception of amortized assets or liabilities, are translated at the average exchange rate during the period. Translation adjustments arising from the use of differing exchange rates from period to period are included in exchange gain or loss in the income statement. Gains and losses that result from foreign currency transactions are included in the calculation of net income (loss).
Income Taxes
The Company accounts forincometaxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
The Company records net deferred tax assets to the extent the Company believes these assets will more likely than not be realized. In making such determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operations. A valuation allowance is established against deferred tax assets that do not meet the criteria for recognition. In the event the Company were to determine that it would be able to realize deferred income tax assets in the future in excess of their net recorded amount, the would make an adjustment to the valuation allowance which would reduce the provision for income taxes.
The Company follows the accounting guidance which provides that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits. Income tax positions must meet a more-likely-than-not recognition threshold at the effective date to be recognized initially and in subsequent periods. Also included is guidance on measurement, derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.
Stock-based compensation
The Company accounts for all compensation related to stock, options or warrants using a fair value based method whereby compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period. The Company uses the Black-Scholes pricing model to calculate the fair value of options and warrants issued to both employees and non-employees. Stock issued for compensation is valued using the market price of the stock on the date of the related agreement.
F-6
LEGACY WINE & SPIRITS INTERNATIONAL LTD.-
(A development stage company)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2009
(Unaudited) |
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (con’t.)
Recent Accounting Pronouncements
On July 1, 2009, the FASB officially launched the FASB ASC 105 -- Generally Accepted Accounting Principles, which established the FASB Accounting Standards Codification (“the Codification”), as the single official source of authoritative, nongovernmental, U.S. GAAP, in addition to guidance issued by the Securities and Exchange Commission. The Codification is designed to simplify U.S. GAAP into a single, topically ordered structure. All guidance contained in the Codification carries an equal level of authority. The Codification is effective for interim and annual periods ending after September 15, 2009. Accordingly, the Company refers to the Codification in respect of the appropriate accounting standards throughout this document as “FASB ASC”. Implementation of the Codification did not have any impact on the Company’s consolidated financial statements
On June 30, 2009, the FASB issued Accounting Standard Update (ASU) No. 2009-01 (Topic 105) – Generally Accepted Accounting Principles – amendments based on – Statement of Financial Accounting Standards No. 168 – The FASB Accounting and Standards Codification and the Hierarchy of Generally Accepted Accounting Principles. Beginning with this Statement the FASB will no longer issue new standards in the form of Statements, FASB Staff Positions, or Emerging Issues Task Force Abstracts. Instead, it will issue Accounting Standard Updates. This ASU includes FASB Statement No. 168 in its entirety. While ASU’s will not be considered authoritative in their own right, they will serve to update the Codification, provide the bases for conclusions and changes in the Codification, and provide background information about the guidance. The Codification modifies the GAAP hierarchy to include only two levels of GAAP: authoritative and nonauthoritative . ASU No. 2009-01 is effective for financial statements issued for the interim and annual periods ending after September 15, 2009, and the Company does not expect any significant financial impact upon adoption.
In August 2009, the FASB issued ASU No. 2009-05 – Fair Value Measurements and Disclosures (Topic 820) – Measuring Liabilities at Fair Value. This ASU clarifies the fair market value measurement of liabilities. In circumstances where a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using one or more of the following techniques: a technique that uses quoted price of the identical or a similar liability or liabilities when traded as an asset or assets, or another valuation technique that is consistent with the principles of Topic 820 such as an income or market approach. ASU No. 2009-05 was effective upon issuance and it did not result in any significant financial impact on the Company upon adoption.
In September 2009, the FASB issued Accounting Standard Update (ASU) No. 2009-12 – Fair Value Measurements and Disclosures (Topic 820) – Investments in Certain Entities That Calculate Net Asset Value per Share (or its equivalent). This ASU permits use of a practical expedient, with appropriate disclosures, when measuring the fair value of an alternative investment that does not have a readily determinable fair value. ASU No. 2009-12 is effective for interim and annual periods ending after December 15, 2009, with early application permitted. Since the Company does not currently have any such investments, it does not anticipate any impact on its financial statements upon adoption.
In May 2009, the FASB issued FASB ASC 855, Subsequent Events..ASC 855 provides authoritative accounting literature related to evaluating subsequent events that was previously addressed only in the auditing literature, and is largely similar to the current guidance in the auditing literature with some exceptions that are not intended to result in significant changes in practice. SFAS 165 defines subsequent events and also requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date. ASC 855 is effective on a prospective basis for interim or annual financial periods ending after June 15, 2009. The adoption of this standard during the period did not have any impact on the Company’s financial position, cash flows or results of operations. The adoption of this standard during the period did not have any impact on the Company’s financial position, cash flows or results of operations. The Company has evaluated s ubsequent events up to and including November 16, 2009 and has determined there were no significant transactions.
F-7
LEGACY WINE & SPIRITS INTERNATIONAL LTD.-
(A development stage company)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2009
(Unaudited) |
NOTE 2 – BASIS OF PRESENTATION (con’t.)
In December 2007, the FASB issued an update to FASB ASC 805, “Business Combinations” which establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquiree, and the goodwill acquired. This update also establishes disclosure requirements to enable the evaluation of the nature and financial effects of the business combination. This update is effective for the Company with respect to business combinations for which the acquisition date is on or after January 1, 2009. The Company adopted this update in the first quarter of 2009 without significant financial impact.
In December 2007, the FASB issued an update to FASB ASC 810, “Consolidation”, which establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the parent and to the noncontrolling interest, changes in a parent’s ownership interest, and the valuation of retained noncontrolling equity investments when a subsidiary is deconsolidated. SFAS 160 also establishes disclosure requirements that clearly identify and distinguish between the interests of the parent and the interests of noncontrolling owners. This update is effective for the Company as of January 1, 2009. The Company adopted this this update in January 2009 without significant impact on the consolidated financial position, results of operations, and disclosures.
In December 2007, the SEC issued Staff Accounting Bulletin (“SAB”) 110 Share-Based Payment. SAB 110 amends and replaces Question 6 of Section D.2 of Topic 14, “Share-Based Payment,” of the Staff Accounting Bulletin series. Question 6 of Section D.2 of Topic 14 expresses the views of the staff regarding the use of the “simplified” method in developing an estimate of the expected term of “plain vanilla” share options and allows usage of the “simplified” method for share option grants prior to December 31, 2007. SAB 110 allows public companies which do not have historically sufficient experience to provide a reasonable estimate to continue use of the “simplified” method for estimating the expected term of “plain vanilla” share option grants after December 31, 2007. SAB 110 is effective January 1, 2008. The Company currently uses the “simplified” method to estimate the expected term for share optio n grants as it does not have enough historical experience to provide a reasonable estimate. The Company will continue to use the “simplified” method until it has enough historical experience to provide a reasonable estimate of expected term in accordance with SAB 110. The Company does not expect SAB 110 will have a material impact on its balance sheets, statements of operations and cash flows.
In June 2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No. 46(R)”. SFAS No. 167 addresses the effect on FASB Interpretation 46(R), “Consolidation of Variable Interest Entities” of the elimination of the qualifying special-purpose entity concept of SFAS No. 166, “Accounting for Transfers of Financial Assets”. SFAS No. 167 also amends the accounting and disclosure requirements of FASB Interpretation 46(R) to enhance the timeliness and usefulness of information about an enterprise’s involvement in a variable interest entity. This Statement shall be effective as of the Company’s first interim reporting period that begins after November 15, 2009. Earlier application is prohibited. The Company does not anticipate any significant financial impact from adoption of SFAS No. 167. As of September 30, 2009, SFAS No. 167 has not been added to the Codification.
In June 2009, the FASB issued SFAS No. 166, “Accounting for Transfers of Financial Assets – an amendment of FASB Statement No. 140”. SFAS No. 166 amends SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities” by eliminating the concept of special-purpose entity, requiring the reporting entity to provide more information about sales of securitized financial assets and similar transactions, particularly if the seller retains some risk to the assets, changes the requirements for the de-recognition of financial assets, and provides for the sellers of the assets to make additional disclosures. This Statement shall be effective as of the Company’s first interim reporting period that begins after November 15, 2009. Earlier application is prohibited. The Company does not anticipate any significant financial impact from adoption of SFAS No. 166. As of September 30, 2009, SFAS No. 166 has not bee n added to the Codification.
In March 2008, the FASB issued an update to FASB ASC 815, “Derivatives and Hedging” This update is intended to enhance the current disclosure framework in FASB ASC 815. Under this update, entities will have to provide disclosures about (a) how and why and entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under FASB ASC 815 and its related interpretations, and (c), how derivative
F-8
LEGACY WINE & SPIRITS INTERNATIONAL LTD.-
(A development stage company)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2009
(Unaudited) |
NOTE 2 – BASIS OF PRESENTATION (con’t.)
instruments and related hedged items effect an entity’s financial position, financial performance and cash flows. This update is effective for all financial statements issued for fiscal and interim periods beginning after November 15, 2008. The Company does not currently have any derivative instruments, nor does it engage in hedging activities, therefore, the Company’s adoption of this update in the first quarter of 2009 was without significant financial impact.
NOTE 3 – INTERESTS IN MINERAL PROPERTIES
Ester Creek and Second Chance Mineral Properties
On October 11, 2005, the Company entered into an agreement with Golden Spirit Gaming Ltd. ("Golden Spirit"), a public company with directors in common, whereby the Company acquired a ninety-percent (90%) ownership interest in the Ester Creek and Second Chance claims (collectively, the “Claims”) located approximately eight miles northeast of Fairbanks, Alaska for the issuance of 750,000 restricted shares of the Company’s common stock valued at $7,500. Under the terms of the agreement, Ester Creek Gold Company, a private Nevada corporation, retained a 10% non-assessable interest in the Ester Creek claims and Lee Holland, a resident of Alaska, retained a 10% non-assessable interest in the Second Chance claim. The Claims are located in and around Ester Creek over an area of approximately 2,320 acres (4 square miles).
The Company was responsible to keep the Claims in good standing henceforth and to protect the rights of the carried interest holders. The Company was required to perform annual assessment work to keep the Claims in good standing. The Company had an independent engineering report prepared on the property, which contained recommendations for a work commitment of $25,495 for geological sampling and assaying to be conducted in the spring of 2008. Due to the new business direction of the Company, it did not proceed with any further work on these claims which have been abandoned by management.
Other
On January 14, 2008 the Company signed a letter of intent with Mercury Enterprise Co. Ltd. ("Mercury") regarding Mercury's 80% property interest. In the letter of intent, the Company agreed to enter into a participation agreement with Mercury on or before March 14, 2008, subject to its due diligence. As of March 17, 2008 the Company has not entered into a participation agreement with Mercury, and therefore the letter of intent has terminated and the Company no longer has any right to acquire an interest in the Property. The Company will not be proceeding with any acquisition of an interest in the property and wrote off the associated costs of $15,500 in 2008.
NOTE 4 – DEPOSITS ON LEASEHOLD IMPROVEMENTS
The Company opened its first wine and spirits retail store located in Tianjin, China in December, 2008 for the distribution of its imported products. As at September 30, 2009, the Company has advanced $85,000 towards the leasehold improvements of a second store planned for the fourth quarter of 2009.
NOTE 5 – INTANGIBLE ASSETS
On May 5, 2008, the Company signed an agreement with Legacy Wine and Spirits Merchants Ltd (“Legacy Merchants”) a Hong Kong based Company, for the rights to a fifteen (15) year general license to import, bottle, blend, manufacture and distribute wine and spirits in China. The agreement took effect upon the Company completed its name change, which was completed on May 27, 2008. Legacy Merchants was issued 1,000,000 restricted shares of the Company’s Rule 144 stock valued at $960,000 for the rights to the aforementioned license through its agreement with Beijing Nine Dragons Winery Co. Ltd (“Nine Dragons”) a China based company. Through Legacy Merchants and its agreement with Crown StarHoldings Ltd, an alcoholic beverage sourcing company with offices in Canada and Hong Kong, the Company has access to a wide selection of fine wine and spirits.
F-9
LEGACY WINE & SPIRITS INTERNATIONAL LTD.-
(A development stage company)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2009
(Unaudited) |
The Company opened one wine and spirits retail stores to be located in Tianjin, China in December, 2008. This approximate 1,900 sq. ft. store is named “Legacy Wine and Spirits” and will initially stock imported red and white wines as well as a selection of spirits from Bronco winery in California, USA. This initial store will be a flagship model for a franchising plan designed to further broaden the Company��s distribution facilities and gain further market awareness and penetration of the Legacy brand. Once the Legacy retail stores have been established, the Company will exercise its First Right of Refusal to start-up its manufacturing facility in Beijing through Legacy Merchants agreement with Nine Dragons.
Intangible assets include the following:
Description | September 30, | December 31, |
2009 | 2008 | |
15 year general license to acquire & distribute wine & spirits in China | $ 960,000 | $ 960,000 |
Website development , branding and labelling costs incurred | 65,100 | 65,100 |
Less: accumulated amortization | (56,950) | (5,695) |
$ 968,150 | $ 1,019,405 |
NOTE 6 – DEFERRED COMPENSATION
On November 1, 2008, the Company entered into an agreement with Charlton Investments Limited. (“Charlton”), a private company controlled by a significant shareholder, with a two-year term, whereby Charlton will provide investment-banking services to the Company (valued at $120,000) in exchange for 200,000 restricted shares of the Company’s common stock (shares issued January 22, 2009).
On November 1, 2008, the Company entered into an agreement with Compte de Sierge Accomodative Corp. Ld.., (“Compte”) a private company owned by a significant shareholder of the Company, for a two year term, whereby Compte will provide investor relations services to the Company (valued at $120,000) in exchange for 200,000 restricted shares of the Company’s common stock. Compte will provide such services as researching, editing and generating a company profile, relaying the Company’s business perspectives and distribution of corporate updates, including press releases (shares issued January 22, 2009).
The Company amortizes the costs of these services over the respective terms of the contracts. During the nine months ended September 30, 2009, the Company recorded amortization of deferred compensation totaling $90,000 (2008 - $20,000 accrued) and as at September 30, 2009 the unamortized portion of the deferred compensation totaled $130,000
NOTE 7 – STOCKHOLDERS’ EQUITY
The Company’s capitalization is 100,000,000 common shares with a par value of $0.0001 per share.
2009 Transactions
On January 22, 2009 the Company issued 400,000 restricted common shares with a fair value of $240,000 pursuant to deferred compensation agreements (See note 6).
On April 20, 2009 the Company issued 13,000 restricted common shares with a fair value of $7,930 in exchange for services.
On June 8, 2009 the Company issued 30,000 restricted common shares at $0.45 for total cash proceeds of $13,500.
During the nine months ended September 30, 2009, the Company issued 360,000 shares under the Company’s 2009 Employee Stock Option Incentive Plan with a value of $123,200 for satisfaction of debt to related parties.
F-10
LEGACY WINE & SPIRITS INTERNATIONAL LTD.-
(A development stage company)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2009
(Unaudited) |
NOTE 7 – STOCKHOLDERS’ EQUITY (con’t.)
2008 Transactions
On February 27, 2008 the Company issued 25,000 restricted common shares with a fair value of $16,250 to a newly appointed director for his current services.
On May 27, 2008, the Company issued 294,083 shares of Legacy Wine & Spirits International Ltd. common stock in satisfaction of $147,041 owed to nine (9) related parties. The issuance price of the
common stock was $0.50 per share as agreed between the debtors and Legacy Wine & Spirits International Ltd. The fair market value of those shares on the date of issue was $0.95 per share, resulting in interest on the settlement of debt in the amount of $132,337.
On June 12, 2008, the Company completed the closing of the first phase in connection with a Private Placement (the “Private Placement“) of its securities to certain accredited investors for aggregate gross proceeds of $460,000. The investors purchased an aggregate of 920,000 shares of the Company at a price of $0.50 per share and these shares were issued subject to restrictions under Rule 144. The Company is now proceeding with the second phase in connection with a Private Placement, which will raise an additional $540,000 through the issuance of 720,000 shares of the Registrant at a price of $0.75 per share for grand total proceeds of $1,000,000. As at September 30, 2008, the Company has received a $3,000 share subscription for the second phase.
On June 13, 2008, the Company issued 1,000,000 restricted common shares valued at $960,000 to acquire a 15 year general license to import, bottle, blend, manufacture & distribute wine and spirits throughout China.
On August 19, 2008, the Company issued 85,000 shares of Legacy Wine & Spirits International Ltd. common stock in satisfaction of $42,500 owed to three (3) related parties. The issuance price of the
common stock was $0.50 per share as agreed between the debtors and Legacy Wine & Spirits International Ltd. The fair market value of those shares on the date of issue was $0.70 per share, resulting in interest on the settlement of debt in the amount of $17,000.
On September 16, 2008, the Company issued 5,000 restricted common shares valued at $2,550 to a new director for directors’ fees.
Stock Options
During the nine month period ended September 30, 2009, the Company granted a total of 390,000, 5 year common stock options at various prices between $0.14 - $0.45 per share, of which 360,000 were exercised immediately in satisfaction of debts. The Company recognized stock-based compensation of $9,900 , which represented the fair value of the remaining 30,000 stock options granted to consultants in exchange for services rendered to the Company.
During the year ended December 31, 2008, the Company granted a total of 162,500, 5 year common stock options at an exercise price of $0.60 per share. The Company recognized stock-based compensation of $4,875 in accordance with SFAS 123R which represented the fair value of stock options granted to consultants in exchange for services rendered to the Company.
The Company’s stock option activity is as follows:
Number of options |
Weighted Average Exercise Price | Weighted Average Remaining Contractual Life | |
Balance, December 31, 2007 | - | $ - | - |
Granted during 2008 | 162,500 | 0.60 | |
Exercised during 2009 | (162,500) | 0.60 | |
Balance, December 31, 2008 | - | - | - |
Granted during the period | 390,000 | 0.45 | |
Exercised during the period | 390,000 | - | |
Balance, September 30, 2009 | - | $ 0.45 | 4.91 years |
As of September 30, 2009, there were 587,500 stock options available for grant under the Company’s 2008 Stock Incentive and Option Plan.
On June 5, 2009, the Company filed Registration Statements on Form S-8 to register 6,000,000 to be issued pursuant to the Company’s 2009 Stock Incentive and Option Plan. As of September 30, 2009, there were 5,610,000 stock options available for grant under the Company’s 2009 Stock Incentive and Option Plan
F-11
LEGACY WINE & SPIRITS INTERNATIONAL LTD.-
(A development stage company)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2009
(Unaudited) |
NOTE 7 – RELATED PARTY TRANSACTIONS
During the nine months ended September 30, 2009, the Company incurred expenses for consulting fees of $70,000(2008 - $3,000) to a Company controlled by a significant shareholder and $5,800 (2008 - $16,250) for directors fees.
During the nine months ended September 30, 2009, the Company incurred expenses for services of $90,000 (2008 - $Nil) to two companies controlled by a significant shareholders pursuant to service contracts (See Note 6).
The following amounts are due to related parties:
September 30, 2009 | December 31, 2008 | |
Organa Gardens International Inc. | $ 167,172 | $ 116,631 |
Golden Spirit Enterprises Ltd. | 71,091 | 31,331 |
Significant shareholders | 3,574 | 20,003 |
$ 241,837 | $ 167,965 |
All related party transactions are in the normal course of business and are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties. All amounts owed to the above related parties are unsecured, non-interest bearing and have no specific terms of repayment.
NOTE 8 – INCOME TAXES
Potential benefits of United States Federal income tax losses are not recognized in the accounts until realization is more likely than not. As of June 30, 2009, the Company has combined net operating losses carried forward totalling approximately 3,360,000 for tax purposes which expire through 2029. Availability of loss usage is subject to change of ownership limitations under Internal Revenue Code 382 for 2002 and prior year’s losses. Future tax benefits which may arise as a result of these losses have not been recognized in these financial statements, as their realization is determined not likely to occur and accordingly, the Company has recorded a valuation allowance for the deferred tax asset relating to these tax loss carry forwards.
F-12
LEGACY WINE & SPIRITS INTERNATIONAL LTD.-
(A development stage company)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2009
(Unaudited) |
NOTE 9- SUPPLEMENTARY CASH FLOW INFORMATION AND NON-CASH INVESTING AND FINANCING ACTIVITIES
Nine months ended September 30, | For the period from February 19, 1999 (inception) to September 30, | ||
2009 | 2008 | 2009 | |
Cash paid during the period for: | |||
Interest | $ - | $ - | $ - |
Income taxes | $ - | $ - | $ - |
Shares issued for other intangible assets | $ - | $ 960,000 | $ 960,000 |
Shares issued for debt settlement | $ - | $ 147,041 | $ 611,289 |
Shares issued for deferred compensation | $ 240,000 | $ - | $ 240,000 |
The Company issued 360,000 common shares with a value of $123,200 for satisfaction of debt to related parties
during the nine months ended September 30, 2009.
NOTE 10 – COMMITMENTS AND CONTINGENCIES
As of August 1, 2002, the Company leased 1250 sq. ft of office space from Holm Investments Ltd. at $1,000 per month for a period of 3 years which was renewed in 2005 for an additional 3 years at $1,100 per month and again in 2008 for 3 additional years at $1,100 per month. Effective September 1, 2008, the Company has also leased an additional 900 sq. ft office from 1063244 Alberta Ltd. for a $1,100.00 per month on a month to month basis.
As of October 15, 2008, the Company leased its wine store in Tianjin for a period of 10years (renewable for an additional 5 years), at $1,225 per month. See table below for Tianjin lease schedule.
Tianjin Store | 2009 | 2010 | 2011 | 2012 | 2013 | TOTAL |
Lease rental | $14,700 | $14,700 | $14,700 | $14,700 | $14,700 | $73,500 |
NOTE 11 - SUBSEQUENT EVENTS
In October, 2009, the Company issued 315,000 shares at $0.12 per share pursuant to the Company’s 2009 Stock Incentive and Option Plan for cash proceeds of $37,800.
F-13
Item 2. Management’s Discussion and Analysis or Plan of Operation.
The following should be read in conjunction with our financial statements and the related notes that appear elsewhere in this quarterly report. The discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements.
Legacy Wine & Spirits International Ltd. (formerly Legacy Mining Ltd.) (“Legacy” or the “Company”) was incorporated on February 19, 1999 in the State of Nevada as Power Direct Tech.com. On February 23, 1999, the Company changed its name to PD Tech.com and on June 8, 1999 the Company changed its name to Cardstakes.com to reflect management’s decision to shift the Company’s focus to internet-based business development. On January 13, 2004, the Company changed its name to Legacy Mining Ltd. to reflect management’s decision to shift the Company’s focus to mineral exploration and development. We also declared a one-for-two reverse stock split of all of the outstanding common stock, without any change in par value of the shares of common stock. Shareholder approval was obtained to affect the reverse stock split which became effective on January 30, 2004. The new CUSIP number for the Company is 5246EP 10 3.
On December 12, 2006, Legacy filed a Form SB-2 Registration Statement with the United States Security Commission. Following a number of amendments, the SB-2/A was declared effective on August 3, 2007. The trading symbol is “LEYM”.
On April 4, 2008, the Company held a Special Meeting whereby the Board of Directors, by unanimous consent, adopted, effective May 2, 2008, the following amendments to its Articles of Incorporation:
Name Change. A majority of the shareholders entitled to vote on such matters approved a change of name from Legacy Wine & Spirits International Ltd. to “Legacy Wine & Spirits International Ltd”. On April 8, 2008, a Certificate of Amendment to its Articles of Incorporation was filed with the State of Nevada changing the name to Legacy Wine & Spirits International Ltd.
Change of Symbol and CUSIP Number. The Company also took the necessary steps to change its symbol and CUSIP Number. Therefore, the CUSIP Number has changed from 5246EP 10 3 to 52470N 10 1. Following the review of the NASD and FINRA, the Company was given a new effective date for trading. Effective at the opening of business on May 27, 2008, the symbol changed from LEYM to “LWSP”.
Our Wine & Spirits Operation
On May 28, 2008 Legacy Wine & Spirits International Ltd. reported that it had signed an agreement with Legacy Wine and Spirits Merchants Ltd (“Legacy Merchants”) a Hong Kong based Company, for the rights to a fifteen (15) year general license to import, bottle, blend, manufacture and distribute wine and spirits in China. Legacy Merchants received 1,000,000 shares of the Company’s Rule 144 stock valued at $960,000 for the rights to the aforementioned license through its agreement with Beijing Nine Dragons Winery Development Co. Ltd (“Nine Dragons”) a China based company. Through Legacy Merchants and its agreement with Crown Star Holdings Ltd, an alcoholic beverage sourcing company with offices in Canada and Hong Kong, the Company has access to a wide selection of fine wine and spirits. The Company’s initial plans were to open at least two (2) wine and spirits retail stores to be located in Beijing, China by September, 2008 for the distribution of its imported products. Through a number of delays after the completion of the Beijing 2008 Olympics, the plan has changed. Legacy renovated one (1) 1,900 sq.ft. store in Tianjin, China completed in November, 2008. This store will be named “Legacy Wine and Spirits” and will initially stock imported red and white wines as well as a selection of spirits from choice regions throughout the world. This initial store will be a flagship model for a franchising plan designed to further broaden the Company’s distribution facilities and gain further market awareness and penetration of the Legacy brand. Once the Legacy retail stores have been established, the Company will exercise its First Right of Refusal to start-up its manufacturing facility in Beijing through Legacy Merchants agreement with Nine Dragons.
-3-
On June 24, 2008 Legacy Wine & Spirits International Ltd. reported that it had signed a Distribution Agreement with a Canadian based supplier of Italian wines. This Agreement provided for the supply of select bottled wines at the mid-range price-point from six (6) different wine regions in Italy. The Company was at this time in talks with distributors and wineries in both Spain and California with regards to a Distribution Agreement for wine supply from those parts. During the year ended December 31, 2008, the Company decided to terminate its distribution agreement with 2174684 and it was refunded its $45,000 advance.
Thereafter, the Company secured a relationship with Bronco Wine Company of California and purchased its initial inventory of nine varietals of wine on September 26, 2008 for the purchase price of $37,800. Subsequent to September 30, 2008, 1050 cases of wine were shipped to China and displayed for the opening of the first wine store in December 2008.
The Company has also incurred $10,000 in costs for sourcing of product and brands with wine & spirits manufacturers in China. As at September 30, 2009, the inventory recorded at cost totaled $53,730.
Bronco Wine Company is the single largest private grape grower in the world with ownership of 17,000 hectares of wine grapes and five Californian wineries. Legacy is importing 750 ml bottled wines in several varietals of Bronco Winery’s Hacienda Cellars Brand from Sonoma County, California.
The Hacienda brand from Bronco Winery will include Merlot, Cabernet Sauvignon, Chardonnay, Sauvignon Blanc, Riesling, Gewurztraminer, Viognier, White Zinfandel and Brut Sparkling Wine. All wine varietals are aimed at the mid-price point and will be distributed and retailed in China via wholesale retailers and Legacy’s own outlet showroom which caters to the retail buyer as well, located in TEDA, Tianjin, a second tier city of over 10 million people just outside of Beijing
The Company has amended its business plan in three phases:
Phase One:
Legacy will open one (1) corporately owned wine and spirits retail stores in Tianjin, China (opened December, 2008). This retail store will be stocked with select, moderately priced imported wines and spirits and will serve as the design and sales model for all franchise boutiques opened thereafter. This phase sees Legacy establishing its brand name and retail stores through Point of Purchase marketing and taste appreciation gatherings. Legacy will also secure purchase orders from wholesale distributors for its ‘Bottled Exclusively for Legacy’ wine and spirits line. This phase moves the Company towards the establishment of the Legacy brand.
Phase Two:
Through its agreement with Beijing Nine Dragons Winery Development Co. Ltd., Legacy will start importing select wine and spirits to be bottled in-house and distributed by the Company to Legacy’s retail outlets. This phase will allow Legacy to increase its profit margin via lower shipping costs and taxes as
well as wholesale price reductions. Legacy now begins the strategic franchising of its retail stores. This phase will begin in the fourth quarter of 2009.
-4-
Phase Three:
Legacy will begin the importing of select wine juice for the purpose of blending and manufacturing its own brand label wines and spirits. This phase sees Legacy advance its market penetration, solidify its brand recognition and thus realize a further increase in its profit margin. . This phase will begin in the fourth quarter of 2009.
For the nine month period ended September 30, 2009, the Company had gross revenues of $27,954 (2008- $Nil) and gross profit of $15,972 (2008 - $Nil)
Our Mineral Properties
1.Ester Creek and Second Chance Mineral Properties
On October 11, 2005, the Company entered into an agreement with Golden Spirit Gaming Ltd. ("Golden Spirit"), a public company with directors in common, whereby the Company acquired a ninety-percent (90%) ownership interest in the Ester Creek and Second Chance claims (collectively, the “Claims”) located approximately eight miles northeast of Fairbanks, Alaska for the issuance of 750,000 restricted shares of the Company’s common stock valued at $7,500. Under the terms of the agreement, Ester Creek Gold Company, a private Nevada corporation, retained a 10% non-assessable interest in the Ester Creek claims and Lee Holland, a resident of Alaska, retained a 10% non-assessable interest in the Second Chance claim. The Claims are located in and around Ester Creek over an area of approximately 2,320 acres (4 square miles).
The Company will be responsible to keep the Claims in good standing henceforth and to protect the rights of the carried interest holders. The Company will be required to perform annual assessment work to keep the Claims in good standing. The Company has an independent engineering report prepared on the property, which contains recommendations for a work commitment of $25,495 for geological sampling and assaying to be conducted in the spring of 2008. Due to the new business direction of the Company, it will not proceed with any further work and these claims and management has abandoned the claims.
2. Other Proposed Acquisition
On January 14, 2008 the Company signed a letter of intent with Mercury Enterprise Co. Ltd. ("Mercury") regarding Mercury's 80% property interest. In the letter of intent, the Company agreed to enter into a participation agreement with Mercury on or before March 14, 2008, subject to its due diligence. As of March 17, 2008 the Company has not entered into a participation agreement with Mercury, and therefore the letter of intent has terminated and the Company no longer has any right to acquire an interest in the Property. The Company will not be proceeding with any acquisition of an interest in the Property and has written off associated costs of $15,500 during the first quarter of 2008.
-5-
Liquidity and Capital Resources.
At September 30, 2009, we had total assets of $1,243,508, including current assets in cash of $7,596, taxes recoverable of $2,224, inventory, at cost, $53,730 and prepaid expenses of $12,867. We have a deposit on leasehold improvements of $85,000, actual leasehold improvements, net of depreciation of $5,942 in the amount of $112,844,equipment, net of depreciation of $32,431, in the amount of $1,097 and other intangible assets of , net of amortization of $56,950 in the amount of $968,150. As of December 31, 2008, we had total current assets of $91,008. The decrease in assets is due to depreciation and amortization of our assets and sale of inventory.
At September 30, 2009, we had current liabilities of $272,737, which was represented by accounts payable and accrued liabilities of $30,900, a related party payable to Golden Spirit Enterprises Ltd. in the amount of $71,091, a related party payable to Organa Gardens International Inc. in the amount of $167,172 and $3,574 due to other related parties. As of December 31, 2008 we had total current liabilities of $203,888 The increase in liabilities was a result of an increase in amounts owing to related parties. At September 30, 2009, we had a working capital deficiency of $196,320. (December 31, 2008 - $112,881).
We do not believe that our current cash resources will be able to maintain our current operations for an extended period of time. We will be required to raise additional funds or arrange for additional financing over the next 12 months to adhere to our development schedule. No assurance can be given, however, that we will have access to additional cash in the future, or that funds will be available on acceptable terms to satisfy our working capital requirements. If we are not able to arrange for additional funding or if our officers, directors and shareholders stop advancing funds to us, we may be forced to make other arrangements for financing such as loans or entering into strategic alliances. The Company is currently attempting to raise capital through sophisticated private investors.
Results of Operations
We have begun to realize some revenues from our retail wine store in China operations. Revenues for the three month period ended September 30, 2009 were $5,755 (2008 - $Nil) Loss from operations for the three month period ended September 30, 2009 was $182,612 (2008 - $144,514). This decrease in loss was due to a decrease in interest expenses.
From inception to September 30, 2009 our Company has incurred cumulative net losses of $3,268,243, resulting primarily from the write-down of certain internet related activities we were previously involved in. These included a write-down of a proprietary internet technology license in the amount of $912,653, a write-down of URL’s acquired in the amount of $247,500, and a write-down of website development costs in the amount of $158,772, management and consulting fees of $600,672; travel and accommodation of $102,614; office and general expenses of $394,131, professional fees of $291,031; depreciation and amortization expense of $96,037, exploration costs of $17,214, a property option loss of $15,500 and interest on settlement of debt of $149,337.
The cash and equivalents constitute our present internal sources of liquidity.
Because we are not generating any significant revenues, our only external source of liquidity is the sale of our capital stock and any advances from officers, directors or shareholders.
-6-
Our Plan of Operation for the Next Twelve Months
We do anticipate that we will need to raise additional capital within the next 12 months in order to continue as a going concern. To the extent that additional capital is raised through the sale of equity or equity- related securities, the issuance of such securities could result in dilution of our stockholders. There can be no assurance that additional funding will be available on favorable terms, if at all. If adequate funds are not available within the next 12 months, we may be required to curtail our operations significantly or to obtain funds through entering into arrangements with collaborative partners or others that may require us to relinquish rights to certain of our assets that we would not otherwise relinquish.
Legacy Wine & Spirits International Ltd. does anticipate some expenditures within the next 12 months for its expanding wine operations in China.
Legacy Wine & Spirits International Ltd. does not anticipate any further significant exploration costs within the next 12 months, nor does Legacy Wine & Spirits International Ltd. anticipate that it will lease or purchase any significant equipment within the next 12 months.
Off-Balance Sheet Arrangements
Our company has not entered into any off balance sheet arrangements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As of Sepember 30, 2009, we had cash in the amount of $7,596. We have generated small revenues in the amount of $30,009 since inception and have incurred a net loss of $3,268,243 from our inception on February 19, 1999 to September 30, 2009. Our current operating funds are insufficient to expand the first year operation of our new business venture as well as providing funds for anticipated operating overheads, professional fees and regulatory filing fees. Legacy Wine & Spirits International Ltd. does expect significant start up costs to complete the leasehold improvements and supply wine & liquor inventory to one (1) corporate owned liquor store locations for its new business venture. It will have to obtain funds through entering into arrangements with collaborative partners or others to accomplish these expenditures. It currently is attempting to raise capital through sophisticated private investors. There is no assurance that we will be able to raise sufficient funding from the sale of our common stock to fund our anticipated business plan.
Item 4T Controls and Procedures.
An evaluation was conducted by our Chief Executive Officer (CEO) and Chief Financial Officer (CFO) of the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2009. Based on that evaluation, the CEO and CFO concluded that our controls and procedures were effective as of such date to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.
There was no change in our internal control over financial reporting that occurred during the fiscal quarter ended September 30, 2009 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
-7-
This quarterly report does not include a report of management’s assessment regarding internal control over financial reporting or an attestation report of our registered public accounting firm due to a transition period established by rules of the Securities and Exchange Commission for newly public companies.
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
ITEM 1A. Risk Factors
Not applicable
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
The Company’s capitalization is 100,000,000 common shares with a par value of $0.0001 per share.
2009 Transactions
On January 22, 2009 the Company issued 400,000 restricted common shares with a fair value of $240,000 pursuant to deferred compensation agreements (See note 6).
On April 20, 2009 the Company issued 13,000 restricted common shares with a fair value of $7,930 in exchange for services.
On June 8, 2009 the Company issued 30,000 restricted common shares at $0.45 for total cash proceeds of $13,500.
During the nine months ended September 30, 2009, the Company issued 360,000 shares under the Company’s 2009 Employee Stock Option Incentive Plan with a value of $123,200 for satisfaction of debt to related parties.
2008 Transactions
On February 27, 2008 the Company issued 25,000 restricted common shares with a fair value of $16,250 to a newly appointed director for his current services.
On May 27, 2008, the Company issued 294,083 shares of Legacy Wine & Spirits International Ltd. common stock in satisfaction of $147,041 owed to nine (9) related parties. The issuance price of the
common stock was $0.50 per share as agreed between the debtors and Legacy Wine & Spirits International Ltd. The fair market value of those shares on the date of issue was $0.95 per share, resulting in interest on the settlement of debt in the amount of $132,337.
On June 12, 2008, the Company completed the closing of the first phase in connection with a Private Placement (the “Private Placement“) of its securities to certain accredited investors for aggregate gross proceeds of $460,000. The investors purchased an aggregate of 920,000 shares of the Company at a price of $0.50 per share and these shares were issued subject to restrictions under Rule 144. The Company is now proceeding with the second phase in connection with a Private Placement, which will raise an additional $540,000 through the issuance of 720,000 shares of the Registrant at a price of $0.75 per share for grand total proceeds of $1,000,000. As at September 30, 2008, the Company has received a $3,000 share subscription for the second phase.
-8-
On June 13, 2008, the Company issued 1,000,000 restricted common shares valued at $960,000 to acquire a 15 year general license to import, bottle, blend, manufacture & distribute wine and spirits throughout China.
On August 19, 2008, the Company issued 85,000 shares of Legacy Wine & Spirits International Ltd. common stock in satisfaction of $42,500 owed to three (3) related parties. The issuance price of the
common stock was $0.50 per share as agreed between the debtors and Legacy Wine & Spirits International Ltd. The fair market value of those shares on the date of issue was $0.70 per share, resulting in interest on the settlement of debt in the amount of $17,000.
On September 16, 2008, the Company issued 5,000 restricted common shares valued at $2,550 to a new director for directors’ fees.
Stock Options
During the nine month period ended September 30, 2009, the Company granted a total of 390,000, 5 year common stock options at various prices between $0.14- $0.45 per share. The Company recognized stock-based compensation of $101,000 in accordance with SFAS 123R which represented the fair value of stock options granted to consultants in exchange for services rendered to the Company.
During the year ended December 31, 2008, the Company granted a total of 162,500, 5 year common stock options at an exercise price of $0.60 per share. The Company recognized stock-based compensation of $4,875 in accordance with SFAS 123R which represented the fair value of stock options granted to consultants in exchange for services rendered to the Company.
The Company’s stock option activity is as follows:
Number of options | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life | |
Balance, December 31, 2007 | - | $ - | - |
Granted during 2008 | 162,500 | 0.60 | |
Exercised during 2009 | (162,500) | 0.60 | |
Balance, December 31, 2008 | - | - | - |
Granted during the period | 390,000 | 0.45 | |
Exercised during the period | 390,000 | - | |
Balance, September 30, 2009 | - | $ 0.45 | 4.91 years |
As of September 30, 2009, there were 587,500 stock options available for grant under the Company’s 2008 Stock Incentive and Option Plan.
On June 5, 2009, the Company filed Registration Statements on Form S-8 to register 6,000,000 to be issued pursuant to the Company’s 2009 Stock Incentive and Option Plan. As of September 30, 2009, there were 5,610,000 stock options available for grant under the Company’s 2009 Stock Incentive and Option Plan.
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ITEM 3. Defaults Upon Senior Securities
None.
ITEM 4. Submission of Matters to Vote of Security Holders
None
ITEM 5. Other Information
None
ITEM 6. EXHIBITS
Exhibit 31.1 - Section 906 Certification of Periodic Report of the Chief Executive Officer.
Exhibit 31.2 - Section 906 Certification of Periodic Report of the Chief Financial Officer.
Exhibit 32.1 - Section 302 Certification of Periodic Report of the Chief Executive Officer.
Exhibit 32.2 - Section 302 Certification of Periodic Report of the Chief Financial Officer.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| LEGACY WINE & SPIRITS INTERNAIIONAL LTD. |
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Date: November 16, 2009 | By: /s/ C. Scheive |
| Christopher Scheive |
| President and a Director |
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Date: November 16, 2009 | By: /s/ J. Cruz |
| Jaclyn Cruz |
| Director, Secretary & Treasurer |
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