UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| | | |
| þ | | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended: September 30, 2009
| | | |
| o | | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from: to
Commission File No.: : 000-28865
GLOBAL BEVERAGES, INC.
(Exact name of registrant as specific in its charter)
| | | |
| Nevada | | 88-0373061 |
(State or Other Jurisdiction of Incorporation or Organization) | | (I.R.S. Employer Identification No.) |
700 YARRAMAN ROAD, WYBONG
UPPER HUNTER VALLEY
NEW SOUTH WALES, AUSTRALIA 2333
(Address of Principal Executive Offices)
(+61) 2 6547-8118
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
o 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 “small reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
| | | |
Large accelerated filer o | | Accelerated filer o |
| | | |
Non-accelerated filer o (Do not check if a smaller reporting company) | | Smaller reporting company þ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No þ
The aggregate market value of the registrant's common stock held by non-affiliates of the registrant on May 26, 2010 was $39,000,014 based on the average closing bid and ask price of $0.50 for such common stock as of May 26, 2010.
As of May 26, 2010, there were 89,969,180 shares of the registrant’s common stock outstanding.
GLOBAL BEVERAGES, INC.
REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2009
Contents
FORWARD-LOOKING STATEMENTS
Some of the statements in this Quarterly Report on Form 10-Q are forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance, or achievements expressed or implied by forward-looking statements.
In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “proposed,” “intended,” or “continue” or the negative of these terms or other comparable terminology. You should read statements that contain these words carefully, because they discuss our expectations about our future operating results or our future financial condition or state other “forward-looking” information. There may be events in the future that we are not able to accurately predict or control. You should be aware that the occurrence of any of the events described in this Quarterly Report could substantially harm our business, results of operations and financial condition, and that upon the occurrence of any of these events, the trading price of our securities could decline and you could lose all or part of your investment. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, growth rates, levels of activity, performance or achievements. We are under no duty to update any of the forward-looking statements after the date of this Quarterly Report to conform these statements to actual results.
Although we believe that the expectations reflected in these forward-looking statements are based on reasonable assumptions, there are a number of risks and uncertainties that could cause actual results to differ materially from such forward-looking statements. These factors include among others:
| · | The risks associated with the production and sale of wines; |
| · | Our ability to raise capital to fund capital expenditures; |
| · | Grape and other fruit price volatility; |
| · | Our ability to find and retain skilled personnel; |
| · | Regulatory developments; and |
| · | General economic conditions. |
On December 17, 2009, we changed our corporate name from Yarraman Winery, Inc. to Global Beverages, Inc. All references in this Form 10-K to the “Company,” “Global Beverages,” “Yarraman,” “we,” “us” or “our” are to Global Beverages, Inc. and its subsidiary, Yarraman Estate Pty Limited. Except as otherwise noted, all references to “$” shall mean United States dollars.
FINANCIAL INFORMATION
| GLOBAL BEVERAGES, INC. AND SUBSIDIARIES |
| CONSOLIDATED BALANCE SHEETS |
| ASSETS | | | |
| | | September 30, | | | June 30, | |
| | | 2009 | | | 2009 | |
| Current Assets | | | | | | |
| | | | | | | |
| Accounts receivable, net | | $ | 2,025,903 | | | $ | 760,313 | |
| Inventory | | | 4,574,235 | | | | 3,362,528 | |
| Other receivables - related party | | | 1,191,957 | | | | - | |
| Other assets | | | 1,285,781 | | | | 190,961 | |
| Total Current Assets | | | 9,077,874 | | | | 4,313,802 | |
| | | | | | | | | |
| Property, plant and equipment, net | | | 3,802,283 | | | | 3,528,013 | |
| | | | | | | | | |
| Other Assets | | | | | | | | |
| Intangible assets, net | | | 39,221,177 | | | | 19,459,248 | |
| Goodwill | | | 5,249,203 | | | | - | |
| Deposit | | | 522,892 | | | | - | |
| | | $ | 57,873,429 | | | $ | 27,301,063 | |
| | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS' EQUITY | | | | | |
| | | | | | | | | |
| Current Liabilities: | | | | | | | | |
| Accounts payable and accrued expenses | | $ | 3,259,076 | | | $ | 1,929,055 | |
| Line of credit | | | 649,303 | | | | - | |
| Loan payable | | | 18,246 | | | | 13,095 | |
| Cash deficit | | | 65,237 | | | | 38,816 | |
| Capital leases, current portion | | | 30,759 | | | | 42,539 | |
| Deferred revenue | | | 25,972 | | | | - | |
| Due to related party | | | 5,842,790 | | | | 3,396,616 | |
| Total Current Liabilities | | | 9,891,383 | | | | 5,420,122 | |
| | | | | | | | | |
| Long Term Liabilities: | | | | | | | | |
| Long-term debt | | | 5,204,852 | | | | 4,627,379 | |
| Total Long Term Liabilities | | | 5,204,852 | | | | 4,627,379 | |
| | | | | | | | | |
| Total Liabilities | | | 15,096,235 | | | | 10,047,501 | |
| | | | | | | | | |
| Stockholder's Equity | | | | | | | | |
| Preferred stock, Series A, $.001 par value, 386,100 shares authorized | | | | | | | | |
| 386,100 shares issued and outstanding | | | 386 | | | | - | |
| Preferred stock, Series B, $.001 par value, 55,000 shares authorized | | | | | | | | |
| 55,000 shares issued and outstanding | | | 55 | | | | 55 | |
| Common stock, $.001 par value, 90,000,000 shares authorized | | | | | | | | |
| 88,497,213 and 39,390,476 shares issued and outstanding respectively | | | 88,497 | | | | 39,390 | |
| Additional paid in capital | | | 57,429,324 | | | | 30,851,807 | |
| Subscription receivable | | | (60,500 | ) | | | (66,000 | ) |
| Shares to be issued | | | 10,455 | | | | - | |
| Other comprehensive income | | | (830,413 | ) | | | (456,752 | ) |
| Accumulated deficit | | | (13,860,610 | ) | | | (13,114,938 | ) |
| Total Stockholder's Equity | | | 42,777,194 | | | | 17,253,562 | |
| | | | | | | | | |
| | | $ | 57,873,429 | | | $ | 27,301,063 | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| GLOBAL BEVERAGES, INC. AND SUBSIDIARIES |
| CONSOLIDATED STATEMENTS OF OPERATIONS |
| | | For the Three Months Ended | |
| | | September 30, | |
| | | 2009 | | | 2008 | |
| | | | | | | |
| Sales, net | | $ | 3,169,320 | | | $ | 609,146 | |
| Cost of sales | | | 2,644,078 | | | | 442,684 | |
| Gross profit (loss) | | | 525,242 | | | | 166,462 | |
| | | | | | | | | |
| Selling, general and administrative expenses | | | 452,139 | | | | 352,447 | |
| Total operating expenses | | | 452,139 | | | | 352,447 | |
| | | | | | | | | |
| Income (Loss) from operations | | | 73,103 | | | | (185,985 | ) |
| | | | | | | | | |
| Other (Income) Expense | | | | | | | | |
| Interest income | | | - | | | | (2,795 | ) |
| Interest expense | | | 205,210 | | | | 164,489 | |
| Bad debt | | | 38,571 | | | | - | |
| Acquisition costs | | | 63,986 | | | | - | |
| Other (income) expenses net | | | (2,898 | ) | | | (5,125 | ) |
| Amortization of intangible | | | 562,608 | | | | - | |
| Gain on sale of fixed asset | | | - | | | | (1,321 | ) |
| Transaction gain (loss) on foreign currency | | | (48,703 | ) | | | 50 | |
| Total Other (Income) Expense | | | 818,775 | | | | 155,298 | |
| | | | | | | | | |
| Income (loss) before income taxes | | | (745,672 | ) | | | (341,283 | ) |
| | | | | | | | | |
| Provision for income taxes | | | - | | | | - | |
| | | | | | | | | |
| Net income (loss) | | | (745,672 | ) | | | (341,283 | ) |
| | | | | | | | | |
| Other comprehensive income (loss) | | | | | | | | |
| Foreign currency translation | | | (543,185 | ) | | | (32,344 | ) |
| | | | | | | | | |
| Comprehensive income (loss) | | $ | (1,288,857 | ) | | $ | (373,627 | ) |
| | | | | | | | | |
| Net loss per share: | | | | | | | | |
| Basic & diluted | | $ | (0.0084 | ) | | $ | (0.0090 | ) |
| | | | | | | | | |
| Weighted average number of shares outstanding: | | | | | | | | |
| Basic & diluted | | | 88,497,213 | | | | 38,000,000 | |
Weighted average of dilutive securities has not been calculated since the effect of dilutive securities is anti-dilutive
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| GLOBAL BEVERAGES, INC. AND SUBSIDIARIES |
| CONSOLIDATED STATEMENTS OF CASH FLOWS |
| | | For the Three Months Ended | |
| | | September 30, | |
| | | 2009 | | | 2008 | |
| CASH FLOWS FROM OPERATING ACTIVITIES | | | | | | |
Net Loss | | $ | (745,672 | ) | | $ | (341,283 | ) |
Adjustments to reconcile net loss to net cash | | | | | | | | |
used in operating activities: | | | | | | | | |
Bad debt | | | 38,571 | | | | - | |
Depreciation and amortization | | | 593,655 | | | | 73,780 | |
Salary forgiven for stock payment | | | 5,500 | | | | 5,500 | |
(Increase) / decrease in assets: | | | | | | | | |
Accounts receivables | | | (684,671 | ) | | | (2,879 | ) |
Inventory | | | (285,791 | ) | | | 111,654 | |
Other receivables | | | (205,229 | ) | | | 23,887 | |
Deposits and prepaid expenses | | | 25,026 | | | | | |
Other assets | | | (3,579 | ) | | | 52,405 | |
Increase in liabilities: | | | | | | | | |
Accounts payable and accrued expenses | | | 964,814 | | | | (218,313 | ) |
Income tax payable | | | 38,900 | | | | - | |
Deferred revenue | | | 11,508 | | | | - | |
Total Adjustments | | | 498,703 | | | | 46,034 | |
| | | | | | | | | |
Net cash used in operations | | | (246,968 | ) | | | (295,249 | ) |
| | | | | | | | | |
| CASH FLOWS FROM INVESTING ACTIVITIES | | | | | | | | |
Acquisition of subsidiaries, net of cash acquired | | | 147,380 | | | | | |
Acquisition of property and equipment | | | - | | | | (22,468 | ) |
Acquisition of intangible | | | - | | | | (321 | ) |
| Net cash provided by (used in) investing activities | | | 147,380 | | | | (22,789 | ) |
| | | | | | | | | |
| CASH FLOWS FROM FINANCING ACTIVITIES | | | | | | | | |
Proceeds from long-term debt | | | 61,948 | | | | - | |
Proceeds from loan payable | | | 125,000 | | | | | |
Procceds (payment) from line of credit | | | 107,831 | | | | | |
Cash deficit financing | | | 26,425 | | | | (908 | ) |
Capital lease payments | | | (14,666 | ) | | | (32,285 | ) |
Receivable from related party | | | (50,875 | ) | | | - | |
Payable to related party | | | (118,988 | ) | | | | |
Loans payable - related party | | | 81,427 | | | | 351,929 | |
| Net cash provided by (used in) financing activities | | | 218,102 | | | | 318,736 | |
| | | | | | | | | |
| Effect of exchange rate changes on cash and cash equivalents | | | (118,513 | ) | | | (698 | ) |
| | | | | | | | | |
| Net decrease in cash and cash equivalents | | | - | | | | - | |
| | | | | | | | | |
| Cash and cash equivalents, beginning balance | | | - | | | | - | |
| | | | | | | | | |
| Cash and cash equivalents, ending balance | | $ | - | | | $ | - | |
| | | | | | | | | |
| SUPPLEMENTAL DISCLOSURES: | | | | | | | | |
Cash paid for: | | | | | | | | |
Income tax payments | | $ | - | | | $ | - | |
Interest payments | | $ | 155,787 | | | $ | 128,984 | |
| | | | | | | | | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Global Beverages, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2009
NOTE 1 - NATURE OF OPERATIONS AND BASIS OF PRESENTATION
Our Condensed Consolidated Balance Sheet as of September 30, 2009, the Condensed Consolidated Statements of Income and Comprehensive Income for the three months ended September 30, 2009 and 2008, and the Condensed Consolidated Statements of Cash Flows for the three months ended September 30, 2009 and 2008 have not been audited. These statements have been prepared on a basis that is substantially consistent with the accounting principles applied in our Annual Report on Form 10-K for the fiscal year ended June 30, 2009. In our opinion, these financial statements include all normal and recurring adjustments necessary for a fair presentation. The results for the three months are not necessarily indicative of the results expected for the full year.
Our significant interim accounting policies include the addition of overhead costs to our work in process inventory and the recognition of income taxes using an estimated annual effective tax rate. In addition the income and expenses from acquisitions are included from the date of acquisition forward.
The following information is unaudited. All per share amounts assume dilution unless otherwise noted, and are based on unrounded amounts. Certain reclassifications were made to prior year amounts to conform to the 2009 presentation. This report should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended June 30, 2009.
The following is a list of our subsidiaries:
Yarraman Estate, Pty., Ltd., Australia
Global Beverages Hong Kong, Ltd., Hong Kong
Asia Distributions Solutions Limited, Cayman Islands, and it’s subsidiaries:
| · | Vitality Development holdings Limited – British Virgin Islands |
| · | Vitality Tianjin Beverage Co Ltd – Peoples Republic of China |
| · | Highland Mist Holdings Ltd – British Virgin Islands |
| · | Tropical Splendor International Ltd – British Virgin Islands |
| · | Chendu Gao Li Yuan – Peoples Republic of China |
| · | TBC Shanghai Ltd – Peoples Republic of China |
| · | Global Beverages Asia Limited - Hong Kong |
| · | Global Beverages China Co Ltd – Peoples Republic of China |
| · | Shanghai Runke Trading Co Ltd – Peoples Republic of China |
| · | Panda Express China Limited – British Virgin Islands |
| · | Panda Express International Co Pte Ltd - Singapore |
During the fiscal first quarter of 2010, the Company adopted The FASB Accounting Standards Codification (ASC or Codification) and the Hierarchy of Generally Accepted Accounting Principles (GAAP) which establishes the Codification as the sole source for authoritative U.S. GAAP and will supersede all accounting standards in U.S. GAAP, aside from those issued by the SEC. The adoption of the Codification did not have an impact on the Company’s results of operations, cash flows or financial position. Since the adoption of the Accounting Standards Codification (ASC) the Company’s notes to the consolidated financial statements will no longer make reference to Statement of Financial Accounting Standards (SFAS) or other U.S. GAAP pronouncements.
The Company also adopted, in accordance with U.S. GAAP, the standards on business combinations and noncontrolling interests in Consolidated Financial Statements. These statements aim to improve, simplify, and converge internationally, the accounting for business combinations and the reporting of noncontrolling interests in consolidated financial statements. These statements have a significant impact on the manner in which the Company accounts for acquisitions beginning in the fiscal year 2010. Significant changes include the capitalization of in process research and development, expensing of acquisition related restructuring actions and transaction related costs and the recognition of contingent purchase price consideration at fair value at the acquisition date. In addition, changes in accounting for deferred tax asset valuation allowances and acquired income tax uncertainties after the measurement period will be recognized in earnings rather than as an adjustment to the cost of acquisition. This accounting treatment for taxes is applicable to acquisitions that occurred prior and subsequent to the adoption of the standard. Operating profit attributable to noncontrolling interests are reported in Other (Income)Expense, net and the related tax impact to the Provision for Income Taxes. Additionally, equity attributable to noncontrolling interests is recorded in Other Non-Current Liabilities. The adoption of these standards did not have a material impact on the Company’s results of operations, cash flows or financial position.
Note 2 – INCOME TAXES
The worldwide effective income tax rates for the three months ended September 30, 2009 and 2008 were 0% and 0%, respectively. The effective rate was primarily due to net operating losses during this period of time.
Note 3 - INVENTORIES
| | | September 30, | | | June 30, | |
| | | 2009 | | | 2009 | |
| Work in progress | | $ | 950,205 | | | $ | 354,350 | |
| Bulk wine and cider | | | 2,261,229 | | | | 2,249,660 | |
| Finished goods | | | 1,229,749 | | | | 635,814 | |
| Winemaking and packaging materials | | | 133,052 | | | | 122,703 | |
| Total | | $ | 4,574,235 | | | $ | 3,362,527 | |
Note 4 – INTANGIBLE ASSETS AND GOODWILL
Intangible assets that have finite useful lives are amortized over their estimated useful lives. The latest impairment assessment of goodwill and indefinite lived intangible assets was completed in the fiscal fourth quarter of 2009. Future impairment tests for goodwill and indefinite lived intangible assets will be performed annually in the fiscal fourth quarter of each year, or sooner, if warranted.
| | | September 30, | | | June 30, | |
| | | 2009 | | | 2009 | |
| Non amortizable intangibles | | $ | 10,605,301 | | | $ | 10,384,848 | |
| | | | | | | | | |
| Amortizable intangibles | | | 29,178,484 | | | | 9,074,400 | |
| Accumulated amortization | | | (562,608 | ) | | | - | |
| Net amortizable intangibles | | | 28,615,876 | | | | 9,074,400 | |
| Total intangibles | | $ | 39,221,177 | | | $ | 19,459,248 | |
| | | | | | | | | |
| Goodwill | | $ | 5,249,203 | | | $ | - | |
Note 5 – BUSINESS SEGMENTS
The Company had two principal operating segments during the quarter ended September 30, 2009 which were: winery and distribution. These operating segments were determined based on the nature of the products offered. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision-maker in deciding how to allocate resources and in assessing performance. The Company's chief executive officer and chief financial officer have been identified as the chief operating decision makers. The Company’s chief operating decision makers direct the allocation of resources to operating segments based on the profitability, cash flows, and other measurement factors of each respective segment.
The Company evaluates performance based on several factors, of which the primary financial measure is business segment income before taxes. The segments’ accounting policies are the same as those described in the summary of significant accounting policies. The following table shows the operations of the Company's reportable segments:
| | | | September 30, 2009 | |
| Revenues from unaffiliated customers: | | | | |
| Winery | | | $ | 535,484 | |
| Distribution | | | | 2,633,836 | |
| Consolidated | | | $ | 3,169,320 | |
| Operating income (loss): | | | | | |
| Winery | | | $ | (132,688 | ) |
| Distribution | | | | 249,633 | |
| Corporation (1) | | | | (43,842 | ) |
| Consolidated | | | $ | 73,103 | |
| Net income (loss) before taxes: | | | | | |
| Winery | | | $ | (347,927 | ) |
| Distribution | | | | 276,483 | |
| Corporation (1) | | | | (674,228 | ) |
| Consolidated | | | $ | (745,672 | ) |
| Net income (loss) : | | | | | |
| Winery | | | $ | (347,927 | ) |
| Distribution | | | | 276,483 | |
| Corporation (1) | | | | (674,228 | ) |
| Consolidated | | | $ | (745,672 | ) |
| Identifiable assets: | | | | | |
| Winery | | | $ | 9,135,283 | |
| Distribution | | | | 10,051,909 | |
| Corporation (1) | | | | 38,686,237 | |
| Consolidated | | | $ | 57,873,429 | |
| Depreciation and amortization: | | | | | |
| Winery | | | $ | 30,277 | |
| Distribution | | | | 770 | |
| Corporation (1) | | | | 562,608 | |
| Consolidated | | | $ | 593,655 | |
| Capital expenditures: | | | | | |
| Winery | | | $ | - | |
| Distribution | | | | - | |
| Corporation (1) | | | | - | |
| Consolidated | | | $ | - | |
(1) Unallocated loss from Operating income (loss) and Net income (loss) before taxes are primarily related to general corporate expenses.
(2) Total identifiable assets are the owned or allocated assets used by each business. Corporate assets consist of cash and cash equivalents, unallocated fixed assets of support divisions and common facilities, and certain other assets.
(3) Capital expenditures and depreciation and amortization expense include items attributable to the unallocated fixed assets of support divisions and common facilities.
Also, because all of the Company’s sales are derived from the sales of products outside of the United States, all long-lived assets are located outside the United States.
Note 6 – EARNINGS PER SHARE
Earnings per share are calculated in accordance with ASC 260. Net loss per share for all periods presented has been stated to reflect the adoption of ASC 260. Basic net loss per share is computed by dividing loss available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted net loss per share is based on the assumption that all dilutive convertible shares and stock options were converted or exercised. Dilution is computed by applying the treasury stock method. Under this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period. For the three months ended September 30, 2009 and 2008 the Company’s common stock equivalents have not been included for earning per share calculations as they are anti-dilutive.
Note 7 – BUSINESS COMBINATIONS
During the fiscal first quarter of 2010, the Company acquired Asia Distributions Solutions Limited, a Cayman Islands limited company which was publicly traded in the United Kingdom, with operations in China with specific focus in the beverage industry, for a purchase price of $26,637,465. The purchase price for the acquisition was allocated primarily to intangible assets (distribution system, client lists, brand names), goodwill and net tangible assets.
Results of Operations
The following table sets forth, for the periods indicated, certain operating information expressed as a percentage of revenue. All amounts in the following presentation are in U.S. Dollars unless otherwise indicated.
| | | Three Months Ended Months Ended September 30, | |
| | | 2009 | | | | | | 2008 | | | | |
| | | | | | | | | | | | | |
| Sales, net | | $ | 3,169,320 | | | | 100 | % | | $ | 609,146 | | | | 100 | % |
| Cost of sales | | $ | 2,644,078 | | | | 83 | % | | $ | 442,684 | | | | 73 | % |
| Gross profit (loss) | | $ | 525,242 | | | | 17 | % | | $ | 166,462 | | | | 27 | % |
| Selling, general and administrative expenses | | $ | 452,139 | | | | 14 | % | | $ | 352,447 | | | | 58 | % |
| Other (Income) Expense | | $ | 818,775 | | | | 26 | % | | $ | 155,298 | | | | 25 | % |
| Loss before income taxes | | $ | (745,672 | ) | | | -24 | % | | $ | (341,283 | ) | | | -56 | % |
| Provision for income taxes | | $ | - | | | | 0 | % | | $ | - | | | | 0 | % |
| Net loss | | $ | (745,672 | ) | | | -24 | % | | $ | (341,283 | ) | | | -56 | % |
Three Months Ended September 30, 2009 Compared to Three Months Ended September 30, 2008
Revenue. Revenue was $3,169,320 in the three months ended September 30, 2009 compared to $609,146 in the three months ended September 30, 2008. The increase in revenues of $2,560,174 or approximately 81%, was primarily related to the inclusion of revenue generated by the business units acquired in the Asia Distribution Solutions Limited transaction.
Cost of sales. Cost of revenue was $2,644,078 in the three months ended September 30, 2009 compared to $442,684 in the three months ended September 30, 2008, an increase of $2,201,394 from the three months ended September 30, 2008. The change was primarily attributable to the inclusion of the business units acquired in the Asia Distribution Solutions Limited transaction. As a percentage of revenue, cost of revenue was 83% in the three months ended September 30, 2009 compared to 73% in the three months ended September 30, 2008.
Gross Profit (Loss). Gross profit was $525,242 in the three months ended September 30, 2009 compared to $166,462 in the three months ended September 30, 2008. As a percentage of revenues, gross profit was 17% in the three months ended September 30, 2009 and 27% in the three months ended September 30, 2008. The lower gross profit was primarily caused by the predominance of beer and lower priced wine sales in the China operations.
Sales, General and Administrative Expenses. Sales, general and administrative expenses were $452,139 in the three months ended September 30, 2009 compared to $352,447 in the three months ended September 30, 2008. This is an increase of $99,692 or approximately 28%, from the 2008 period to the 2009 period and is primarily attributable to the inclusion of the business units acquired in the Asia Distribution Solutions Limited transaction.
As a percentage of revenues, sales, general and administrative expenses decreased to approximately 14% in the three months ended September 30, 2009 from 58% in the three months ended September 30, 2008. The acquisition of Asia Distribution Solutions Limited added significant revenue with comparatively low additional sales, general and administration costs.
Other Income (Expense). Other expense was $818,775 in the three months ended September 30, 2009 compared to $155,298 in the three months ended September 30, 2008. The increase in other expense of $663,477 was primarily due to amortization of intangible assets acquired, and increased interest expense.
Net Income (Loss). Our net loss was $745,672 in the three months ended September 30, 2009 compared to a net loss of $341,283 in the three months ended September 30, 2008. This increase in loss was primarily attributable to an increase in our other expenses as outlined above.
Liquidity and Capital Resources
As of September 30, 2009, we had $0 of cash and cash equivalents and negative working capital of ($813,509) as compared to $0 and ($1,106,320), respectively, at September 30, 2008.
During the three months ended September 30, 2009 and 2008, net cash used in operating activities was $(246,968) and $(295,249), respectively. Net cash provided by investing activities totaled $147,380 for the three months ended September 30, 2009, compared with net cash used in investing activities of $22,789 for the same period ended September 30, 2008. Net cash provided by financing activities totaled $218,102 for the three months ended September 30, 2009, compared to $318,736 for the same period ended September 30, 2008. The net change in our cash balance was $0 and $0 for the periods ended September 30, 2009 and 2008, respectively.
Our lack of liquidity could result in an interruption of our business and has led our auditors to express doubt about our ability to continue as a going concern in their report on our financial statements for the year ended June 30, 2009. Our ability to fund our operations is dependent at the present time on collections of our accounts receivable. We have experienced difficulties in the recent past with collecting on our receivables. The failure of our customers to timely pay accounts receivable could force us to curtail our operations.
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
Evaluation of Disclosure Controls and Procedures.
We maintain "disclosure controls and procedures" as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934. In designing and evaluating our disclosure controls and procedures, our management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Our management, including our Chief Executive Officer and our Chief Financial Officer, have evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on such evaluation, and as discussed in greater detail below, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were not effective:
| · | to give reasonable assurance that the information required to be disclosed by us in reports that we file 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, and |
| · | to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934 is accumulated and communicated to our management, including our CEO and our Treasurer, to allow timely decisions regarding required disclosure. |
Management's Report on Internal Control Over Financial Reporting.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) of the Securities Exchange Act of 1934. Our internal control system was designed to provide reasonable assurance to our management and the Board of Directors regarding the preparation and fair presentation of published financial statements. Our internal control over financial reporting includes those policies and procedures that:
| · | pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets, |
| · | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorization of management and directors, and |
| · | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements. |
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal control over financial reporting as of September 30, 2009. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") in Internal Control-Integrated Framework. Based on the assessment using those criteria, our management concluded that the internal control over financial reporting was not effective at September 30, 2009.
`While we have designed a system of internal controls to supplement our existing controls during our implementation of Section 404 of the Sarbanes-Oxley Act of 2002 ("SOX 404"), which has not been fully implemented, we have been unable to complete testing of these controls and accordingly lack the documented evidence that we believe is necessary to support an assessment that our internal control over financial reporting is effective. Without such testing, we cannot conclude that there are any significant deficiencies or material weaknesses, nor can we appropriately remediate any such deficiencies that might have been detected. In addition, identified internal control weaknesses as of our fiscal years ended June 30, 2009 and 2008 related to Inventory, Notes Payable, Journal Entries and Period Closings have been rectified by management. We have implemented correct procedures to adequately maintain and reconcile inventory and related reserves, reconcile notes payable, maintain a list of period closing tools to insure closing procedures are handled properly.
Due to the nature of these material weaknesses in our internal control over financial reporting, there is more than a remote likelihood that misstatements which could be material to our annual or interim financial statements could occur that would not be prevented or detected.
This report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Our management's report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only management's report in this report.
Changes in Internal Control over Financial Reporting.
There have been no changes in our internal control over financial reporting, other than as mentioned above, during our first fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
OTHER INFORMATION
None.
Item 1A. Risk Factors
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
On July 1, 2009, we completed the previously announced acquisition of Asia Distribution Solutions Limited ("ADSL"). In connection with the acquisition, we issued or reserved for issuance an aggregate of 63,422,525 shares of our Common Stock and 381,600 shares of our Series A Convertible Preferred Stock for the shareholders of ADSL. Each share of Series A Preferred Stock is convertible into 100 shares of our common stock. The shares were issued in a transaction exempt from registration under the Securities Act of 1933 pursuant to Regulation S.
None.
None.
| 31.1+ | Chief Executive Officer's Certificate, pursuant to Section 302 of |
| | the Sarbanes-Oxley Act of 2002. |
| 31.2+ | Chief Financial Officer's Certificate, pursuant to Section 302 of |
| | the Sarbanes-Oxley Act of 2002. |
| 32.1+ | Chief Executive Officer's Certificate, pursuant to 18 U.S.C. Section |
| | 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act |
| 32.2+ | Chief Financial Officer's Certificate, pursuant to 18 U.S.C. Section |
| | 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act |
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.
| | | | | |
| | GLOBAL BEVERAGES, INC. | |
| | | |
| Date: May 27, 2010 | By: | /s/ Ian Long | |
| | | Ian Long, President | |
| | | | |
| | | |
| Date: May 27, 2010 | By: | /s/ Lawrence Lichter | |
| | | Lawrence Lichter, Chief Financial Officer | |
| |
