UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 2008
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to _____________
Commission File Number: 333-120949
NASCENT WINE COMPANY, INC.
(Exact name of registrant as specified in its charter)
Nevada | 82-0576512 |
(State or other jurisdiction of | (I.R.S. Employer |
incorporation or organization) | Identification No.) |
2355 B Paseo de las Americas | |
San Diego, Ca. | 92154 |
(Address of principal executive offices) | (Zip Code) |
(619) 661 0458
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
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 [x] No [_]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Act). Yes ___ No X
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
Yes [_] No [_]
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares of common stock outstanding as of May 15, 2008 was 84,394,333.
NASCENT WINE COMPANY, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
Page | |
PART I - FINANCIAL INFORMATION | |
Unaudited Financial Statements | |
Consolidated Balance Sheets | 4 |
Consolidated Statements of Operations | 5 |
Consolidated Statements of Cash Flows | 6 |
Consolidated Statements of Stockholders’ Equity | 7 |
Notes to Financial Statements | 8 |
Management's Discussion and Analysis or Plan of Operation | 19 |
Controls and Procedures | 32 |
PART II - OTHER INFORMATION | |
Item 1. Legal Proceedings | 35 |
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | 35 |
Item 3. Defaults On Senior Securities | 35 |
Item 4. Submission of Matters to a Vote of Security Holders | 35 |
Item 5. Other Information | 35 |
Item 6. | 35 |
(a) Exhibits | 35 |
SIGNATURES AND CERTIFICATES | 36 |
2
UNAUDITED FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial reporting and pursuant to the rules and regulations of the Securities and Exchange Commission ("Commission"). While these statements reflect all normal recurring adjustments which are, in the opinion of management, necessary for fair presentation of the results of the interim period, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the audited financial statements and footnotes that are included in the Company's December 31, 2007 annual report on Form 10-KSB previously filed with the Commission on April 15 , 2008.
3
Nascent Wine Company, Inc., and Subsidiaries | ||||||||
Consolidated Balance Sheets | ||||||||
(Unaudited) | ||||||||
March 31, 2008 | December 31, 2007 | |||||||
ASSETS | ||||||||
Current Assets | ||||||||
Cash | $ | 785,788 | $ | 1,165,814 | ||||
Accounts receivable (less allowance of $639,464 at March 31, 2008 and December 31, 2007) | 7,819,708 | 7,763,114 | ||||||
Inventory | 7,408,122 | 5,504,209 | ||||||
Investment | 238,318 | |||||||
Prepaid and other current assets | 2,658,666 | 1,694,084 | ||||||
Total Current Assets | 18,672,284 | 16,365,539 | ||||||
Property, plant and equipment, net | 2,116,457 | 2,119,044 | ||||||
Amortizable intangibles assets, net | 16,828,603 | 17,251,375 | ||||||
Goodwill | 14,166,968 | 14,166,968 | ||||||
Total Assets | $ | 51,784,312 | $ | 49,902,926 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
Current Liabilities | ||||||||
Accounts payable | $ | 5,704,867 | $ | 5,054,079 | ||||
Accrued expenses | 2,742,872 | 1,633,591 | ||||||
Accrued interest | 358,670 | 279,351 | ||||||
Line of credit | 50,000 | 249,000 | ||||||
Notes payable | 1,128,252 | 1,306,766 | ||||||
Acquisition loans | 7,700,000 | 7,700,000 | ||||||
Capital leases - current portion | 220,430 | |||||||
Shareholder loans | 1,009,335 | 672,048 | ||||||
Total Current Liabilities | 18,914,426 | 16,894,835 | ||||||
Capital leases - long-term portion | 678,546 | - | ||||||
Total Liabilities | 19,592,972 | 16,894,835 | ||||||
Stockholders' Equity | ||||||||
Preferred stock, 5,000,000 authorized: Series A convertible preferred stock, $.001 par value; 1,875,000 shares issued and outstanding at March 31, 2008 and December 31, 2007. | 1,875 | 1,875 | ||||||
Series B convertible preferred stock, $.001 par value; 375,000 shares issued and outstanding at March 31, 2008 and December 31, 2007. | 375 | 375 | ||||||
Common stock, $0.001 par value; 195,000,000 shares authorized; 84,425,538 shares issued and outstanding at March 31, 2008 and December 31, 2007. | 84,426 | 84,426 | ||||||
Additional paid-in capital | 43,909,910 | 44,351,978 | ||||||
Accumulated other comprehensive loss | 3,062 | 32,447 | ||||||
Deficit accumulated | (11,808,308 | ) | (11,463,009 | ) | ||||
Total Stockholders' Equity | 32,191,340 | 33,008,092 | ||||||
Total Liabilities and Stockholder's Equity | $ | 51,784,312 | $ | 49,902,927 | ||||
See accompanying notes to Consolidated Financial Statements |
4
Nascent Wine Company, Inc., and Subsidiaries | ||||||||
Consolidated Statement of Operations | ||||||||
For the Three Months Ended | ||||||||
March 31, 2008 | March 31, 2007 | |||||||
Net Revenues | $ | 16,000,470 | $ | 5,134,927 | ||||
Cost of Revenue | 13,167,625 | 4,161,354 | ||||||
Gross Profit | 2,832,845 | 973,573 | ||||||
Operating Expenses | ||||||||
Distribution | 772,523 | 337,024 | ||||||
Sales and Marketing | 535,680 | 165,108 | ||||||
General and Administrative | 1,719,844 | 800,422 | ||||||
Depreciation | 121,818 | 34,564 | ||||||
Amortization | 456,129 | 216,875 | ||||||
Total Operating Expenses | 3,605,994 | 1,553,993 | ||||||
Loss from Operations | (773,149 | ) | (580,420 | ) | ||||
Other Income (Expense) | ||||||||
Interest Income | 5,502 | 3,041 | ||||||
Interest Expense | (127,923 | ) | (114,125 | ) | ||||
Warrants issued for interest | 442,068 | 442,068 | ||||||
Other income (expense),net | 183,067 | - | ||||||
Total Other Income (Expense) | 502,714 | (553,152 | ) | |||||
Loss Before Provision for Income Taxes | (270,435 | ) | (1,133,572 | ) | ||||
Provision for Income Taxes | 74,864 | - | ||||||
Net Loss | $ | (345,299 | ) | $ | (1,133,572 | ) | ||
Net (Loss) Per Share Basic and Fully Diluted | $ | 0.01 | $ | (0.02 | ) | |||
Weighted average number of Common | ||||||||
outstanding basic and fully diluted | 72,706,940 | 52,074,208 | ||||||
See accompanying notes to Consolidated Financial Statements |
5
Nascent Wine Company, Inc., and Subsidiaries | ||||||||
Consolidated Statement of Cash Flows | ||||||||
For the Three Months Ended | ||||||||
March 31, 2008 | March 31, 2007 | |||||||
Cash Flows from Operating Activities | ||||||||
Net loss | $ | (345,299 | ) | $ | (1,133,572.00 | ) | ||
Adjustment to reconcile net loss to net cash provided by operations: | ||||||||
Depreciation | 108,246 | 34,564 | ||||||
Amortization | 455,772 | 216,875 | ||||||
Warrant issued for interest expense (recapture) | (442,068 | ) | 442,068 | |||||
Shared-based compensation | 4,000 | |||||||
Changes in operating working capital: | ||||||||
(Increase)/decrease in accounts receivable | (5,450,890 | ) | (1,178,653 | ) | ||||
(Increase)/decrease in inventory | (1,199,449 | ) | (643,849 | ) | ||||
(Increase)/decrease in prepaids and other assets | (1,071,772 | ) | (15,506 | ) | ||||
Increase/(decrease) in accounts payable | 5,837,064 | 1,328,652 | ||||||
Increase/(decrease) in accrued expense | 641,873 | (61,569 | ) | |||||
Increase/(decrease) in accrued interest | 79,319 | 69,785 | ||||||
Increase/decrease) in other taxes | (7,281 | ) | - | |||||
Increase/(decrease) in deferred lease | (4,213 | ) | ||||||
Net change in operating working captital | (1,049,186 | ) | 192,154 | |||||
Net Cash Used in Operations | (1,394,485 | ) | (941,418 | ) | ||||
Cash Flows From Investing Activities | ||||||||
Purchased fixed assets | (103,984 | ) | (112,659 | ) | ||||
Other investment | 242,761 | - | ||||||
Net Cash Provided by (Used in) Investments Activities | 138,777 | (112,659 | ) | |||||
Cash Flows from Financing Activities | ||||||||
Line of credit advances | 50,000 | - | ||||||
Decrease in bridge loans payable | - | (150,000 | ) | |||||
Capital leases | (516,792 | ) | - | |||||
Advances - shareholder's loan | 337,288 | (40,520 | ) | |||||
Notes payble, net of pymts | 988,254 | (116,100 | ) | |||||
Common stock subscribed-net of expenses | - | 927,818 | ||||||
Net Cash Provided by Financing Activities | 858,750 | 621,198 | ||||||
Effect of Exchange Rate Changes on Cash | 16,931 | (408 | ) | |||||
Net Decrease in Cash | (380,027 | ) | (433,287 | ) | ||||
Cash--Beginning of Period | 1,165,814 | 476,375 | ||||||
Cash - Ending of Period | $ | 785,787 | $ | 43,088 | ||||
Supplemental Disclosure of Non-Cash Investing and Financing Activities: | ||||||||
Issuance of common stock in lieu of payment of shareholders' loans | $ | - | $ | 23,500 | ||||
Issuance of common stock for services | $ | - | $ | 4,000 | ||||
Warrants issued and attached to debt | $ | - | $ | 43,750 | ||||
Warrant issued for interest (recapture) | $ | 442,068 | $ | 43,750 | ||||
$ | 48,604 | $ | 45,201 | |||||
See accompanying notes to Consolidated Financial Statements |
6
Nascent Wine Company, Inc., and Subsidiaries | ||||||||||||||||||||||||||||||||||||
Consolidated Statement of Stockholders' Equity | ||||||||||||||||||||||||||||||||||||
TOTAL | ||||||||||||||||||||||||||||||||||||
STOCKHOLDERS' | ||||||||||||||||||||||||||||||||||||
PREFERRED SHARES | COMMON SHARES | ADDITIONAL | ACCUMULATED | |||||||||||||||||||||||||||||||||
Par Vaue | Par Vaue | PAID-IN | SUBSCRIBED | COMPRENHENSIVE | INCOME | EQUITY | ||||||||||||||||||||||||||||||
Shares | $ | 0.001 | Shares | $ | 0.001 | CAPITAL | STOCK | INCOME | (DEFICIT) | (DEFICIT) | ||||||||||||||||||||||||||
Balance December 31, 2006 | 52,050,000 | $ | 52,050 | $ | 16,314,477 | $ | 2,334,727 | $ | (15 | ) | $ | (2,056,904 | ) | $ | 16,644,335 | |||||||||||||||||||||
- | ||||||||||||||||||||||||||||||||||||
Preferred shares issed for stock | 2,250,000 | 2,250 | - | - | 15,142,027 | - | - | - | 15,144,277 | |||||||||||||||||||||||||||
for cash | ||||||||||||||||||||||||||||||||||||
Shares issued for service | - | - | 316,023 | 316 | 162,055 | - | - | - | 162,371 | |||||||||||||||||||||||||||
Shares issued for loans | - | - | 3,002,545 | 3,003 | 1,265,899 | - | - | - | 1,268,902 | |||||||||||||||||||||||||||
Shares issued for trucks | - | - | 77,170 | 77 | 30,791 | - | - | - | 30,868 | |||||||||||||||||||||||||||
Shares issued for cash | - | - | 28,484,900 | 28,485 | 9,585,424 | (2,334,727 | ) | - | - | 7,279,182 | ||||||||||||||||||||||||||
Shares issued for acquisitions | - | - | 244,900 | 245 | 119,755 | - | - | - | 120,000 | |||||||||||||||||||||||||||
Warrants issued | - | - | - | - | 1,616,800 | - | - | - | 1,616,800 | |||||||||||||||||||||||||||
Shares issued for finders fee | - | - | 250,000 | 250 | 114,750 | - | - | - | 115,000 | |||||||||||||||||||||||||||
Net loss | - | - | - | - | - | - | - | (9,406,105 | ) | (9,406,105 | ) | |||||||||||||||||||||||||
Translation loss | - | - | - | - | - | - | 32,462 | - | 32,462 | |||||||||||||||||||||||||||
- | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||
Comprehensive loss | - | - | - | - | - | - | - | - | (9,373,643 | ) | ||||||||||||||||||||||||||
Balance December 31, 2007 | 2,250,000 | 2,250 | 84,425,538 | 84,426.00 | 44,351,978 | - | 32,447 | (11,463,009 | ) | $ | 33,008,092 | |||||||||||||||||||||||||
Net loss | (345,299 | ) | (345,299 | ) | ||||||||||||||||||||||||||||||||
Warrant interes expense (recapture) | (442,068 | ) | (442,068 | ) | ||||||||||||||||||||||||||||||||
Translation (loss) gain | (29,385 | ) | (29,385 | ) | ||||||||||||||||||||||||||||||||
Comprehensive loss | - | |||||||||||||||||||||||||||||||||||
- | ||||||||||||||||||||||||||||||||||||
Balance March 31, 2008 | 2,250,000 | $ | 2,250 | 84,425,538 | $ | 84,426 | $ | 43,909,910 | $ | - | $ | 3,062 | $ | (11,808,308 | ) | $ | 32,191,340 | |||||||||||||||||||
See accompanying notes to Consolidated Financial Statements |
7
NOTE 1 - COMPANY OVERVIEW
COMPANY HISTORY
The Company was incorporated under the laws of the State of Nevada, on December 31, 2002 (Date of inception). The Company had minimal operations until July 1, 2006 after the Company purchased the license to distribute Miller Beer in Baja California, Mexico from Piancone Group International, Inc. ("PGII"). The Purchase price consisted of issuing 17,500,000 par value $0.001 shares of common stock at a valued at $0.45 per share ($7,875,000) and a cash payment of $800,000 to Miller Beer as a settlement of debt of the previous license holder. The Company commenced its distribution of Miller Beer during July 2006. The Company incorporated Best Beer S.A. de C. V. (Best Beer) during May 2006 in order to distribute in Baja California
In October, 2006 the Company purchased the assets and assumed liabilities of PGII. The purchase price consisted of the Company issuing 15,000,000 shares of $0.001 par value common stock, valued at $6,000,000.
In November, 2006 the Company purchased the outstanding common stock of Palermo Italian Foods, LLC (Palermo) issuing 1,250,000 shares of common stock at $0.80 per share ($1,000,000) and $1.000,000 in cash.
On May 11, 2007, the Company acquired Pasani\Eco paying $2,000,000 in cash, issuing notes payable in the amount of $1,500,000 with interest at 8% and $2,500,000 without interest Pasani/Eco: are distribution companies based in Mexico City and San Antonio, Texas. The Company paid an additional $500,000 in November, 2007 and $3,500,000 is payable May 26, 2008 with interest on the $1,000,000. The notes may be converted to common stock at $1.40 per share
In July, 2007 the Company acquired Groupo Sur Promociones de Mexico S.A. de C.V. (Groupo Sur) and related companies issuing a note payable in the amount of $4,500,000 at 6% interest. The Company paid $300,000 against the note. The remaining balance is payable $700,000 payable upon request, $1,500,000 on June 30, 2008 and $2,000,000 with interest on December 31, 2008. The note is payable in cash or convertible into shares at the market closing sales price on the day immediately prior to the conversion. Grupo Sur purchase agreement contained a contingent earn-out. The Company had additional expenses of $50,000 related to this acquisition.
In October 2007 the Company acquired all of the outstanding capital stock of Targa, S.A. de C.V. (Targa) for $4,000,000. The Company paid $3,550,000 at the close and deposited $250,000 in an escrow account which has been released.
The above mentioned transactions were accounted for pursuant to Statement of Financial Accounting Standard 141 (`SFAS 141') Business Combinations. A discussion of these transactions are included elsewhere herein.
In accordance with SFAS #7, the Company was considered a development stage company until it started operations on July 1, 2006.
NOTE 2 - GOING CONCERN
The consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As of March 31, 2008 the Company had cash of $785,788 and a working capital deficit of $242,000. The Company had a net loss of $345,299 and $1,133,572 for the three months ended March 31, 2008 and 2007, respectively.
The Company is currently in discussion with several lending institutions for a working capital credit facility and additional financing. These credit facilities in conjunction with internally generated funds should be sufficient to fund our operations for the next twelve months; however, there can be no assurance funding will be available at terms and conditions acceptable to us.
8
The accompanying financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Best Beer S.A. de C. V., (Best Beer), International Food Services, Inc. (IFS) and Palermo Italian Foods, LLC (Palermo), for the three months ended March 31, 2007. For the three months ended March 31, 2008 the accompanying consolidated statements include Best Beer , IFS., Palermo , Eco Pak, Inc (Eco Pac) Pasani S.A. de C.V. (Pasani) , Grupo Sur Promociones de Mexico S.A. de C.V. (Grupo Sur) and Targa S.A. de C.V. (Targa ).
The financial statements have been consolidated with the parent company and all inter-company transactions and balances have been eliminated in consolidation.
BASIS OF PREPARATION OF FINANCIAL STATEMENTS
The accompanying financial statements are prepared in accordance with U.S. Generally Accepted Accounting Principals (GAAP). The financial statements have been prepared assuming that the Company will continue as a going concern.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets, and liabilities on the date of the financial statements and the reported amounts of revenues. and expenses during the period. Actual results could differ from those estimates.
REVENUE RECOGNITION
The Company reports revenue using the accrual method, in which revenues are recorded as services are rendered or as products are delivered and billings are generated, in accordance with SEC Staff Accounting Standard 101 Revenue Recognition. In accordance with aforementioned guidance, revenue is recognized when the following criteria are met: (i) persuasive evidence of an arrangement exits; (ii) price is fixed determinable; (iii) delivery has occurred or services have been rended ; and (iv) collectability is reasonably assured..
ACCOUNTS RECEIVABLE
The Company has reviewed the outstanding trade accounts receivable and provided a reserve for slow paying accounts of approximately $639,464 at March 31, 2008 and $638,363 at December 31, 2007. The Company has insured all its trade receivables during the first half 2008. Additionally, the Company has developed standard credit policies.
INVENTORIES
Inventories are accounted for on the first-in, first-out basis. Any products reaching their expiration dates are written off. The Company has determined it does not require a provision for slow moving and or obsolete inventory for the three months ended March 31, 2008 and March 31, 2007.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost and depreciated using the straight-line method over the estimated useful life of the assets, which is three to ten years.
9
BUSINESS COMBINATIONS
Acquisitions require significant estimates and judgments related to the fair value of assets acquired and liabilities assumed to which the transaction costs are allocated under the purchase method of accounting. Certain liabilities are subjective in nature. We reflect such liabilities based upon the most recent information available. The ultimate settlement of such liabilities may be for amounts that are different from the amounts initially recorded. A significant amount of judgment also is involved in determining the fair value of assets acquired. Different assumptions could yield materially different results.
INTANGIBLE ASSETS
The Company accounts for intangible assets in accordance with SFAS 144 " ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS. THE COMPANY acquired long-lived assets during the three months ended March 31, 2007 and March 31, 2007, respectively. The acquired long -lived assets are attributed to acquisitions completed during 2007 and 2006. The Company reviewed the carrying values of its long-lived assets for possible impairment as of March 31, 2008 or whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable and\or annually. No impairment losses were recorded in the three months ended March 31, 2008.
LOSS PER SHARE
Basic loss per share is calculated by dividing net loss by the weighted-average number of shares of common shares outstanding. Diluted loss per share includes the component of basic loss per share and also gives effect to dilutive common stock equivalents. Potential dilutive common stock equivalents include stock options, warrants and preferred stock which convert into common stock.
TAXES ON INCOME
The Company follows Statement of Financial Accounting Standard No. 109 "Accounting for Income Taxes" (SFAS No. 109) for recording the provision for income taxes. Deferred tax assets and liabilities are computed based upon the differences between the financial statement and income tax basis of assets and liabilities using the enacted marginal tax rate applicable when the related asset or liability is expected to be realized or settled. Deferred income tax expense or benefit is based on the change in the asset or liability each period. If available evidence suggests that is more likely than not that some portion or all of the deferred tax assets will not be realized, a valuation allowance is required to reduce the deferred tax asset to the amount that is more likely than not to be realized. Future changes in such valuation allowance are included in the provision for deferred income taxes in the period of change.
Deferred income taxes may arise from temporary differences resulting from income and expense items reported for financial accounting and tax purposes in different periods. Deferred taxes are classified as current or non-current, depending on the classification of assets and liabilities to which they relate. Deferred taxes arising from temporary differences that are not related to an asset or liability are classified as current or non-current depending on the periods in which the temporary differences are expected to reverse.
ADVERTISING
The Company expenses advertising as incurred. Advertising expense was approximately $26,064 and $63,385 for the three months ended March 31, 2008 and 2007, respectively.
10
RECENT ACCOUNTING PRONOUNCEMENTS
In March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activities - an amendment of FASB Statement No. 133," which changes the disclosure requirements for derivative instruments and hedging activities. Entities are required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS No. 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity's financial position, financial performance, and cash flows. SFAS No. 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008.
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following at March 31: | ||||||||
March 31, 2008 | December 31, 2007 | |||||||
Distribution equipment | $ | 1,050,571 | $ | 830,124 | ||||
Office furniture and equipment | 18,538 | 179,321 | ||||||
Computer | 538,546 | 383,147 | ||||||
Autos and trucks | 1,233,257 | 1,269,093 | ||||||
Leasehold improments | 272,577 | 325,627 | ||||||
Totals | $ | 3,113,489 | 2,987,312 | |||||
Accumulated depreciation | $ | (997,032 | ) | (868,268 | ) | |||
Property and equipment net | $ | 2,116,457 | $ | 2,119,044 | ||||
Depreciation for the three months ended March 31, 2008 and 2007 were $121,818 and, $34,564 respectively.
NOTE 5 - GOODWILL AND INTANGIBLES ASSETS | ||||||||
March 31, 2008 | December 31, 2007 | |||||||
(in thousands) | ||||||||
Intangibles subject to amortization: | ||||||||
Miller Beer Distrtibution Licenses | 8,675 | 8,675 | ||||||
Customer relations | 2,110 | 2,110 | ||||||
Client lists | 500 | 500 | ||||||
Trademarks | 7,500 | 7,500 | ||||||
Non-Compete Agreement | 340 | 340 | ||||||
19,125 | 19,125 | |||||||
Accumulated amortization: | (2,296 | ) | (1,874 | ) | ||||
Intangibles subject to amortization, net | $ | 16,829 | $ | 17,251 | ||||
Goodwill: | ||||||||
Acquisition of PGII | $ | 4,913 | $ | 4,913 | ||||
Acquisition of Palermo | 2,523 | 2,523 | ||||||
Acquisition of Pasani | 2,407 | 2,407 | ||||||
Acquisition of Grupo sur | 1,757 | 1,757 | ||||||
Acquisition of Targa | 2,567 | 2,567 | ||||||
Total Goodwill | $ | 14,167.00 | $ | 14,167.00 | ||||
Intangible asset amortization expense was $456,129 for the three months ended March 31, 2008 and $216,875 | ||||||||
March 31, 2007. Amortization expense for each of the next five years is estimated to be approximately $6,407,000. |
The Company determined in accordance with SFAS No. 131 DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION that its subsidiaries meets the criteria to be deemed one reporting unit. Pursuant to SFAS No. 142 "GOODWILL AND OTHER INTANGIBLE ASSETS" the Company tested its goodwill and intangibles for impairment and determined that estimated fair value exceed the carrying value.
In performing the fiscal 2007 annual test, the Company assumed an income tax rate of 30% and a discount rate of 17%.
Determining the fair value of a reporting unit under the first step of the goodwill impairment test and determining the fair value of individual assets and liabilities of a reporting unit under the second step of the goodwill impairment test is judgmental in nature and often involves the use of significant estimates and assumptions. These estimates and assumptions could have a significant impact on whether or not an impairment charge is recognized and also the extent of such charge. The Company's estimates of fair value utilized in goodwill and intangible asset tests may be based upon a number of factors, including assumptions about the projected future cash flows, discount rate, growth rate, determination of market comparables, technological change, economic conditions, or changes to the Company's business operations. Such changes may result in impairment charges recorded in future periods.
The Company evaluated the remaining useful lives of its finite-lived purchased intangible assets to determine if any adjustments to the useful lives were necessary or if any of these assets had indefinite lives and were therefore not subject to amortization. The Company determined that no adjustments to the useful lives of its finite-lived purchased intangible assets were necessary.
11
NOTE 6 - ACQUISITION AND BANK LOANS
Acquisition Loans
Origin | Interest Rate | Due Dates | Amount | |
ACQUISITION OF TRADEMARKS | NONE | May 26, 2008 | $ 2,500,000 | |
ACQUISITION OF PASANI | 8% | May 26, 2008 | 1,000,000 | |
Upon Request $700,000 | ||||
June 30, 2008, $1,500,000 and | ||||
ACQUISITION OF GRUPO SUR | 6% | December 31, 2008, $2,000,000 | 4,200,000 | |
$ 7,700,000 |
BANK LOANS
The Company had the following bank loans at December 31, 2007:
Bank | Interest rates | Due Dates | Amount | |
Bank of Florida | 7.75% | On demand | $ 249,000 | |
Frost Bank | Prime + 1% | May 8, 2008 | 32,000 | |
Cyril Capital, LLC | 8.00% | August 14, 2008 | 500,000 | |
City National Bank | 8.75% | December 31, 2008 | 22,000 | |
Source One | 2% per month | December 31, 2008 | 250,000 | |
Pentech | 14.75% | November 15, 2008 | 75,000 | |
$ 1,128,252 |
NOTE 7 - BRIDGE LOANS
During 2006 and early 2007 the Company obtained Bridge loan financing in varying amounts with interest payable at rate 8% annually. As additional consideration to obtain the loans due in one year, the Company issued warrants to the lenders to purchase shares of common stock at a price per share of $0.25 to $0.84. The difference between the price to purchase shares and the closing price of the stock on the date of grant of the warrants has been written off as all loans have been paid.
NOTE 8 - STOCKHOLDERS' EQUITY
COMMON STOCK
The Company is authorized to issue 195,000,000 shares of common stock at $.001 par value, and 5,000,000 shares of preferred stock at $.001 par value.
On April 12, 2006, the Company did a 20 for 1 forward split. The balance of shares issued after the split was 86,568,800. On April 27, 2006, 69,068,800 shares were cancelled.
12
On April 27, 2006, the Company issued 17,500,000 shares of common stock to acquire the distribution rights for Miller Beer in Baja California, Mexico at a per share value of $0.45 per share ($7,875,000) and paid off the debt of the previous license holder to Miller Beer ($800,000). The total cost of the license was $8,675,000. The Company is amortizing the acquisition over 10 year and will evaluate the value of the intangible asset on an annual basis.
During the year ended December 31, 2007 the Company issued 316,023 shares of common stock for services rendered in the amount of $162,371 and 3,002,545 shares of common stock to redeem notes payable to shareholders in the amount of $1,268,902. The Company issued 77,170 shares of common stock for a truck valued at $30,868, 244,900 shares of common stock as a finder's fee for the Targa acquisition ($120,000) and 250,000 shares of common stock for the finder's fee for the York preferred stock transaction ($115,000). The Company received subscriptions for an additional 21,539,900 shares of common stock during the year and issued 28,484,900 shares for cash, including the 6,945,000 shares subscribed at December 31, 2006 in the amount of $2,334,727 for a total of $9,585,424.
At March 31, 2008 the Company had outstanding warrants (not including the York warrants-see below) to purchase 18,120,476 shares of common stock at a price of between $0.25 and $1.05 expiring in 2010. If all warrants were exercised the Company would receive $7,070,000.
PREFERRED STOCK
On July 3, 2007 the Company issued 1,000,000 shares of its Series A and Series B Convertible Preferred Stock, par value $0.001 per share at $8.00 per share ($8,000,000) to an affiliate York Capital Management (York). The Series A and Series B Convertible Preferred Stock is convertible into 20,000,000 shares of the Company's common stock, par value $0.001, of the Company, based upon a conversion price of $0.40 per share and a liquidation amount of $8.00 per share. The Preferred stock are entitled to a dividend of 15% payable quarterly in preferred stock for three years.
In addition the Company issued the following warrants to purchase:
Series A-1 Warrants | 500,000 shares of Series A preferred $8.00 per share stock | Immediately exercisable and expire July 3, 2010 |
Series A-2 Warrants | 375,000 shares of Series A preferred $8.00 per share stock | Immediately exercisable and expire July 3, 2014 |
Series B Warrants | Variable shares of Series of the average of the convertible preferred stock depended Per Share Market Value of and expire July 3, 2014 on the per market value of common stock 30 days Immediately exercisable shares preceding date of exercise. |
In October and November 2007 York exercised their warrants acquiring 2,250,000 shares of preferred stock in the amount of $15,144,276 convertible into 45,000,000 shares of common stock.
The Company paid a cash finder's fee of $560,000 and issued to the finder an aggregate of 1,600,000 common share warrants, each warrant exercisable to purchase one share of common stock at any time until July 3, 2010 at a purchase price of $0.40 per share.
13
NOTE 9 - ACQUISITIONS OF PASANI, S.A. DE C.V.(PASANI) AND ECO PAC DISTRUBUTING, LLC (ECO), GRUPO SUR PROMOCIONES DE MEXICO S.A. DE C.V. (GRUPO SUR) AND TARGA, S.A. DE C.V.
ACQUISITION OF PASANI, S. A. DE C.V. AND ECO PAC DISTRUBUTING, LLC (ECO)
On May 11, 2007, the Company acquired Pasani\Eco paying $2,000,000 in cash, issuing notes payable in the amount of $1,000,000 with interest at 8% and $2,500,000 without interest, distribution companies based in Mexico City. The Company paid an additional $500,000 in November, 2007 and $3,500,000 is payable May 26, 2008 with interest on the $1,000,000. The notes may be converted to common stock at $1.40 per share
Current assets | $ | 3,376,853 | ||
Property, plant and equipment | 172,017 | |||
Customer relations | 670,000 | |||
Trade name | 1,600,000 | |||
Non-compete agreement | 70,000 | |||
Goodwill | 2,406,997 | |||
Current liabilities | (2,295,877 | ) | ||
TOTAL PURCHASE PRICE | $ | 6,000,000 |
ACQUISITION OF GRUPO SUR PROMOCIONES DE MEXICO S.A. DE C.V.
In July, 2007 the Company acquired Groupo Sur Promociones de Mexico S.A. de C.V. (Groupo Sur) and related companies issuing a note payable in the amount of $4,500,000 at 6% interest. The Company paid $300,000 against the note. The remaining balance is payable $700,000 upon request, $1,500,000 on June 30, 2008 and $2,000,000 with interest on December 31, 2008. The note is payable in cash or convertible into shares at the market closing sales price on the day immediately prior to the conversion. Grupo Sur purchase agreement contained a contingent earn-out. Grupo Sur has been in the Mexican market for 30 years and is one of the leading field marketing and below the line marketing organization in Mexico with 4,500 contract employees servicing 240,000 retail accounts including supermarkets and convenience stores. Grupo Sur's expertise includes merchandising, promotions, sampling, retail data collection and sales and marketing of retail products.
Current assets | $ | 2,356,722 | ||
Property and equipment | 158,349 | |||
Customer relations | 1,150,000 | |||
Trade name | 600,000 | |||
Non-compete agreement | 200,000 | |||
Goodwill | 1,756,498 | |||
Current liabilities | (1,671,569 | ) | ||
TOTAL PURCHASE PRICE | $ | 4,550,000 |
ACQUISITION OF TARGA, S.A. DE C.V.
In October 2007 the Company acquired all of the outstanding capital stock of Targa, S.A. de C.V. (Targa) for $4,000,000. The Company paid $3,550,000 at the close and deposited $250,000 in an escrow which has subsequently been released.
14
Targa is a cheese processor and distributor of imported cheeses into Mexico. Its offices and distribution center is located in Tijuana, Mexico.
Current assets | $ | 2,482,524 | ||
Property and equipment | 319,612 | |||
Customer relations | 290,000 | |||
Trade name | 1,300,000 | |||
Non-compete agreement | 70,000 | |||
Goodwill | 2,567,307 | |||
Current liabilities | (3,029,443 | ) | ||
TOTAL PURCHASE PRICE | $ | 4,000,000 |
NOTE 10 - SEGMENT INFORMATION
The Company operates in one reportable business segment. The Company conducts its business through its subsidiaries in the Mexico. The Company has historically disclosed summarized financial information for the geographic area of operations as if they were segments in accordance with SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information."
Such summarized financial information concerning the Company's geographical operations is shown in the following tables:
United States | Mexico | |||||||
Net loss for the three months ended March 31, 2008 | $ | 5,433,954 | $ | 3,407,151 | ||||
Net loss for the three months ended March 31, 2007 | $ | 1,124,162 | $ | 9,410 | ||||
Long lived assets (net) at March 31, 2008 | $ | 1,004,383 | $ | 1,112,074 | ||||
Long lived assets (net) at March 31, 2007 | $ | 345,556 | $ | 321,105 |
NOTE 11 - RELATED PARTY TRANSACTIONS
The Company has unsecured loans from stockholders totaling $1,009,335 at March 31, 2008. The loans have various due dates and contain interest rates ranging from 10% to 18%. All loans are due on demand.
On May 3, 2006, we acquired the exclusive rights from Piancone Group International, Inc. to market Miller Beer in Baja California, Mexico, in exchange for 17,500,000 shares of our common stock. At that time, neither Sandro Piancone nor Piancone Group was an affiliate. Concurrent with the acquisition of these rights, Sandro Piancone became our Chief Executive Officer and a director. In June 2006, we acquired substantially all of the assets of Piancone Group in exchange for the issuance of 15,000,000 shares of our common stock. Sandro Piancone, our Chief Executive Officer and a director, was the Chief Executive Officer, a director and the controlling stockholder of Piancone Group International, Inc. at the time its assets were acquired by us. We believe our purchase of Piancone Group's assets was fair and reasonable.
15
NOTE 12 - -COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company maintains its corporate offices in San Diego, California including warehouse space. In addition it maintains warehouse space and offices in , Miami Lakes, Florida, San Antonio, Texas, Tijuana, La Pax, Ensenada, Mexicali, Cabo San Lucas, Puerto Penasco, Mexico City, Monterey, Guadalajara, Cancun and Juarez, Mexico. The Company currently has total leases of 212,000 square feet at a cost of $80,000 per month. ADD 2007 acquisitions and truck leases
The total rent paid in the year ended December 31, 2007 was $596,000 as compared to $142,800 for the year ended December 31, 2006. Future payments on the operating leases are as follows:
2008 | $ | 1,083,836 | ||
2009 | $ | 860,701 | ||
2010 | $ | 628,253 | ||
2011 | $ | 486,952 | ||
2012 | $ | 373,871 | ||
Thereafter | 42,100 |
DIVIDEND CONTINGENCY
The holders Series A and the Series B convertible preferred stock commencing on the date of issuance and for a period of three years following the issuance date shall be entitled to receive a quarterly dividend at a rate of fifteen percent of the stated liquidation preference amount. The dividends are payable in additional shares of Series A and the Series B convertible preferred stock The Board of Directors has not declared dividends for the Series A and Series B convertible preferred stock.
CONTINGENCY TO ISSUE ADDITIONAL COMMON STOCK
NASCENT WINE COMPANY, INC.
Fees for Failure to Timely File SB-2
Fee base: 28,247,500 shares
Date | Add'l Shares to be Issued | Closing Price/share | Expense Amount | |||||||||
08/28/07 | 282,475 | $ | 0.20 | $ | 56,495.00 | |||||||
09/04/07 | 282,475 | $ | 0.20 | 56,495.00 | ||||||||
09/11/07 | 282,475 | $ | 0.20 | 56,495.00 | ||||||||
09/18/07 | 282,475 | $ | 0.20 | 56,495.00 | ||||||||
09/25/07 | 282,475 | $ | 0.20 | 56,495.00 | ||||||||
10/02/07 | 282,475 | $ | 0.20 | 56,495.00 | ||||||||
10/09/07 | 282,475 | $ | 0.20 | 56,495.00 | ||||||||
10/16/07 | 282,475 | $ | 0.20 | 56,495.00 | ||||||||
10/23/07 | 282,475 | $ | 0.20 | 56,495.00 | ||||||||
10/30/07 | 282,475 | $ | 0.20 | 56,495.00 | ||||||||
Totals | 2,824,750 | $ | 564,950.00 |
Expense per quarter ended: | ||||
September 30, 2007 | $ | 282,475.00 | ||
December 31, 2007 | 282,475.00 | |||
Total FY2007 expense | $ | 564,950.00 |
16
Per the terms of the share purchase agreement completed on June 28, 2007, Nascent Wine Company, Inc. was required to file with the SEC a share registration statement within 60 days of the share sale transaction. Furthermore, a failure by the registrant to perform would result in a 1% of the total shares sold per week penalty in shares, up to a 10% maximum penalty, payable to the investors (discussed elsewhere herein). The company filed the SB-2 to register the shares on November 14, 2007.
CONCENTRATION OF SALES TO SINGLE CUSTOMER
For the period from acquisition to year ended December 31, 2007, over 66% of Grupo Sur Promociones' revenue or 23% of our company-wide revenue, was generated by Procter & Gamble. The loss of Procter & Gamble would significantly reduce our revenue and our potential profitability.
LEGAL PROCEEDING
From time to time we are involved with legal proceedings, claims and litigation arising in the ordinary course of business. As of the date of this FORM 10-QSB we are not a party to any pending material legal proceedings
Note [ ] Pro forma Statement of Operations for the three Months ended March 31,2007 assuming Pasani, Grupo Sur and Targa were acquired at the beginning of 2007.
As Reported | Pasani | Grupo Sur | Targa | Total | ||||||||||||||||
REVENUE | $ | 5,134 | 2,019 | 6,799 | 2,092 | $ | 16,044 | |||||||||||||
GROSS PROFIT | 973 | 550 | 782 | 330 | 2,635 | |||||||||||||||
LOSS FROM OPERATIONS | (580 | ) | 145 | 173 | (16 | ) | (278 | ) | ||||||||||||
NET LOSS | $ | (1,134 | ) | 145 | 173 | (37 | ) | $ | (853 | ) |
17
On April 1, 2008 the Company entered in a $1,000,000 (one million dollars) senior bridge loan agreement with Genesis Merchants Partners, LP. The terms are: (i) interest of 14% per annum, payable monthly; (ii) the loan will have a base period of 180 days from closing and will become due and payable, 107% of principal will become due; the bridge loan may be extended for a period of 360 days from closing and will be due and payable, 115% of principal will be due and payable. A closing fee of 3% of principal will be due at time of closing. If the loan is extended an additional 2% closing fee will be due. The loan is secured by the assets of the Company. The term of the senior bridge loan requires it to be paid-off from to be repaid from the proceeds of a working capital credit agreement the Company may enter into, however, there can be no assurance that a working capital credit agreement will be available to the Company.
18
MANAGEMENT'S DISCUSSION AND PLAN OF OPERATION
STATEMENT OF OPERATIONS DATA
Three Months Ended March 31, 2008 | Year Ended December 31, 2007 | |||||||
Revenue | $ | 16,000,470 | $ | 5,134,927 | ||||
Loss from Operations | $ | 773,149 | $ | 580,420 | ||||
Net Loss | $ | 345,299 | $ | 1,133,572 | ||||
Net Loss per share of common stock | $ | 0.01 | $ | 0.02 | ||||
BALANCE SHEET DATA | ||||||||
Working Capital( deficit) | $ | ( 242.000 | ) | $ | (529,000 | ) | ||
Total Assets | $ | 18,672,000 | $ | 16,365,000 | ||||
Total Liabilities | $ | 18,914,000 | $ | 16,893,000 | ||||
Shareholders' Equity | $ | 51,784,312 | $ | 49,902,926 |
ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS
The following discussion should be read in conjunction with the historical consolidated financial statements and the related notes and the other financial information included the Company’s the Annual Report on Form 10-KSB for the year Ended December 31, 2007. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of any number of factors
OVERVIEW
We market and distribute more than 2,000 food and food-related products to over 2,300 customers throughout Mexico. Our customers include grocery stores, convenience stores, hotels, resorts, cafeterias, schools, industrial caterers and restaurants. We distribute a full line of frozen foods, such as meats, fully prepared entrees and desserts, and a full line of canned and dry goods, fresh meats and imported specialties. We also distribute a wide variety of food-related items such as disposable napkins, plates and cups, and have the exclusive right to distribute Miller beer in Baja California. In addition to sales and distribution of food products, we merchandise and promote food and beverage products using point of purchase displays and related store merchandising techniques in over 240,000 retail food stores primarily in Mexico through our Grupo Sur Promociones operating unit.
We were incorporated in Nevada in December 2002 as a wine distribution company. In April 2006, we acquired the right to distribute Miller beer in Baja California. In October 2006 we acquired the assets of Piancone Food Group, Inc. and in November 2006 we acquired all of the outstanding common stock of Palermo Foods, LLC. Both of these companies distribute food products primarily in Mexico.
We are primarily a specialized importer. However, we believe that, over the next decade, Mexico will begin to see U.S.-style; "multi-supplier" companies enter this market. Our goal is to become a leader in this market. Due to the unique challenges in Mexico described above, major U.S. distributors such as Sysco, Inc. and U.S. Foodservice, Inc. may not choose to enter this market directly. The primary competitive advantages of these companies are the economies of scale and large-scale logistical systems they have established. We believe those systems may be difficult to implement in Mexico at this time. Therefore, we believe that the larger distribution companies in Mexico may be companies using a distribution and sales system organically grown and operated in Mexico, such as ours.
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RECENT ACQUISITIONS
In May 2007, we acquired all of the outstanding stock of two food distributors, Pasani S.A. de C.V. and Eco-Pak Distributing. In July 2007, we acquired Grupo Sur Promociones, a primarily Mexican merchandising and promotion company. In October 2007, we acquired all of the outstanding common stock of Comercial Targa, S.A., De C.V., a Mexican food distributor specializing in cheeses and other dairy products. References to our operations include the operations of all of these acquired companies.
Elsewhere herein:
For the three months ended | Inc/Dec | |||||||||||||||||||||||
March 31, | over | |||||||||||||||||||||||
(unaudited) | 2007 | |||||||||||||||||||||||
2008 | 2007 | |||||||||||||||||||||||
Revenue | 16,000,470 | 100.0 | $ | 5,134,927 | 100 | 10,865,543 | 67.9 | |||||||||||||||||
Cost of Revenue | 13,167,625 | 82.3 | 4,161,354 | 81.0 | 9,006,271 | 56.3 | ||||||||||||||||||
- | ||||||||||||||||||||||||
- | ||||||||||||||||||||||||
Gross Profit | $ | 2,832,845 | 17.7 | 973,573 | 19.0 | 1,859,272 | 11.6 | |||||||||||||||||
Operating Expenses: | ||||||||||||||||||||||||
Distribution | 772,523 | 4.8 | 337,024 | 6.6 | 435,499 | 2.7 | ||||||||||||||||||
Sales and Marketing | 535,680 | 3.3 | 165,108 | 3.2 | 370,572 | 2.3 | ||||||||||||||||||
General and Administrative | 1,719,844 | 10.7 | 800,422 | 15.6 | 919,422 | 5.7 | ||||||||||||||||||
Depreciation | 121,818 | 0.8 | 34,564 | 0.7 | 87,254 | .05 | ||||||||||||||||||
Amortization | 456,129 | 2.9 | 216,875 | 4.2 | 239,254 | 1.5 | ||||||||||||||||||
Total Operating Expenses | 3,605,994 | 22.5 | 1,553,993 | 30.3 | 2,052,001 | 12.8 | ||||||||||||||||||
- | - | - | ||||||||||||||||||||||
Loss from Operations | (773,149 | ) | (4.8 | ) | (580,420 | ) | (11.3 | ) | (192,729 | ) | (1.2 | ) | ||||||||||||
- | - | - | ||||||||||||||||||||||
Other Income(Expense) | - | - | - | |||||||||||||||||||||
Interest Income | 5,502 | 0.0 | 3,041 | 0.1 | 2,461 | 0.0 | ||||||||||||||||||
Interest Expense | (127,923 | ) | (0.8 | ) | (114,125 | ) | (2.2 | ) | (13,798 | ) | (0.1 | ) | ||||||||||||
Warrants issued for interest | 442,068 | (442,068 | ) | (8.6 | ) | 884,136 | 5.5 | |||||||||||||||||
Other Income(Expense) | 183,067 | 1.1 | - | - | 183,067 | 1.1 | ||||||||||||||||||
502,714 | 3.1 | (553,152 | ) | (10.8 | ) | 1,055,866 | 6.6 | |||||||||||||||||
- | - | - | ||||||||||||||||||||||
Loss before taxes | (270,435 | ) | (1.7 | ) | (1,133,572 | ) | (22.1 | ) | 863,137 | 5.4 | ||||||||||||||
- | - | - | ||||||||||||||||||||||
Provision for income tax | 74,864 | 0.5 | - | - | 74,864 | 0.5 | ||||||||||||||||||
- | - | - | ||||||||||||||||||||||
Net Loss | $ | (345,299 | ) | (2.2 | ) | $ | (1,133,572 | ) | (22.1 | ) | 788,273 | 4.9 |
20
(1) All costs incurred to bring product to our warehouses and distributions centers are included in cost of revenue. These items include shipping and handling costs, agent and broker fees, letter of credit fees, customs duty, inspection costs, inbound freight and internal transfer costs. Costs associated with our own distribution and warehousing are recorded in operating expenses. Our gross margins may not be comparable to others in the industry as some entities may record and classify these costs differently.
RESULTS OF OPERATIONS: THREE MONTHS ENDED MARCH 31, 2008 COMPARED TO THREE MONTHS ENDED MARCH 31, 2007
Revenue for the Quarter ended March 31, 2008 of $16,000,000 increased $10,866,000 from the Quarter ended March, 31, 2007. The increase reflects the three months revenue of Best Beer, Palermo, and our 2007 acquisitions (i) Pasani (May 2007), (ii) Grupo Sur (July 2007) and (iii) Targa (October 2007) compared to the 2007 revenue which reflected only Best Beer and Palamero. Pro forma revenue for the Quarter ended March 31, 2007 was $16,044,000 which is in line with 2008 revenue.
Gross Profit of approximately $2,833,000 or 18% of revenue for the Quarter ended March 31, 2008, increased approximately $1,859,000 from approximately $974,000 from the same period in, 2007. The increase reflects the three months gross profit of Best Beer , Palermo, and our 2007 acquisitions (i) Pasani (May 2007), (ii) Grupo Sur (July 2007) and (iii) Targa (October 2007) compared to the 2007 gross profit which reflected of Best Beer and Palamero. Pro forma gross profit for the Quarter ended 2007 was $2,635,000 of 16% of Pro forma revenue. The increase of approximately $197,000 from the pro forma quarter ended 2007 reflects Best Beer increase of $500,000 offset in part by lower margins from the other operating companies.
Operating Expenses:
Distribution expense of $773,000 for the three months ended March 31, 2008 increased $436,000 or 2.7% from $337,000 for the same period in 2007.
Sales and Marketing expense of $536,000 for the three months ended March 31, 2008 increased $371,000 or 2.3% from $165,000 for the same period in 2007.
General and Administrative expense of 1,719,000 for the three months ended March 31, 2008 increased $919,000 or 5.7% from $800,000 for the same period last year.
The operating expenses for the three months ended March 31, 2008 includes Best Beer , Palermo, and our 2007 acquisitions (i) Pasani (May 2007), (ii) Grupo Sur (July 2007) and (iii) Targa (October 2007) compared to the 2007 gross profit which reflected only Best Beer and Palamero. The increase in operating expenses also reflect the opening of 17 distributions centers, leasing 48 new trucks and distribution equipment, increase in professional fees, communications costs, insurance costs and upgrading financial organization.
Amortization and depreciation expenses for the three months ended March 31, 2008 of approximately $578,000 includes $456,129 of non-cash amortization and increase of $239,254 from the same period in 2007. The increase is for the most part results from the acquisitions of Pasani, Grupo Sur and Targa.
21
Interest expense for the three months ended March 31, 2008 was approximately $128,000 an increase of approximately $14,000 from the same period last in 2007. Interest expense included acquisition loans, shareholder and bank loans.
Other income of $183,000 for three month ended March 31, 2008 included $125,000 of exchange gain.
Warrant expense recapture of approximately $442,000 for year ended December 31, 2007 resulted, for the most part, from the issuance of warrants in support of raising funds and finders' fees.
Net loss of $9,406,000 or $0.14 loss per common and fully diluted shares for the year ended December 31, 2007 can be attributed to 2007 being a transition year. We incurred costs including those associated with financing acquisitions and professional fees and non- cash amortization, related to these acquisitions which more than offset our $6,800,000 gross profit.
EBITDA for the three month ended March 31, 2008 was a deficit of $195,000. Pro forma EBITDA for the same perod in 2007 was $11,000.
EBITDA | 2008 | 2007 | ||||||
Loss from operations | $ | (773,000 | ) | $ | (580,000 | ) | ||
Adjustments | ||||||||
Add: | ||||||||
Pasani | 145,000 | |||||||
Grupo Sur | 170,000 | |||||||
Targa | (16,000 | ) | ||||||
Amortization | 456,000 | 217,000 | ||||||
Depreciation | 122,000 | 75,000 | ||||||
578,000 | 591,000 | |||||||
EBITDA-(deficit) | $ | (195,000 | ) | $ | 11,000 |
22
RECONCILIATION
In non-GAAP financial measure of pro forma reveneu, gross profit and EBITDA below, we have included unaudited prior year net sales of Pasani, S.A. de CV, Grupo Promociones De Mexico S.A. DE C.V. and Targa, S.A. de CV. This information is provided to present the results as if we had owned these entries during three months ended March 31, 2007. The revenue and gross margin figures for these acquisitions was internally prepared and unaudited, and have not been reviewed by our independent accountants. A reconciliation of the non-GAAP financial measures contained in this report to the most comparable GAAP measures is as follows:
For the three months ended March 31, 2008
As Reported | Pasani | Grupo Sur | Targa | Total | ||||||||||||||||
REVENUE | $ | 5,134 | 2,019 | 6,799 | 2,092 | $ | 16,044 | |||||||||||||
GROSS PROFIT | 973 | 550 | 782 | 330 | 2,635 | |||||||||||||||
OPERATION INCOME (LOSS) | (580 | ) | 145 | 173 | (16 | ) | (278 | ) | ||||||||||||
NET LOSS | $ | (1,134 | ) | 145 | 173 | (37 | ) | $ | (853 | ) |
23
Our quarterly consolidated results of operations have fluctuated, and we expect will continue to fluctuate in the future due to organic growth and expansion.
SUMMARIZED QUARTERLY DATA (UNAUDITED)
( in thousands)
Fiscal Year 2008 Quarters | ||||||||||||||||||||
1st | 2nd | 3rd | 4th | Total | ||||||||||||||||
Net sales | $ | 16,000 | $ | $ | $ | $ | ||||||||||||||
Gross Profit | 2,832 | |||||||||||||||||||
Net earnings (loss) | $ | (345 | ) | $ | $ | $ | $ | |||||||||||||
Earnings (loss) per Common Share:(1) | ||||||||||||||||||||
Basic and Diluted | $ | (0.01 | ) |
Fiscal Year 2007 Quarters | ||||||||||||||||||||
1st | 2nd | 3rd | 4th | Total | ||||||||||||||||
Net sales | $ | 5,134 | $ | 7,791 | $ | 12,490 | $ | 16,983 | $ | 42,398 | ||||||||||
Gross Profit | 973 | 1,209 | 2,159 | 2,482 | 6,823 | |||||||||||||||
Net earnings (loss) | $ | (1,133 | ) | $ | (2,696 | ) | $ | (2,575 | ) | $ | (2,436 | ) | $ | (8,840 | ) | |||||
Earnings (loss) per Common Share:(1) | ||||||||||||||||||||
Basic and Diluted | (0.02 | ) | (0.05 | ) | (0.03 | ) | (0.04 | ) | (0.14 | ) |
(1) Earnings per share are computed individually for each of the quarters presented; therefore, the sum of the quarterly earnings per share may not necessarily equal the total for the year.
LIQUIDITY AND CAPITAL RESOURCES
The consolidated financial statements have been prepared assuming that we will continue as a going concern. The Company has had net losses for the years ended December 31, 2007 and December 31, 2006, respectively.
We commenced operations in 2006 and acquired the Miller Beer license and started-up our Best Beer company, acquired Palermo and raised substantial equity financing. Additionally, we completed three acquisitions in 2007. The costs associated with these acquisitions and the associated cost of funding the acquisitions was a major contributor to the generation of these losses. We are installing certain control metrics to assist management in maximizing operating income.
The Company is currently in discussion with several lending institutions for a working capital credit facility and additional financing. These credit facilities in conjunction with internally generated funds should be sufficient to fund our operations for the next twelve months; however, there can be no assurance funding will be available at terms and conditions acceptable to us.
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Cash Flow
AS OF MARCH 31 | AS OF DECEMBER 31 | |||||||
2008 | 2007 | |||||||
NET CASH USED FOR OPERATING ACTIVITIES | (1,394,485 | ) | $ | (941,418 | ) | |||
NET CASH USED FOR INVESTING ACTIVITIES | 138,777 | (112,659 | ) | |||||
NET CASH PROVIDED BY FINANCING ACTIVITIES | 858,750 | 621,198 | ||||||
EFFECT OF EXCHANGE RATE CHANGES ON CASH | 16,931 | 408.00 | ||||||
NET INCREASE ( DECREASE) IN CASH | (380,027 | ) | (433,287 | ) | ||||
Cash - Beginning | 1,165,814 | 476,375 | ||||||
Cash - Ending | $ | 785,787 | $ | 43,088 |
Cash used in operations of $1,394,000 results for the most from an increase in accounts receivable and inventory supporting the ramp-up of sales offset in part by an increase in accounts payable.
Cash provided by financing activities of $ 900,000 results from notes payable and increase in Shareholders $ 1,325,000 offset in part by increase capital leases of $ 500,000.
The Company is currently in discussion with several lending institutions for a working capital credit facility and additional financing. These credit facilities in conjunction with internally generated funds should be sufficient to fund our operations for the next twelve months; however, there can be no assurance funding will be available at terms and conditions acceptable to us.
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Quarter | Year ended | |||||||||||
ended March 31, | December 31, | |||||||||||
2008 | 2007 | Increase | ||||||||||
Current Assets: | ||||||||||||
Cash | $ | 786,000 | $ | 1,166,000 | $ | (380,000 | ) | |||||
Accounts Receivable | 7,820,000 | 7,763,000 | 47,000 | |||||||||
Inventory | 7,408,000 | 5,504,000 | 1,904,000 | |||||||||
Investments | - | 238,000 | (238,000 | ) | ||||||||
Prepaid | 2,658,000 | 1,694,000 | 949,000 | |||||||||
Total Current Assets | $ | 18,672,000 | $ | 16,365,000 | $ | 2,282,000 | ||||||
Current Liabilities: | ||||||||||||
Accounts Payable | $ | 5,705,000 | $ | 5,054,000 | $ | 1,133,000 | ||||||
Accrued Liabilities | 2,743,000 | 1,634,000 | 627,000 | |||||||||
Accrued Interest | 359,000 | 279,000 | 80,000 | |||||||||
Line credit | 299,000 | 249,000 | 50,000 | |||||||||
Notes Payable | 879,000 | 569,000 | 310,000 | |||||||||
Acquisition Loans | 7,700,000 | 7,700,000 | - | |||||||||
Capital Leases | 220,000 | 737,000 | (517,000 | ) | ||||||||
Shareholders Loans | 1,009,000 | 672,000 | 337,000 | |||||||||
Total Current Liabilities | $ | 18,914,000 | $ | 16,894,000 | $ | 2,020,000 | ||||||
Working Capital (Deficit) | $ | (242,000 | ) | $ | (529,000 | ) | $ | 262,000 |
Working Capital deficit of $242,000 as of March 31, 2008 reflects an improvement of $262,000 from December 31, 2007. Current assets increased $ 2,282,000 resulting principally for 1.900,000 increase $2,200,000 offset in part by reductions in Targa’s inventory to support. The increased supports higher Best Beer Sales. Current liabilities increased $2,020,000 resulting from increased inventory, notes payable and shareholders loans.
On April 1, 2008 we entered into a $1,000,000 senior bridge loan agreement with Genesis Merchants Partners, LP. The terms are: (i)interest of 14% per annum, payable monthly; (ii) the loan is due and payable within 180 days, at that time 107% of principal will become due and payable; The bridge loan may be extended to 360 days from closing at the Company's option, at that time 115% of principal will be due and payable.
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A closing fee of 3% of principal will at time of closing. If the loan is extended an additional 2% closing fee will be due. The loan is secured by the assets of the Company. The senior bridge loan is required to be repaid from the proceeds of a working capital credit agreement the Company may enter into.
The Three month ended March 31, 2007 reflect Nascent, Best Beer and Palermo operations. See Note -Acquisitions included elsewhere herein.
On May 12, 2008, the Company was granted an extension until May 26, 2008 to pay in full a promissory note (the "Pasani Note") payable to Alejandro Gutierrez Pederzini and Leticia Gutierrez Pederzini in the principal amount of $1,000,000 plus interest, that was originally due on May 12, 2008. The Company originally issued the Note to these individuals in connection with the Company's acquisition of all of the outstanding common stock of Pasani S.A. De C.V. ("Pasani") from them. The Pasani Note is secured by a pledge granted to these individuals of all of the common stock of Pasani
On May 12, 2007, Alejandro Gutierrez Pederzini, also, granted the Company an extension until May 26, 2008 to purchase from him certain trade marks that were sold under the Stock Purchase Agreement with Pasani. The purchase price for the trade marks was $2,500,000.
On May 14, 2008, Mr. James E. Buckman and Mr. Yehuda “Mitch” Wolf resigned from the board of directors of the Company effective immediately. Messrs. Buckman and Wolf informed us that they were resigning in order to avoid the possibility of any conflict of interest due to the fact that the we recently commenced discussions with York Capital Management (“York”) regarding a possible transaction between the parties. Messrs. Buckman and Wolf are employed by York and were appointed to the Nascent’s board of directors in connection with York’s investment in the Company,
We are indebted to the former owners ("Sellers") of Grupo Sur Promociones de Mexico. S.A. de CV. ("Grupo Sur") in the amount of $700,000 representing the balance due upon the closing of our stock purchase agreement with the Sellers pursuant to which we acquired all of the outstanding common stock of Grupo Sur. We are also obligated to make two additional payments under the purchase agreement, comprised of a payment of $1,500,000 due on June 30,2008, and a second payment of $2,000,000 due on December 31, 2008.
Additionally the purchase agreement called for a payment to the Sellers of $1,500,000 in our restricted stock, if Grupo Sur met certain financial performance objectives for the twelve months ended December 31,2007 as verified by our auditors. To date these objectives have not been verified by our auditors and no stock has been issued to the Sellers.
Subsequently, the Sellers have refused to allow us to operate Grupo Sur or communicate with Grupo Sur's auditors.
We are in discussions with third party lenders and investors to finance the payment of the Pasani and Grupo Sur obligations. However, there can be no assurance that any equity or debt financing will be available to us to satisfy either obligation.
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INFLATION
We believe that the relatively moderate rates of inflation in recent years have not had a significant impact on our revenue. However, from time to time inflation has an impact on commodity related products.
CONTRACTUAL OBLIGATIONS
The following table summarizes our contractual obligations at December 30, 2007 and the effects we expect such obligations to have on liquidity and cash flow in future periods.
Payments Due by Period (In Thousands) | ||||||||||||||||||||
Total | Less Than 1 Year | 2-3 Years | 3-5 Years | More than 5 Years | ||||||||||||||||
Debt obligations (1) | $ | 9,887 | $ | 9,887 | -- | -- | -- | |||||||||||||
Operating leases | $ | 3,776 | $ | 1,804 | $ | ,489 | $ | 374 | $ | 42 |
Note 1. Includes the acquisition notes $7,700,000.
FORWARD-LOOKING STATEMENTS
This Quarterly Report contains forward-looking statements about Nascen Wine Company, Inc.'s business, financial condition and prospects that reflect management's assumptions and beliefs based on information currently available. We can give no assurance that the expectations indicated by such forward-looking statements will be realized. If any of our management's assumptions should prove incorrect, or if any of the risks and uncertainties underlying such expectations should materialize, Nascent's actual results may differ materially from those indicated by the forward-looking statements.
The key factors that are not within our control and that may have a direct bearing on operating results include, but are not limited to, acceptance of our services, our ability to expand our customer base, managements' ability to raise capital in the future, the retention of key employees and changes in the regulation of our industry.
There may be other risks and circumstances that management may be unable to predict. When used in this Quarterly Report, words such as, "BELIEVES," "EXPECTS," "INTENDS," "PLANS," "ANTICIPATES," "ESTIMATES" and similar expressions are intended to identify forward-looking statements, although there may be certain forward-looking statements not accompanied by such expressions.
The information contained in this section has been derived from our consolidated financial statements and should be read together with our consolidated financial statements and related notes included elsewhere in this annual report. The discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those expressed or implied in these forward-looking statements as a result of various factors, including those set forth at the end of this section under "Factors That May Impact Our Results of Operations"
RECENT ACCOUNTING PRONOUNCEMENTS
In March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activities - an amendment of FASB Statement No. 133," which changes the disclosure requirements for derivative instruments and hedging activities. Entities are required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS No. 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity's financial position, financial performance, and cash flows. SFAS No. 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The Company is currently evaluating the impact, if any, this statement will have on its financial position, cash flows, or results of operations.
CRITICAL ACCOUNTING POLICIES
Management's discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We evaluate these estimates, including those related to bad debts, inventories, intangible assets, income taxes, and contingencies and litigation, on an ongoing basis. We base these estimates on historical experiences and on various other assumptions that we believe are reasonable under the circumstances. These assumptions form our basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
We believe the following critical accounting policies and the related estimates and assumptions discussed below are among those most important to an understanding of our consolidated financial statements.
REVENUE RECOGNITION
The Company reports revenue using the accrual method, in which revenues are recorded as services are rendered or as products are delivered and billings are generated, in accordance SEC Staff Accounting Standard 101 Revenue Recognition. In accordance with aforementioned guidance revenue is recognized when the following criteria are met: (i) persuasive evidence of the customer arrangement exits; (ii) price is fixed and determinable; (iii) acceptance has occurred; and (iv) collectiverity is deemed probale.
ACCOUNTS RECEIVABLE
The Company has reviewed the outstanding trade accounts receivable and provided a reserve for slow paying accounts of approximately $639,464 and $639,464 at March 31, 2008 and December 31, 2007, respectively. The Company plans to insure all its trade receivables during the first half 2008. Additionally, the Company has developed standard credit policies.
INVENTORIES
Inventories are accounted for on the first-in, first-out basis. Any products reaching their expiration dates are written off. The Company has determined it does not require a provision for slow moving and or obsolete inventory for nine months ended March 31, 2008 and the year ended December 31, 2007.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost and depreciated using the straight-line method over the estimated useful life of the assets, which is three to ten years.
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BUSINESS COMBINATION
Acquisitions require significant estimates and judgments related to the fair value of assets acquired and liabilities assumed to which the transaction costs are allocated under the purchase method of accounting. Certain liabilities are subjective in nature. We reflect such liabilities based upon the most recent information available. The ultimate settlement of such liabilities may be for amounts that are different from the amounts initially recorded. A significant amount of judgment also is involved in determining the fair value of assets acquired. Different assumptions could yield materially different results.
INTANGIBLE
The Company accounts for intangible assets in accordance with Statement Financial Accounting Standard 144 "ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS (SFAS 144). The Company acquired long-lived assets during the year ended December 31,2007 and year ended December 31, 2006, respectively. The acquired long -lived assets are attributed to acquisitions completed during 2007 and 2006. The company reviewed the carrying values of its long-lived assets for possible impairment as of December 31, 2007 or whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable and\or annually. No impairment losses were recorded in the three months ended March 31, 2008 and year ended December 31, 2007.
LOSS PER SHARE
Basic loss per share is calculated by dividing net loss by the weighted-average number of shares of common shares outstanding. Diluted loss per share includes the component of basic loss per share and also gives effect to dilutive common stock equivalents. Potential dilutive common stock equivalents include stock options, warrants and preferred stock which convert into common stock.
TAXES ON INCOME
The Company follows Statement of Financial Accounting Standard No. 109 "Accounting for Income Taxes" (SFAS No. 109) for recording the provision for income taxes. Deferred tax assets and liabilities are computed based upon the differences between the financial statement and income tax basis of assets and liabilities using the enacted marginal tax rate applicable when the related asset or liability is expected to be realized or settled. Deferred income tax expense or benefit is based on the change in the asset or liability each period. If available evidence suggests that is more likely than not that some portion or all of the deferred tax assets will not be realized, a valuation allowance is required to reduce the deferred tax asset to the amount that is more likely than not to be realized. Future changes in such valuation allowance are included in the provision for deferred income taxes in the period of change.
Deferred income taxes may arise from temporary differences resulting from income and expense items reported for financial accounting and tax purposes in different periods. Deferred taxes are classified as current or non-current, depending on the classification of assets and liabilities to which they relate. Deferred taxes arising from temporary differences that are not related to an asset or liability are classified as current or non-current depending on the periods in which the temporary differences are expected to reverse.
ADVERTISING
The Company expenses advertising as incurred. Advertising expense were approximately $26,064 and $63,385 for the three months ended March 31, 2008 and 2007, respectively.
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Item 4. Controls and Procedures
Evaluation of disclosure controls and procedures
As of December 2007, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act.”) pursuant to Rules 13a-15 and 15d-15 under the Exchange Act. These controls and procedures are designed to provide assurance that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, in a manner that is intended to allow timely decisions regarding required disclosures.
As a result of this evaluation and recognizing the material weaknesses that we identified in our Annual Report on Form 10-KSB for the year ended December 31, 2007. In making this determination, we took into account the remedial actions that we are taking or planning to take with respect to these material weaknesses .
In any case, based on a number of factors, including our performance of manual procedures to provide assurance of the proper collection, evaluation and disclosure of the information included in our consolidated financial statements, management has concluded that the consolidated financial statements included in this Quarterly Report on Form 10-Q fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with GAAP and that they are free of material errors.
Internal control over financial reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Internal control over financial reporting is a process designed under the supervision of our principal executive and principal financial officers to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP.
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2007 based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).
As a result of the material weaknesses described in our Annual Report on Form 10-K for the year ended December 31, 2007, we did not maintain effective internal control over financial reporting based on the criteria established in Internal Control-Integrated Framework issued by COSO.
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Since we originally identified those material weaknesses in connection with the preparation of our financial statements for the period ended December 31, 2007, we have been working to identify and remedy the causes of the problems that led to the existence of those material weaknesses, and we believe that:
· | we identified the primary causes of and appropriate remedial actions for these problems; |
· | we have, except as otherwise noted below and subject to the completion of testing that we are conducting and plan to complete as of December 31, 2008, remedied substantially all of these material weaknesses; and |
· | we are continuing to implement additional appropriate corrective measures to enable us to determine that those material weaknesses have been fully remedied. |
With respect to testing, we have adopted, and pursued during the fourth quarter of 2007, a program that is designed to evaluate whether the remedial actions we have taken have been in effect for a sufficient period of time to determine their effectiveness as well as to test the effectiveness of those remedial actions. Notwithstanding our efforts, there is a risk that we ultimately may be unable to achieve the goal of fully remedying these material weaknesses and that the corrective actions that we have implemented and are continuing to implement may not fully remedy the material weaknesses that we have identified or prevent similar or other control deficiencies or material weaknesses from having an adverse impact on our business and results of operations or our ability to timely make required SEC filings in the future.
The remedial actions that we have taken to remedy these material weaknesses may be regarded as material changes in our internal control over financial reporting that have occurred since December 31, 2007. Due, among other things, to the difficulties that we experienced in preparing timely financial statements.. Those changes include the following:
1. For all periods ended on or after December 31, 2007, we adopted procedures to conduct additional detailed transaction reviews and control activities to confirm that our financial statements for each period present fairly, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with GAAP.
2. These reviews and control activities include performing physical inventories and detailed account reconciliations of all material line-item accounts reflected on our Consolidated Balance Sheets and Consolidated Statements of Operations in order to confirm the accuracy of, and to correct any material inaccuracies in, those accounts as part of the preparation of our financial statements.
3. For periods ended on or after December 31, 2007, with respect to our failure to maintain a timely and accurate period-end financial statement closing process and our failure to effectively monitor our accounting function and our oversight of financial controls, we introduced new leadership to our accounting and financial functions and in certain operating functions. This included appointing a new Chief Financial Officer effective appointing a new controller and appointing new subsidiary controllers.
4. For periods ended on or after December 31, 2007, we reaffirmed and clarified our account reconciliation policies through additional procedural details and guidelines for completion, which expressly require (a) reconciliations of all material accounts no less frequently than monthly, (b) that any discrepancies noted be resolved in a timely fashion and (c) that all proposed reconciliations be reviewed in detail and on a timely basis by appropriate personnel to determine the accuracy and appropriateness of the proposed reconciliation.
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PART II. OTHER INFORMATION
Item 1A. Risk Factors
There have been no material changes from the risk factors as previously disclosed in our Annual Report on Form 10-KSB for the year ended December 31, 2007.
Item1B. Legal proceedings
From time to time we are involved with legal proceedings, claims and litigation arising in the ordinary course of business. As of the date of this 10-QSB, we have a dispute with the former owners of Grupo Sur. The sellers of Grupo Sur have refused to allow us to operate the Company or contact the public accountant. We have advised the sellers of our rights under the Purchase Agreement.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
NONE
Item 3. Defaults on Senior Securities
NONE
Item 4. Submission of Items to a Vote
NONE
Item 5. Other Information
NONE
Item 6. UPDATE
(a) Exhibits
The following Exhibits are incorporated herein by reference or are filed with this report as indicated below.
Exhibit No. | Description |
Exhibit 31 | Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act |
Exhibit 32 | Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act |
b) Reports on 8K during the quarter:
None
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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, hereunto duly authorized.
Nascent Wine Company, Inc. | |||
Dated: May 21, 2008 | By: | /s/ Sandro Piancone | |
Sandro Piancone | |||
Chief Executive Officer | |||
Pursuant to the requirements of the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
/s/ Sandro Piancone | Chief Executive Officer and Director | Date: May 21, 2008 |
Sandro Piancone | ||
/s/ Victor Petrone | President and Director | Date: May 21, 2008 |
Victor Petrone | ||
/s/ Peter V. White | Chief Financial Officer and Treasurer | Date: May 21, 2008 |
Peter V. White |
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