Asconi 10QSB 2004 Q1 Quarterly report (small business)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-QSB

x	Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2004

¨	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

Commission File No: 000-23712

ASCONI CORPORATION

(Exact name of Small Business Issuer as Specified in Its Charter)

Nevada

91-1395124

(State or Other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer

Identification No.)

1211 Semoran Boulevard, Suite 141

Casselberry, Florida 32707

(Address of Principal Executive Offices)

(407) 679-9463

(Issuer’s Telephone Number)

Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act during the past 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 the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.


Class		Outstanding as of June 25, 2004
Common Stock, $.001 par value		12,057,440

Transitional Small Business Disclosure Format (check one): ¨ Yes x No

INDEX


		Page No.
PART I. FINANCIAL INFORMATION

	Item 1.Financial Statements

	Condensed Consolidated Balance Sheets – As of March 31, 2004 (unaudited) and December 31, 2003	2

	Condensed Consolidated Statements of Operations and Comprehensive Income – For the Three Months Ended March 31, 2004 and 2003 (unaudited)	3

	Condensed Consolidated Statements of Changes in Shareholders’ Equity For the Three Months Ended March 31, 2003 and 2004 (unaudited)	4

	Condensed Consolidated Statements of Cash Flow For the Three Months Ended March 31, 2004 and 2003 (unaudited)	5-6

	Notes to Condensed Consolidated Financial Statements	7-15

	Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations	16-22

	Item 3.Controls and Procedures	22-24

PART II. OTHER INFORMATION

	Item 1.Legal Proceedings	24

	Item 2.Changes in Securities and Small Business Issuer Purchases of Equity Securities	25

	Item 3.Defaults Upon Senior Securities	25

	Item 4.Submission of Matters to a Vote of Security Holders	25

	Item 5.Other Information	25

	Item 6.Exhibits and Reports on Form 8-K	26

SIGNATURES		27

Cautionary Note Regarding Forward-Looking Statements

This quarterly report contains both historical and forward-looking statements. All statements other than statements of historical fact are, or may be deemed to be, “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. The forward-looking statements in this quarterly report are not based on historical facts, but rather reflect the current expectations of our management concerning future results and events.

The forward-looking statements generally can be identified by the use of terms such as “believe,” “expect,” “anticipate,” “intend,” “ plan,” “foresee,” “likely” or other similar words or phrases. Similarly, statements that describe our objectives, plans or goals are or may be forward-looking statements.

Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be different from any future results, performance and achievements expressed or implied by these statements. You should review carefully all information, including the financial statements and the notes to the financial statements included in this quarterly report. The following important factors could affect future results, causing the results to differ materially from those expressed in the forward-looking statements in this quarterly report.

•

the timing, impact and other uncertainties related to pending and future acquisitions by us;

•

the impact of new technologies;

•

changes in laws or rules or regulations of governmental agencies; and

•

currency exchange rate fluctuations.

These factors are not necessarily all of the important factors that could cause our actual results to differ materially from those expressed in the forward-looking statements in this quarterly report. Other unknown or unpredictable factors also could have material adverse effects on our future results. The forward-looking statements in this quarterly report are made only as of the date of this quarterly report, and we do not have any obligation to publicly update any forward-looking statements to reflect subsequent events or circumstances. Investors are advised to consult any further disclosures by us on the subject in our filings with the Securities and Exchange Commission, especially on Forms 10-KSB, 10-QSB and 8-K (if any), in which we discuss in more detail various important factors that could cause actual results to differ from expected or historic results. It is not possible to foresee or identify all such factors. As such, investors should not consider any list of such factors to be an exhaustive statement of all risk, and certainties or potentially inaccurate assumptions. We cannot assure you that projected results will be achieved.

PART I. FINANCIAL INFORMATION

ITEM 1.FINANCIAL STATEMENTS

ASCONI CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF MARCH 31, 2004 AND DECEMBER 31, 2003

(UNITED STATES DOLLARS)


	MARCH 31, 2004			DECEMBER 31, 2003
	(unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	61,232		$	155,010
Trade receivables		2,381,234			3,455,732
Inventories		9,210,050			8,672,424
Refundable taxes and tax deposits		966,097			961,828
Advance payments		2,116,789			1,820,045
Prepaid consulting fees		794,000			—
Other		13,368			12,549

TOTAL CURRENT ASSETS		15,542,770			15,077,588

PROPERTY, PLANT AND EQUIPMENT, net		6,622,133			5,715,380
GOODWILL		229,758			205,352
OTHER		52,879			20,462

TOTAL ASSETS	$	22,447,540		$	21,018,782

LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable	$	3,379,029		$	3,099,994
Short-term debt		6,228,824			6,511,169
Deferred revenue		257,968			758,704
Taxes payable		67,685			293,626
Accrued and other liabilities		466,448			425,523

TOTAL CURRENT LIABILITIES		10,399,954			11,089,016
LONG-TERM LIABILITIES
LEASE OBLIGATIONS		48,332			64,505
DEFERRED TAXES		376,106			387,511

TOTAL LIABILITIES		10,824,392			11,541,032

MINORITY INTEREST		1,493,247			1,420,876
SHAREHOLDERS’ EQUITY
Preferred stock $.001 par value, 5,000,000 shares authorized, no shares issued or outstanding		—			—
Common stock $.001 par value 100,000,000 authorized and 12,057,440 and 12,018,735 outstanding at March 31, 2004 and December 31, 2003		12,058			12,019
Additional paid in capital		49,191,859			48,361,031
Deferred consulting expense		(794,937	)		(1,033,070	)
Retained earnings (deficit)		(38,422,621	)		(39,071,344	)
Accumulated other comprehensive income (loss)		143,542			(211,762	)

Total Shareholders’ Equity		10,129,901			8,056,874

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	22,447,540		$	21,018,782

See notes to condensed consolidated financial statements

ASCONI CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND

COMPREHENSIVE INCOME

FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003

(UNITED STATES DOLLARS)

(Unaudited)


	Three Months Ended March 31,
	2004			2003
Net Sales	$	4,414,191		$	2,429,298

Cost of Sales		2,855,764			1,817,114

Gross Profit		1,558,427			612,184

Depreciation and Amortization		177,963			135,116

Selling and Administrative Expenses		755,241			79,714

Income From Operations		625,223			397,354

Interest Expense		224,285			130,463
Other (Income) Loss		(249,473	)		(154,691	)

Income (Loss) Before Income Taxes and Minority Interest		650,411			421,582

Provision for Income Taxes		24,595			33,832

Income (Loss) Before Minority Interest		625,816			387,750

Minority Interest in Income of Subsidiaries		(22,907	)		20,866

Net Income (Loss)		648,723			366,884
Other Comprehensive Income (Loss)
Foreign Currency Translation		355,304			(167,760	)

Comprehensive Income (Loss)	$	1,004,027		$	199,124

Net Income (Loss) Per Share of Common Stock - basic and diluted	$	0.05		$	0.25

Weighted Average Number of Common Shares outstanding - basic and diluted		12,048,933			1,458,669

See notes to condensed consolidated financial statements

ASCONI CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE THREE MONTHS ENDED MARCH 31, 2003 AND 2004

(UNITED STATES DOLLARS)

(Unaudited)


	Common Shares	Common Stock		Additional Paid in Capital (net)		Retained Earnings (Deficit)			Accumulated Other Comprehensive Income (loss)			Total Shareholders Equity
Balance at December 31, 2002	1,459,135	$	1,459	$	5,521,755	$	(1,206,294	)	$	(442,043	)	$	3,874,877
Comprehensive income (loss):
Net income	—		—		—		366,884			—			366,884
Foreign currency translation	—		—		—		—			(167,760	)		(167,760	)

Balance at March 31, 2003	1,459,135	$	1,459	$	5,521,755	$	(839,410	)	$	(609,803	)	$	4,074,001

Balance at December 31, 2003	12,018,735	$	12,019	$	47,327,961	$	(39,071,344	)	$	(211,762	)	$	8,056,874
Stock issuance - private placement	38,705		39		67,661		—			—			67,700
Amortization of deferred consulting expense	—		—		49,300		—			—			49,300
Warrants issued for consulting	—		—		952,000		—			—			952,000
Comprehensive income (loss):
Net income	—		—		—		648,723			—			648,723
Foreign currency translation	—		—		—		—			355,304			355,304

Balance at March 31, 2004	12,057,440	$	12,058	$	48,396,922	$	(38,422,621	)	$	143,542		$	10,129,901

See notes to condensed consolidated financial statements

ASCONI CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW

FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003

(UNITED STATES DOLLARS)

(Unaudited)


	Three Months Ended March 31,
	2004			2003
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	648,723		$	366,884
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		177,963			135,116
Deferred income taxes		13,498			25,610
Non-cash consulting expense		232,500			—
Minority interest expense		(22,907	)		20,866
(Increase) decrease in assets:
Trade receivables		1,246,801			526,597
Advance payments		(197,227	)		249,217
Inventories		26,735			646,321
Other		33,989			(36,218	)
Increase (decrease) in liabilities
Accounts payable		73,798			(197,194	)
Deferred revenue		(500,736	)		—
Taxes payable		(235,482	)		(135,578	)
Accrued and other liabilities		(63,330	)		(445,867	)

Net cash provided by operating activities		1,434,325			1,155,754

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment		(668,044	)		(192,413	)

Net cash used in investing activities		(668,044	)		(192,413	)

CASH FLOWS FROM FINANCING ACTIVITIES
Short-term borrowings (net)		(781,316	)		(1,202,806	)
Long-term debt (net)		(25,949	)		179,520

Net cash used in financing activities		(807,265	)		(1,023,286	)

Effect of exchange rate changes on cash		(52,894	)		26,052

Net increase (decrease) in cash and cash equivalents		(93,878	)		(33,893	)

Cash and cash equivalents, beginning of period		155,010			47,362

Cash and cash equivalents, end of period	$	61,132		$	13,469

See notes to condensed consolidated financial statements

ASCONI CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (continued)

FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003

(UNITED STATES DOLLARS)

(Unaudited)


	Three Months Ended March 31,
	2004		2003
Supplemental Disclosure of Non-cash Investing and Financing Activities

Acquisition of additional interest in S.A. Vitis Hincesti in 2003	$	—	$	181,418

Supplemental Disclosures of Cash Flow Information
Interest paid	$	200,817	$	194,314

Taxes paid	$	173,053	$	106,550

See notes to condensed consolidated financial statements

Asconi Corporation

Notes to Condensed Consolidated Financial Statements

(unaudited)

1.	ORGANIZATION, PRINCIPAL ACTIVITIES AND BASIS OF PRESENTATION

Asconi Corporation and its subsidiaries (collectively “the Company”) produce, market and sell premium Moldavian wines in countries outside Moldova, with approximately 90% percent of their revenue coming from sales to the Russian Federation.

In April 2001, Asconi Corporation, then known as Grand Slam Treasures, Inc. (“Grand Slam”) acquired 100% of the outstanding common stock of Asconi S.R.L. (a limited liability company formed in the Republic of Moldova in October 1994) in a share exchange (the “Merger”) for the issuance of 12,600,000 shares (before the affects of the April 2003 one-for-ten reverse stock split) of the common stock of Grand Slam. Subsequent to the Merger, Grand Slam changed its name to Asconi Corporation.

Since Grand Slam had no operations and limited assets at the time of the Merger, Asconi S.R.L. was treated as the continuing entity for accounting purposes, and the Merger was accounted for as (i) the recapitalization of Asconi S.R.L., whereby its previously outstanding common stock was converted into 12,600,000 shares of common stock, par value $.001 per share, and (ii) the issuance by Asconi S.R.L. of 386,689 shares of common stock (the number of shares of common stock of Grand Slam outstanding prior to the Merger) for the net assets of Grand Slam, which were recorded at their book value. The recapitalization of Asconi S.R.L. was accounted for by restating all share and per share amounts. Since Asconi S.R.L. was treated as the continuing entity for accounting purposes, the consolidated financial statements include the results of operations and cash flows for Asconi S.R.L. for all periods presented, and the results of operations and cash flows of Grand Slam from April 12, 2001.

Asconi S.R.L. was founded in 1994 and commenced significant operations in 1999. Asconi S.R.L. acquired a 70% interest in S.A. Fabrica de Vinuri din Puhoi and a 74% interest in S.A. Orhei Vin (74%), both Moldovan entities, in October and December 2000, respectively. The interests were originally acquired by the shareholders of Asconi S.R.L., who subsequently contributed them to Asconi S.R.L. The contribution was recorded based on the historical cost of the interests to the shareholders, $350,000, reduced by the indebtedness of $302,826 incurred in the purchase of the interests for which Asconi S.R.L. assumed responsibility upon the contribution. Those acquisitions were accounted for as purchases.

In December 2001, the Company acquired approximately 25% of S.A. Vitis Hincesti. In March 2002, the Company acquired an additional 21% of S.A. Vitis Hincesti. In June 2002, the Company acquired, through the acquisition of a beneficial interest in an irrevocable trust, an additional 5% interest in S.A. Vitis Hincesti. Through June 2002 the Company accounted for its investment in S.A. Vitis Hincesti using the equity method. The acquisition of the additional interest in June 2002 gave the Company a controlling interest in S.A. Vitis Hincesti, at which time the Company began to consolidate S.A. Vitis Hincesti. In February 2003 the Company subscribed to a subscription offering by S.A. Vitis Hincesti during February 2003 increasing its ownership in S.A. Vitis Hincesti to approximately 61%.

Coppet Finance Limited was incorporated on February 3, 2003 as a British Virgin Island limited company and as a wholly owned subsidiary of Asconi Holding Company Limited.

The condensed consolidated balance sheets, statements of operations and comprehensive income, statements of changes in shareholders’ equity, and cash flow included herein are unaudited but include, in the opinion of management, all the adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the financial position, results of operations and cash flows for the periods presented. The financial statements included herein have been prepared in accordance with the rules of the Securities and Exchange Commission for Form 10-QSB and accordingly do not include all footnote disclosures that would normally be included in financial statements prepared in accordance with generally accepted accounting principles, although the Company believes that the disclosures presented are adequate to make the information presented not misleading. The unaudited financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2003.

The nature of the Company’s business is such that the results of interim periods are not necessarily indicative of results that may be expected for any future interim period or for a full year.

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Generally Accepted Accounting Principles

The consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”).

Basis of consolidation

The consolidated financial statements of the Company include the accounts of Asconi Corporation, Asconi S.R.L., S.A. Fabrica de Vinuri din Puhoi, S.A. Orhei-Vin, S.A. Vitis Hincesti and Coppet Finance Limited. All material intercompany balances and transactions have been eliminated.

Economic and political risks

The Company faces a number of risks and challenges since its operations are in the Republic of Moldova and its primary market is in the Russian Federation. The Company may withdraw funds from its subsidiaries in Moldova provided the subsidiaries have paid their income taxes and meet certain other requirements. The requirement to obtain the clearance of the government of Moldova that these requirements have been met can cause delays in the withdrawal of funds.

Use of estimates

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results when ultimately realized could differ from those estimates.

Cash and cash equivalents

The Company considers cash and cash equivalents to include cash on hand, demand deposits with banks, and cash equivalents having original maturities three months or less.

Accounts receivable and allowance for doubtful accounts

The Company provides an allowance for doubtful accounts equal to the estimated uncollectible amounts. The Company’s estimate is based on historical collection experience and a review of the current status of trade accounts receivable. It is reasonably possible that the Company’s estimate of the allowance for doubtful accounts will change. Accounts receivable are presented net of an allowance for doubtful accounts of $30,459 and $28,595 at March 31, 2004 and December 31, 2003, respectively.

Inventory

Inventories are stated at the lower of cost or market on the first-in, first-out basis, and include raw materials, work in process, finished goods and other inventory such as parts and product merchandise. Raw materials include glass, cork, packaging materials and other materials used in production and bottling of wines. Work in process is primarily bulk wine and finished goods are bottled wine. The cost of finished goods includes direct costs of raw materials such as grapes, packaging, as well as direct labor used in wine production, bottling and warehousing. Indirect production costs consisting primarily of utilities and indirect labor related to the production of wine are also included in the cost of inventory and subsequently in the cost of goods sold. The Company applies full absorption to allocate indirect costs to the vintages in work in process inventory based on volume.

Costs and expenses not directly related to the production activities, such as freight out, interest expense, and the compensation of sales, marketing, accounting and administrative personnel are included in selling, general and administrative expenses of the period in which they are incurred.

In accordance with general practice in the wine industry, wine inventories are included in current assets, although a portion of such inventories may be aged for periods longer than one year.

Property, plant and equipment

Property, plant and equipment are carried at cost. The cost of repairs and maintenance is expensed as incurred; major replacements and improvements are capitalized.

When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in income in the year of disposition.

In accordance with Statement of Financial Accounting Standards (SFAS) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, the Company reviews the carrying value of property, plant, and equipment for impairment whenever events and circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. In cases where estimated undiscounted future cash flows are less than the carrying value, an impairment loss is recognized equal to an amount by which the carrying value of the assets exceeds its fair value. The factors considered by management in performing this assessment include current operating results, trends, and prospects, as well as the effects of obsolescence, demand, competition, and other economic factors.

Depreciation is calculated on a straight-line basis over the estimated useful life of the assets. The percentages applied are:


• Buildings		2% - 4.0%
• Machines and equipment		5% - 10%
• Vehicles		10% -20%
• Office equipment		20% -33%

Goodwill

Goodwill represents the excess purchase price paid by the Company over the fair value of the tangible and intangible assets and liabilities of S.A. Vitis Hincesti at June 30, 2002, the date of the acquisition. In accordance with SFAS 142, the goodwill is not being amortized, but instead is be subject to an annual assessment of impairment by applying a fair-value based test. As a part of the evaluation, the Company compares the carrying value of goodwill with its fair value to determine whether there has been impairment. As of March 31, 2004, the Company does not believe any impairment of goodwill has occurred.

Revenue recognition

The Company generally recognizes product revenue at the time of shipment, at which time persuasive evidence of an arrangement exists, delivery has occurred (generally triggered by the transfer of the merchandise to a third party shipper under FOB shipping terms), the price is fixed or determinable, and collectibility is probable. Cash payments received in advance of shipment are recorded as deferred revenue. The Company is generally not contractually obligated to accept returns, except for defective product. However, the Company may permit its customers to return or exchange products and may provide pricing allowances on products unsold by a customer. Revenue is recorded net of an allowance for estimated returns, price concessions, and other discounts. Such allowances are reflected as a reduction to accounts receivable when the Company expects to grant credits for such items; otherwise, they are reflected as a liability.

Government grants

The Company receives equipment grants from various non-U.S. governmental agencies. Grants for the purchase of equipment are recorded as reductions of the related equipment cost and reduce future depreciation expense. Grants related to items of operating expenses are recorded in earnings when received.

Shipping and handling costs

The Company classifies shipping and handling costs as part of selling, general and administrative expenses. Total delivery costs were $129,176 and $57,965 during the three months ended March 31, 2004 and 2003, respectively.

The Company’s customers are not charged for shipping and handling costs incurred by the Company prior to transfer of title to the third party shipper under FOB shipping terms.

Employees’ benefits

Mandatory contributions are made by the Moldavian subsidiaries to the Moldavian Government’s health, retirement benefit and unemployment schemes at the statutory rates in force during the period, based on gross salary payments. The cost of these payments is charged to the statement of operations in the same period as the related salary cost.

Stock based compensation

As permitted by SFAS No. 123, “Accounting for Stock Based Compensation,” the Company follows the intrinsic value model of Accounting Principles Board Opinion (APB) No. 25 in measuring the cost, if any, to be recorded upon the issuance of stock options or stock awards to employees and directors. Under that method, compensation expense is recorded only for any difference between the fair value of the stock on the date the options or awards are granted and the option exercise price or the price paid for the award.

Stock option or share awards issued to other than employees or directors are recorded at their fair value as required by SFAS No. 123.

The Company presently has no stock option plans and has no outstanding stock options. The Company’s net income (loss) and net income (loss) per share would not have been affected if the Company had accounted for stock options or awards issued to employees and directors using the fair value method of SFAS No. 123.

Other income

Other income for the three months ended March 31, 2003 includes $150,000 of the proceeds of the settlement of certain litigation. Other income also includes gains and losses from foreign currency transactions.

Income taxes

Income taxes are determined under the liability method as required by Statement of Financial Accounting Standard No. 109 “Accounting for Income Taxes”. Under SFAS No. 109, deferred income tax assets and liabilities arising from temporary differences between income tax and financial reporting basis of assets and liabilities are recorded based on currently enacted tax rates and laws. In addition, a deferred tax asset can be generated by net operating loss carryforwards. If it is more likely than not that some portion or all of a deferred tax asset will not be realized, a valuation allowance is recognized.

Foreign currency accounting

The financial position and results of operations of the Company’s foreign subsidiaries in the Republic of Moldova are measured using the foreign subsidiaries’ local currency, the Moldovan lei, as the functional currency. Revenues and expenses of such subsidiaries have been translated into U.S. Dollars at average exchange rates prevailing during the period. Assets and liabilities have been translated at the rates of exchange on the balance sheet date. The resulting translation gain and loss adjustments are recorded directly as a separate component of shareholders’ equity, unless there is a sale or complete liquidation of the underlying foreign investments. Foreign currency translation adjustments resulted in a gain of $355,304 and a loss of $167,760 during the three months ended March 31, 2004 and 2003, respectively.

Transaction gains and losses that arise from the effects of exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in other income in the results of operations as incurred. Foreign currency transaction adjustments included in operations totaled gains of $249,473 and $6,624 during the three months ended March 31, 2004 and 2003, respectively.

Earnings Per Share

The Company has adopted SFAS No. 128, “Earnings Per Share”. Under SFAS No. 128, basic earnings (loss) per share is computed by dividing income available to common shareholders by the weighted-average number of common shares assumed to be outstanding during the period. Diluted earnings (loss) per share is computed by assuming the issuance of additional shares of common stock (computed using the treasury stock method) for the exercise of outstanding options, warrants or conversion rights, assuming such exercise would have been dilutive. In the periods where losses are reported, the weighted-average number of common shares outstanding excludes common stock equivalents, because their inclusion would be anti-dilutive.

All share and per share amounts give retroactive effect to the one-for-ten reverse stock split effectuated on May 12, 2003.

The Company had no options, warrants or convertible securities outstanding during the three months ended March 31, 2003.

For the three months ended March 31, 2004 the computation of diluted earnings per share excludes the assumed exercise of an aggregate of 459,600 warrants having exercise prices ranging from $7.00 to $8.52 (weighted average $7.97) as their assumed exercise would have been anti-dilutive.

Financial instruments

The net fair value of all financial assets and liabilities approximates their carrying value.

Recent pronouncements

In June 2001, the FASB issued SFAS No. 143 “Accounting for Asset Retirement Obligations”. The statement addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The statement became effective for the Company in fiscal 2003. The adoption of SFAS No. 143 did not have a material impact on the Company’s financial position, results of operations or cash flows.

In April 2002, the FASB issued SFAS No. 145, “Rescission of FASB Statements Nos. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections”. SFAS No. 145 eliminates the requirement to classify gains and losses from extinguishments of indebtedness as extraordinary, requires certain lease modifications to be treated the same as a sale-leaseback transaction, and makes other non-substantive technical corrections to existing pronouncements. SFAS No. 145 is effective for fiscal years beginning after May 15, 2002, with earlier adoption encouraged. The Company adopted SFAS No. 145 effective fiscal 2003. The adoption of SFAS No. 145 did not have a material effect on the Company’s financial position, results of operations, or cash flows.

In July 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities”. SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (“EITF”) Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain costs Incurred in a Restructuring)”. SFAS No. 146 requires recognition of a liability for a cost associated with an exit or disposal activity when the liability is incurred, as apposed to when the entity commits to an exit plan under EITF No. 94-3. SFAS No. 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. The Company adopted SFAS No. 146 effective fiscal 2003. The adoption of SFAS No. 146 did not have a material effect on the Company’s financial position, results of operations, or cash flows.

In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure”. This standard amends SFAS No. 123, “Accounting for Stock-Based Compensation”, to provide alternative methods of transition for an entity that voluntarily changes to the fair value based method of accounting for stock-based employee compensation. It also amends the disclosure provisions of SFAS No. 123 to require prominent disclosure about the effects on reported net income of an entity’s accounting policy decisions with respect to stock-based employee compensation. Finally, SFAS No. 148 amends APB No. 28, “Interim Financial Reporting”, to require disclosure about those effects in interim financial information. SFAS No. 148 is effective for fiscal years beginning after December 15, 2002. The adoption of SFAS No. 148 did not have a material impact on the Company’s financial position, results of operations, or cash flows.

In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity”. SFAS No. 150 establishes standards for how an issuer classifies and measures in its statement of financial position certain financial instruments with characteristics of both liabilities and equity. SFAS 150 requires that an issuer classify a financial instrument that is within SFAS No. 150’s scope as a liability (or an asset in some circumstances) because that financial instrument embodies an obligation of the issuer. Many of those instruments were previously classified as equity. SFAS No. 150 requires an issuer to classify the following instruments as liabilities (or assets in some circumstances): mandatory redeemable financial instruments; obligations to repurchase the issuer’s equity shares by transferring assets; and certain obligations to issue a variable number of its equity shares. SFAS No. 150 is effective for all financial instruments entered into or modified after May 31, 2003, and otherwise shall be effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of SFAS No. 150 did not have a material effect on the Company’s consolidated balance sheet.

In November 2002, the FASB issued FASB Interpretation No. 45 (FIN 45), “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others”. FIN 45 requires a liability to be recognized at the time a company issues a guarantee for the fair value of the obligations assumed under certain guarantee agreements. The provisions for initial recognition and measurement of guarantee agreements are effective on a prospective basis for guarantees that are issued or modified after December 31, 2002. The Company adopted FIN 45 effective fiscal 2003. The adoption of FIN 45 did not have a material impact on the Company’s financial position, results of operations, or cash flows.

In January 2003, the FASB issued FASB Interpretation No. 46, “Consolidation of Variable Interest Entities an interpretation of ARB No. 51” (FIN 46). FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The disclosure provisions of FIN 46 are effective for financial statements initially issued after January 31, 2003. Public entities with a variable interest in a variable interest entity created before February 1, 2003 shall apply the consolidation requirements of FIN 46 to that entity no later than the beginning of the first annual reporting period beginning after June 15, 2003. FIN 46 is effective for all new variable interest entities created or acquired after January 31, 2003. Additionally, in December 2003 the FASB issued FASB Interpretation No. 46R (FIN 46R) to update certain aspects of FASB 46. FIN 46R must be adopted no later than the end of the first interim or annual reporting period ending after March 15, 2004. The adoption of FIN 46 and FIN 46R did not have a material impact on the Company’s financial position, results of operations, or cash flows.

Reclassifications

Certain reclassifications have been made to the fiscal 2003 financial statements in order to conform to the classification used in the current year.

3.	PROPERTY, PLANT AND EQUIPMENT


	March 31, 2004			December 31, 2003
Land for development of vineyards	$	960,948		$	871,013
Land and buildings		2,802,082			3,178,533
Machinery and equipment		8,980,123			7,243,236
Other		202,594			224,695

		12,945,747			11,517,477

Less accumulated depreciation		(6,323,614	)		(5,802,097	)

	$	6,622,133		$	5,715,380

Property, plant and equipment in the amount of approximately $4,089,150 is pledged as collateral for loans aggregating $3,145,500 at March 31, 2004.

4.	SHAREHOLDERS’ EQUITY

The Company is authorized to issue 100,000,000 shares of its common stock and 5,000,000 shares of preferred stock. Each share of common stock is entitled to one vote. Preferred shares have no voting rights. At its discretion, the Board of Directors may declare dividends on shares of common stock, although the Board does not anticipate paying dividends in the foreseeable future.

In January 2004, the Company issued 38,705 shares of common stock pursuant to stock purchase agreements whereby the Company sold shares at an offering price of $1.75 for aggregate gross offering proceeds of $67,700.

In February 2004, the Company entered into a consulting agreement for strategic consulting services. The term of the agreement is for one year, however, either party can terminate the agreement after six months. The Company issued to the consultants, who are unrelated to the Company, 100,000 warrants exercisable at $7.00, which expire in April 2009 and 100,000 warrants exercisable at $7.50, which expire in June 2009. The contract does not contain a “substantial incentives for non-performance” as that term is defined under EITF Issue 96-18, “Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services”, or provisions for the forfeiture of the warrants in the event of non-performance. Accordingly, as required by EITF 96-18 and EITF 00-18, the warrants were valued as of the inception of the contract using the Black Scholes model. The value of the warrants under the Black Scholes model was $4.76 per warrant, and expense is being amortized over the six month minimum life of the contract on a straight-line basis. The consulting expense recorded for this contract for the three months ended March 31, 2004 totaled $158,000 and is included in selling, general and administrative expense.

Warrants outstanding at March 31, 2004 are as follows:


Number of warrants	Exercise price		Exercise period
259,600	$	8.52	December, 2004 to December, 2006
100,000	$	7.00	April, 2004 to April, 2009
100,000	$	7.50	June, 2004 to June, 2009

5.	SHAREHOLDER LITIGATION

omissions of material facts concerning the Company’s business performance and financial condition and failed to disclose certain related party transactions, thereby overstating the Company’s financial condition during a period from May 2003 to March 2004. The complaint specifically cites the Company’s March 23, 2004 press release in which the Company disclosed that it would be restating its financial statements for the fiscal quarters ended June 30, 2003 and September 30, 2003. The complaint alleges violations of Section 10(b) of the Exchange Act, and Rule 10b-5 promulgated thereunder against all of the defendants, as well as Section 20(a) violations against Messrs. Jitaru and Sirbu.

Subsequent to the filing of the Alfred complaint, seven additional complaints were filed, all of which are pending in the United States District Court for the Middle District of Florida. These complaints contain allegations that are substantially similar in nature to those in the Alfred complaint, except that while the proposed Class Period in the Alfred complaint is from May 15, 2003 to March 23, 2004, the other complaints’ proposed Class Period is from June 11, 2001 to March 23, 2004. The Company has been served with four of the lawsuits. In the cases where the Company has been served, the Company has filed or will file stipulations with the Court seeking an extension of its time to formally respond to the lawsuits by July 30, 2004. On or about June 15, 2004 the law firms of Milberg Weiss Bershad & Schumlan LLP and Vianale & Vianale LLP, respectively, filed motions for Consolidation, Appointment as Lead Plaintiffs and Approval / Selection of Lead Counsel each on behalf of five shareholders (the “Lead Plaintiff Motions”). The Company served its responses to the Lead Plaintiff Motions on June 28, 2004, and has filed its response with the Court.

The Company intends to defend itself in these actions vigorously. There is no assurance, however, that this matter will be resolved in the Company’s favor. An unfavorable outcome of this matter may have a material adverse impact on the Company’s business, results of operations, financial position, or liquidity. Because the litigation is in its early stages, the Company is unable to predict the outcome and has not recorded any liability of any judgment or settlement that may result from the resolution of this matter.

6.	RELATED PARTY TRANSACTIONS

The Company purchased $0 and $15,000 of bulk wine from VinExport, a Romanian company, during the three months ended March 31, 2004 and 2003. Constantin Jitaru and Anatolie Sirbu, two of the Company’s directors and officers, each own 30% of the outstanding securities of VinExport. The bulk wine was purchased for the purpose of blending, bottling and selling in the regular course of business primarily throughout 2004. Prepayments for bulk wine to VinExport equaled $36,510 and $610,424 as of March 31, 2004 and December 31, 2003. VinExport delivers the wine within three months of receipt of prepayments.

7.	SEC AND AMEX PROCEEDINGS

Securities and Exchange Commission Informal Inquiry. On December 29, 2003, the Company received a request from the Denver regional office of the SEC to voluntarily produce documents and information as part of an informal inquiry into certain of the Company’s accounting practices. The SEC Denver staff followed up several times on its original questions and the Company provided, to the best of its ability, all information required to these follow up inquiries. The matters under investigation include, among others, the Company’s accounting treatment of the issuance of 5,000,000 shares to each of Constantin Jitaru and Anatolie Sirbu. The SEC requested voluntary production of documents relating to the Company’s accounting and financial policies, practices and procedures in fiscal 2001, fiscal 2002 and fiscal 2003. The investigation is ongoing, and the Company will continue to cooperate with the SEC staff. The Company is unable to predict the outcome of the investigation, the scope of matters that the SEC may choose to investigate in the course of its investigation or in the future, the SEC’s views of the issues being investigated, or any action that the SEC might take, including the imposition of fines, penalties or other available remedies. The Company will also likely continue to incur additional costs related to the investigation including both additional accounting and legal fees. Also, a significant amount of management’s time and attention will be diverted until the investigation concludes.

American Stock Exchange delisting proceedings. From November 4, 2003 until March 24, 2004, the Company’s shares of common stock were traded on the American Stock Exchange (AMEX) under the symbol “ACD”. Effective on March 24, 2004, AMEX suspended the trading in the Company’s securities. The last full day the Company’s

common stock was traded on AMEX was March 23, 2004. The trading suspension came after the Company’s March 23, 2004 public announcement that its periodic public reports for the fiscal quarters ended June 30, 2003 and September 30, 2003 would be restated. In that press release the Company cautioned the marketplace not to rely upon its financial statements for the stated periods or any earnings guidance the Company had previously released with respect to the 2003 fiscal year until the Company published the restated financial statements. The Company filed its Annual Report on Form 10-KSB for the year ended December 31, 2003 on May 27, 2004 and filed amended Quarterly Reports on Form 10-QSB/A for the quarters ended March 31, June 30 and September 30, 2003 on June 16, 2004.

On May 9, 2004, the AMEX staff notified the Company that it rejected the Company’s plan of compliance and commenced delisting proceedings against the Company. The AMEX staff cited the Company’s inability to file its annual report on Form 10-KSB for fiscal 2003 in a timely fashion and comply with its public reporting requirements under the federal securities laws as grounds for delisting under Section 1003(d) of the AMEX Company Guide. In addition, the AMEX staff noted that the AMEX’s inability to rely on the Company’s public filings in connection with the Company’s initial listing application to have its securities listed on the AMEX constituted another ground for de-listing since, in the AMEX staff’s view, it constituted an event or condition that made further dealings by the Company on AMEX unwarranted as set forth in Section 1002(e) of the AMEX Company Guide.

On May 13, 2004 the Company requested an oral hearing before an AMEX Listing Qualifications Panel (AMEX Panel) to demonstrate how it planned to regain compliance with its public reporting and AMEX continued listing requirements. The AMEX delisting action has been stayed pending the outcome of the oral hearing with the AMEX Panel.

The delisting hearing was originally scheduled for June 17, 2004. However, on June 2, 2004 the Company received a letter from the AMEX Assistant General Counsel advising that the hearing was being postponed. No specific date for a new hearing date has been set.

If the AMEX Panel does not grant the relief that the Company requests at the oral hearing, the Company’s securities could be de-listed from the exchange without further notice. There is no assurance that the AMEX Panel will grant the Company’s request. Even if the AMEX Panel grants the Company’s request, there can be no assurance that the Company will execute its plan in a timely manner or in a manner satisfactory to the AMEX Panel. In the event the Company were to fail to regain its compliance with the AMEX continued listing requirement, its securities may be subject to delisting from the AMEX.

ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General

In April 2001, we acquired 100% of the outstanding common stock of Asconi S.R.L. (a limited liability company formed in the Republic of Moldova in October 1994) in a share exchange (the “Merger”) for the issuance of 12,600,000 shares of our common stock. We were formerly known as Grand Slam Treasures, Inc. (“Grand Slam”), and in connection with the Merger we changed our name to Asconi Corporation.

Since Grand Slam had no operations and limited assets at the time of the Merger, Asconi S.R.L. was treated as the continuing entity for accounting purposes, and the Merger was accounted for as (i) the recapitalization of Asconi S.R.L., whereby its previously outstanding common stock was converted into 12,600,000 shares of common stock, par value $.001 per share, and (ii) the issuance by Asconi S.R.L. of 386,689 shares of common stock (the number of shares of common stock of Grand Slam outstanding prior to the Merger for the net assets of Grand Slam, which were recorded at their book value. The recapitalization of Asconi S.R.L. was accounted for by restating all share and per share amounts. Since Asconi S.R.L. was treated as the continuing entity for accounting purposes, the consolidated financial statements include the results of operations and cash flows for Asconi S.R.L. for all periods presented, and the results of operations and cash flows of Grand Slam from April 12, 2001.

Asconi S.R.L. was founded in 1994 and commenced significant operations in 1999. Asconi S.R.L. acquired a 70% interest in S.A. Fabrica de Vinuri din Puhoi and a 74% interest in S.A. Orhei-Vin, both Moldovan entities, in October and December 2000, respectively. The interests were originally acquired by the shareholders of Asconi S.R.L., who subsequently contributed them to Asconi S.R.L. The contribution was recorded based on the historical cost of the interests to the shareholders, $350,000, reduced by the indebtedness of $302,826 incurred in the purchase of the interests for which Asconi S.R.L. assumed responsibility upon the contribution. Those acquisitions were accounted for as purchases.

In December 2001 we acquired approximately 25% of S.A. Vitis Hincesti. On March 7, 2002, we acquired an additional 21% of S.A. Vitis Hincesti. In June 2002, we acquired, through the acquisition of a beneficial interest in an irrevocable trust, an additional 5% interest in S.A. Vitis Hincesti. Through June 2002 we accounted for our investment in S.A. Vitis Hincesti using the equity method. The acquisition of the additional interest in June 2002 gave us the controlling interest in S.A. Vitis Hincesti, at which time we began to consolidate S.A. Vitis Hincesti. In February 2003 we subscribed to a subscription offering by S.A. Vitis Hincesti, increasing our ownership in S.A. Vitis Hincesti to approximately 61%.

Critical Accounting Policies and Estimates

Our significant accounting policies are more fully described in Note 2 of Notes to the Consolidated Financial Statements. However, certain accounting policies and estimates are particularly important to the understanding of the our financial position and results of operations and require the application of significant judgment by our management or can be materially affected by changes from period to period in economic factors or conditions that are outside the control of management. As a result they are subject to an inherent degree of uncertainty. In applying these policies, our management uses their judgment to determine the appropriate assumptions to be used in the determination of certain estimates. Those estimates are based on our historical operations, our future business plans and projected financial results, the terms of existing contracts, our observance of trends in the industry, information provided by our customers and information available from other outside sources, as appropriate. The following discusses our significant accounting policies and estimates.

Revenue recognition. We generally recognize product revenue at the time of shipment, at which time persuasive evidence of an arrangement exists, delivery has occurred (generally triggered by the transfer of the merchandise to a third party shipper under FOB shipping terms), the price is fixed or determinable, and collectibility is probable. Cash payments received in advance of shipment are recorded as deferred revenue. We generally are not contractually obligated to accept returns, except for defective product. However, we may permit our customers to return or exchange products and may provide pricing allowances on products unsold by a customer. Revenue is recorded net of an allowance for estimated returns, price concessions, and other discounts. Those estimates are based on historical experience and future projections, and actual future allowances may vary significantly from estimates.

Allowance for doubtful accounts. We provide an allowance for doubtful accounts equal to the estimated uncollectible amounts. Our estimate is based on historical collection experience and a review of the current status of trade accounts receivable. It is reasonably possible that our estimate of the allowance for doubtful accounts will change.

Inventory. We carry our inventory at the lower of cost, determined on a first-in, first-out basis, or market value. To date we have not had to record any allowance to reduce our inventories from cost to market value. In estimating market value and determining the need for an allowance for the valuation of our inventories, we must estimate future demand and prices based on historic experience, current market conditions and assumptions about future market conditions and expected demand. If actual market conditions and future demand are less favorable than projected, inventory write-downs, which are charged to costs of goods sold, may be required.

Impairment of property, plant and equipment. Property, plant and equipment are carried at cost and are depreciated over their useful lives. In accordance with Statement of Financial Accounting Standards (SFAS) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, we review the carrying value of property, plant, and equipment for impairment whenever events and circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. In cases where estimated undiscounted future cash flows are less than the carrying value, an impairment loss is recognized equal to an amount by which the carrying value of the assets exceeds its fair value. The factors considered by management in performing this assessment include current operating results, trends, and prospects, as well as the effects of obsolescence, demand, competition, and other economic factors. Estimates of future cash flows are subject to a significant degree of uncertainty, and may change over time. Significant changes in such estimates may cause a write-down for the impairment of property, plant and equipment.

Income Taxes. As part of the process of preparing our financial statements, we are required to estimate our income taxes. This process involves estimating our actual current tax exposure together with assessing temporary differences resulting from the difference in the financial reporting and tax treatments of specific items, such as depreciation, the allowance for doubtful accounts, and other items. These differences result in deferred tax assets and liabilities. We also record a deferred tax asset for the net operating loss carryforwards we have in the United States. We then assess the likelihood that our deferred tax assets will be recovered from future taxable income, and to the extent we believe that recovery is not likely, we must establish a valuation allowance. Our future tax expense as reported in the financial statements will be affected by extent to which we establish a valuation allowance or increase or decrease the allowance in a period. To date, we have recorded a valuation allowance for the entire amount of our deferred tax assets (primarily net operating loss carryforwards) in the United States as we cannot currently determine that it is more likely than not that we will generate sufficient taxable income in the U.S. to use those net operating loss carryforwards. In the event that actual results differ from these estimates or we adjust these estimates in future periods, we may need to adjust the valuation allowance, which could materially impact our financial position and results of operations.

Foreign currency accounting. The financial position and results of operations of our foreign subsidiaries in the Republic of Moldova are measured using the foreign subsidiaries’ local currency, the Moldovan lei, as the functional currency since that is the currency of the primary environment in which those companies generate their revenues and expenses. Revenues and expenses of such subsidiaries are translated into U.S. dollars at average exchange rates prevailing during the period. Assets and liabilities are translated at the rates of exchange on the balance sheet date. The resulting translation gain and loss adjustments are recorded directly as a separate component of shareholders’ equity. The amount of future translation gains or losses will be affected by any changes in the exchange rate between the lei and the U.S. dollar.

Although our Moldova subsidiaries incur most of their expenses in the lei, many of their sales are to customers outside of Moldova and are therefore denominated in currencies other than the lei (principally the U.S. dollar). Additionally, our Moldova subsidiaries have certain bank loans that are denominated in U.S. dollars, and make certain purchases that are denominated in U.S. dollars. As required by SFAS No. 52, “Foreign Currency Translation”, at the time of such a U.S dollar denominated transaction the subsidiary records the revenue and related receivable, or the bank debt or other liability, in lei on the basis of the exchange rate in effect on the date of the transaction. However, if the exchange rate between the lei and the currency in which the transaction is denominated changes between the date of the original transaction and the date the resulting receivable is collected or liability is

paid, the amount received or paid, when converted to lei, will be different than the receivable or liability originally recorded, resulting in a foreign currency transaction gain or loss which is recorded in the results of operations. Additionally, at the end of each reporting period the lei amounts for the receivables, bank debts and accounts payable of our Moldova subsidiaries that are denominated in U.S. dollars are adjusted to reflect the amount in lei expected to be received or paid when the receivable is collected or the liability settled on the basis of the exchange rate at the end of the period. These adjustments also produce foreign currency transaction gains or losses which are recorded in the results of operations.

As a result, in periods in which the value of the lei increases against the value of the U.S. dollar, we will recognize a net foreign currency transaction gain if our Moldova subsidiaries have U.S. dollar denominated liabilities that exceed their U.S. dollar denominated receivables, or we will incur a net foreign currency transaction loss if our Moldova subsidiaries have U.S. dollar denominated receivables that exceed their U.S. dollar denominated liabilities. Conversely, in periods in which the value of the lei declines against the value of the U.S. dollar, we will incur a net foreign currency transaction loss if our Moldova subsidiaries have U.S. dollar denominated liabilities that exceed their U.S. dollar denominated receivables, or we will recognize a net foreign currency transaction gain if our Moldova subsidiaries have U.S. dollar denominated receivables that exceed their U.S. dollar denominated liabilities.

The amount of these gains or losses will depend on the amount, if any, by which the U.S. dollar denominated receivables of our Moldova subsidiaries exceed their U.S. dollar denominated liabilities, or vice versa, and the amount, if any, by which the value of the lei changes against the value of the U.S. dollar. The following table sets forth the exchange rates (expressed in Moldova lei to U.S. $1.00) as of the beginning and end of the three months ended March 31, 2003 and 2004 as quoted by the National Bank of Moldova:


	Three months ended March 31,
	2003	2004
Exchange rate at beginning of period	13.82	13.22
Exchange rate at end of period	14.50	12.41

For the three months ended March 31, 2003, the value of the lei decreased 4.9% against the U.S dollar. We recognized a net foreign currency transaction gain of $6,624 (included in other income) for the three months ended March 31, 2003 as the amount of the U.S dollar denominated receivables of our Moldova subsidiaries slightly exceeded the amount of their U.S. dollar denominated liabilities.

For the three months ended March 31, 2004, the value of the lei increased by 6.1% against the U.S. dollar. We recognized a net foreign currency transaction gain of $249,473 (included in other income) for the three months ended March 31, 2004 as the balance of the U.S. dollar denominated liabilities of our Moldova subsidiaries exceeded the amount of their U.S dollar denominated receivables by an average of approximately $3.7 million during the three months ended March 31, 2004.

Subsequent to March 31, 2004 and through June 25, 2004 the value of the Moldova lei (“MDL”) increased against the value of the U.S. dollar by an additional 3.8%, and at June 25, 2004 the exchange rate was U.S. $1.00 = MDL 11.94. As of March 31, 2004 the U.S. dollar denominated liabilities of our Moldova subsidiaries exceeded their U.S. dollar denominated receivables by approximately $4.4 million.

Results of Operations

Three Months Ended March 31, 2004 As Compared To Three Months Ended March 31, 2003

Revenues. Revenues increased by $1,984,893 or 81.7% to $4,414,191 for the three months ended March 31, 2004 from $2,429,298 for the three months ended March 31, 2003. This increase in revenues was primarily the result of increases in both sales volumes and prices per unit of finished goods. Our case sales increased by approximately 166,000 cases or 57.2% to approximately 456,000 cases for the three months ended March 31, 2004

from approximately 290,000 cases for the three months ended March 31, 2003, The average price of a case increased from $8.38 for the three months ended March 31, 2003 to $9.68 for the three months ended March 31, 2004. The average price increased as the result of our ability to negotiate better prices with our distributors in our major markets such as the Russian Federation and Ukraine. We were able to obtain higher prices principally as a result of the increase in the popularity and brand recognition for our wines. The average price per case of bottled wine will vary from quarter to quarter based on the seasonal and other effects on the nature of the wine sold (i.e., higher priced versus lower priced wines), as well as based on changes in market conditions, as a result of which average per case prices for a single fiscal quarter may not be indicative of trends in average prices that will continue throughout the remainder of the year.

Cost of sales. Cost of sales increased by $1,038,650 or 57.2% to $2,855,764 for the three months ended March 31, 2004 from $1,817,114 for the three months ended March 31, 2003. Gross profit increased by $946,243 from $612,184 for the three months ended March 31, 2003 to $1,558,427 for the three months ended March 31, 2004. The gross profit percentages were 35.3% and 25.2% for the three months ended March 31, 2004 and 2003, respectively. The gross profit percentage increased for the three months ended March 31, 2004 from the gross profit percentage for the three months ended March 31, 2003 as the result of increased production volumes in fiscal 2003, which allowed certain costs which do not vary directly with production volume to be absorbed at a lower rate per unit, and the increased prices discussed above.

Our gross profit margin is materially affected by the price we pay to purchase grapes and bulk wine. In the harvest, which took place in the fall of 2003 the prices we paid for grapes and bulk wine were generally higher than they were in 2002. The grapes and bulk wine purchased in the fall of 2003 will produce wines that will be marketed by us in the latter part of 2004 and subsequent years. If we are not able to increase the prices we charge our distributors to offset this higher cost of grapes and bulk wine our gross profit percentage may decrease. Additionally, in response to a shift in consumer preference to red wine we have over the last three years shifted our purchases of grapes and production of wine to increase the percentage that is red wine and decrease the percentage that is white wine. To date this shift in our purchases and production has not adversely affected our gross profit percentages. However, if our decisions concerning the allocation of our purchases of grapes and production of wine between red and white wines fail to match consumer preferences, our gross profit percentage could be adversely affected.

Selling, General and Administrative Expenses. Selling and administrative expenses increased by $675,527 or 847% to $755,241 for the three months ended March 31, 2004 from $79,714 for the three months ended March 31, 2003. Selling, general and administrative expenses were 17.1% of revenues in the three months ended March 31, 2004 and 3.3% of revenues in the three months ended March 31, 2003. The principal components of the increase in selling, general and administrative expenses were increases in shipping costs, consulting fees and professional fees. Shipping costs increased by $71,211 as the result of the increase in our sales. Consulting fees increased by $242,500, including $158,000 relating to the strategic consulting contract entered into in February, 2004 (see Note 4 of Notes to Condensed Consolidated Financial Statements). Professional fees increased by $105,730, in part due to the expenses associated with the restatement of our fiscal 2002 and interim 2003 financial statements. Additional expenses related to this effort will effect the quarter ending June 30, 2004. In addition to these increases we also experienced increases in marketing, advertising and other general and administrative expenses reflecting our growing operations.

Depreciation and Amortization. Depreciation and amortization expense increased from $135,116 for the three months ended March 31, 2003 to $177,963 for the three months ended March 31, 2004 as the result of additions to our investments in production facilities.

Income (loss) from Operations. As a result of the foregoing, our income from operations increased by $227,869 or 57.3% to $625,223 for the three months ended March 31, 2004 from $397,354 for the three months ended March 31, 2003. This increase is primarily the result of the increases in revenues and gross profit discussed above.

Interest Expense. Interest expenses increased by $93,822 or 71.9% to $224,285 for the three months ended March 31, 2004 from $130,463 for the three months ended March 31, 2003. This increase was primarily due to additional debt we incurred to support the increased level of our operations, including the purchase of grapes during 2003 harvest for production of wines to be sold in future years.

Minority Interest in Income of Subsidiaries. Minority interest in income of subsidiaries represents the portion of the income of in S.A. Fabrica de Vinuri din Puhoi, S.A. Orhei-Vin, and S.A. Vitis Hincesti attributable to the portions of those companies owned by others. The minority interest in income of subsidiaries decreased from $20,866 for the three months ended March 31, 2003 to a negative $22,907 for the three months ended March 31, 2004 as the result of higher net income at subsidiaries in which Asconi S.R.L. has larger ownership, such as S.A. Orhei Vin, and lower net income or higher net loss at subsidiaries, in which Asconi S.R.L. has smaller ownership, such as S.A. Vitis Hincesti.

Other Income. Other income increased from $154,691 for the three months ended March 31, 2003 to $249,473 for the three months ended March 31, 2004. Other income includes foreign currency transaction gains and losses (see “Critical Accounting Policies and Estimates – Foreign Currency Accounting”). The other income for the three months ended March 31, 2003 also includes $150,000 from the partial settlement of certain litigation.

Income Taxes. Income taxes decreased by $9,237 to $24,595 for the three months ended March 31, 2004 from $33,832 for the three months ended March 31, 2003. This decrease was primarily due to a decrease in the net income generated by our operating subsidiaries in Moldova as well as the decrease in the effective tax rate in Moldova from 22% in 2003 to 20% in 2004. Our effective tax rates were 3.8% and 8.0% for the three months ended March 31, 2004 and 2003, respectively. The effective tax rates differ from the statutory rates due principally to foreign taxes and the effects of changes in the valuation allowance we have recorded against the deferred tax asset for our net operating loss carryforwards in the U.S. We have recorded a valuation allowance for all of the deferred tax asset related to our net operating loss carryforwards as currently we cannot determine that it is more likely than not that we will generate sufficient taxable income in the U.S. to use those net operating loss carryforwards.

Net Income. As a result of the forgoing our net income increased by $281,839 or 76.8% to $648,723 for the three months ended March 31, 2004 from $366,884 for the three months ended March 31, 2003. This increase is principally the result of the increases in revenues and gross profit discussed above.

Liquidity and Capital Resources

During the three months ended March 31, 2004 and 2003 our operations produced positive cash flows, which we used primarily to invest in the acquisition of additional land for future vineyard planting and the acquisition of additional production equipment during the three months ended March 31, 2004 and to repay bank loans during both the three months ended March 31, 2004 and 2003.

Cash flows from operations were $1,434,425 for the three months ended March 31, 2004 as compared to the cash flows from operations of $1,155,754 for the three months ended March 31, 2003. The $278,671 improvement in our operating cash flows from the three months ended March 31, 2003 to the three months ended March 31, 2004 is the result of the improvement in our operating results, which improved from net income of $366,884 for the three months ended March 31, 2003 to net income of $648,723 for the three months ended March 31, 2004. The increase in operating cash flows generated by this $281,839 increase in net income was supplemented by aggregate cash inflows of $1,320,599 resulting from lower levels of accounts receivable and higher levels of accounts payable, and offset by aggregate cash outflows of $996,775 resulting from decreases in deferred revenues, taxes payable, accrued and other liabilities, and an increase in advance payments.

For the three months ended March 31, 2004 we used $668,044 in investing activities to invest in additional land for the planting of vineyards and additional production equipment. We financed these investments using cash flows from operations. We also continued to repay our short-term debt and obligations on capital leases, which resulted in the total use of cash flows for financing activities of $807,265.

For the three months ended March 31, 2003 we used $192,413 in investing activities to invest in additional production facilities and purchase additional interests in S.A. Vitis Hincesti. These investments were financed through our cash flows from operations. As a result of the repayment of short-term debt and current maturities of long-term debt, net total cash used by financing activities was $1,023,286.

As of March 31, 2004, we had a cash balance of $61,232 and net working capital of $5,142,816. This compares with a cash balance of $155,010 and net working capital of $ 3,988,572 at December 31, 2003. We currently believe that our existing working capital and the cash flows from our operations will be sufficient to fund our operations and capital expenditures for the remainder of fiscal 2004. However, additional increases in the level of our operations could require additional capital, and there can be no assurance that we would be able to obtain any such additional working capital. If we need additional working capital and are unable to obtain it our operations could be adversely affected.

Off Balance Sheet Arrangements

We do not currently have any off balance sheet arrangements falling within the definition of Item 303(c) of Regulation S-B.

Inflation

To date inflation has not had a material impact on our operations.

Recent Accounting Pronouncements

In June 2001, the FASB issued SFAS No. 143 “Accounting for Asset Retirement Obligations”. The statement addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The statement became effective for us in fiscal 2003. The adoption of SFAS No. 143 did not have a material impact on our financial position, results of operations or cash flows.

In April 2002, the FASB issued SFAS No. 145, “Rescission of FASB Statements Nos. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections”. SFAS No. 145 eliminates the requirement to classify gains and losses from extinguishments of indebtedness as extraordinary, requires certain lease modifications to be treated the same as a sale-leaseback transaction, and makes other non-substantive technical corrections to existing pronouncements. SFAS No. 145 is effective for fiscal years beginning after May 15, 2002, with earlier adoption encouraged. We adopted SFAS No. 145 effective fiscal 2003. The adoption of SFAS No. 145 did not have a material effect on our financial position, results of operations, or cash flows.

In July 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities”. SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (“EITF”) Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain costs Incurred in a Restructuring)”. SFAS No. 146 requires recognition of a liability for a cost associated with an exit or disposal activity when the liability is incurred, as apposed to when the entity commits to an exit plan under EITF No. 94-3. SFAS No. 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. We adopted SFAS No. 146 in fiscal 2003. The adoption of SFAS No. 146 did not have a material effect on our financial position, results of operations, or cash flows.

In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure”. This standard amends SFAS No. 123, “Accounting for Stock-Based Compensation”, to provide alternative methods of transition for an entity that voluntarily changes to the fair value based method of accounting for stock-based employee compensation. It also amends the disclosure provisions of SFAS No. 123 to require prominent disclosure about the effects on reported net income of an entity’s accounting policy decisions with respect to stock-based employee compensation. Finally, SFAS No. 148 amends APB No. 28, “Interim Financial Reporting”, to require disclosure about those effects in interim financial information. SFAS No. 148 is effective for fiscal years beginning after December 15, 2002. The adoption of SFAS No. 148 did not have a material impact on our financial position, results of operations, or cash flows.

Many of those instruments were previously classified as equity. SFAS No. 150 requires an issuer to classify the following instruments as liabilities (or assets in some circumstances): mandatory redeemable financial instruments; obligations to repurchase the issuer’s equity shares by transferring assets; and certain obligations to issue a variable number of its equity shares. SFAS No. 150 is effective for all financial instruments entered into or modified after May 31, 2003, and otherwise shall be effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of SFAS No. 150 did not have a material effect on our consolidated balance sheet.

In November 2002, the FASB issued FASB Interpretation No. 45 (FIN 45), “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others”. FIN 45 requires a liability to be recognized at the time a company issues a guarantee for the fair value of the obligations assumed under certain guarantee agreements. The provisions for initial recognition and measurement of guarantee agreements are effective on a prospective basis for guarantees that are issued or modified after December 31, 2002. We adopted FIN 45 in fiscal 2003. Our adoption of FIN 45 did not have a material impact on our financial position, results of operations, or cash flows.

In January 2003, the FASB issued FASB Interpretation No. 46, “Consolidation of Variable Interest Entities an interpretation of ARB No. 51” (FIN 46). FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The disclosure provisions of FIN 46 are effective for financial statements initially issued after January 31, 2003. Public entities with a variable interest in a variable interest entity created before February 1, 2003 shall apply the consolidation requirements of FIN 46 to that entity no later than the beginning of the first annual reporting period beginning after June 15, 2003. FIN 46 is effective for all new variable interest entities created or acquired after January 31, 2003. Additionally, in December 2003 the FASB issued FASB Interpretation No. 46R (FIN 46R) to update certain aspects of FASB 46. FIN 46R must be adopted no later than the end of the first interim or annual reporting period ending after March 15, 2004. The adoption of FIN 46 and FIN 46R are not expected to have a material impact on our financial position, results of operations, or cash flows.

ITEM 3.CONTROLS AND PROCEDURES

In connection with the preparation and filing of this Quarterly Report on Form 10-QSB for the quarter ended March 31, 2004, we, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, carried out an evaluation of the effectiveness of our “disclosure controls and procedures” (as defined under Rules l3a-l5(e) and 15d-l5(e) promulgated under the Exchange Act) as those controls existed as of May 27, 2004. Based on this evaluation, the principal executive and principal financial officers have concluded that our disclosure controls and procedures were not effective, as more fully described below, to ensure that material information is recorded, processed, summarized and reported by our management on a timely basis in order to comply with our disclosure obligations under the Exchange Act and the rules and regulations thereunder. Except as discussed below, no significant changes were made in our internal controls or in other factors that could significantly affect these controls subsequent to the date of this evaluation.

On March 23, 2004, we issued a public announcement that our periodic public reports for the fiscal quarters ended June 30, 2003 and September 30, 2003 will be restated. We cautioned the marketplace not to rely upon our financial statements for the stated periods or any earnings guidance we had previously released with respect to fiscal 2003 until we published the restated financial statements. Under the supervision of our audit committee, we inquired into the concerns raised by the SEC staff in its correspondence to us. We noted that the restatements would change, among other things, the accounting for our issuance of ten million shares issued during fiscal 2003 to Constantin Jitaru and Anatolie Sirbu, our named executive officers. The issuance of those shares was disclosed in our December 4, 2003 proxy statement and was ratified by our shareholders at our December 2003 shareholders’ meeting. We filed amended Quarterly Reports on Form 10-QSB/A for the quarters ended March 31, June 30 and September 30, 2003 on June 16, 2004.

Our March 23, 2004 announcement followed our receipt on March 5, 2004, of a letter from the staff of the SEC containing the SEC Division of Corporation Finance staff’s comments relating to our financial and non-financial disclosures contained in our Registration Statement on Form S-3 filed with the SEC on February 6, 2004, our Annual Report on Form 10-KSB for the fiscal year ended December 31, 2002 and our proxy statement (Schedule l4A) filed December 4, 2003. The SEC staff inquired, among other things, into our accounting treatment

of the ten million share issuance. The March 5,2004 SEC staff letter followed an informal inquiry from the SEC’s Denver regional office requesting voluntary production of documents relating to our accounting and financial policies, practices and procedures in fiscal 2001, 2002 and 2003, including accounting treatment of certain related-party transactions. An informal SEC inquiry is ongoing.

As discussed in Notes 3 and 18 of Notes to Consolidated Financial Statements included in our Annual Report on Form 10-KSB for the year ended December 31, 2003, as the result of our inquiries into the matters raised in the letters from the SEC staff, our fiscal 2002 and interim 2003 financial statements have been restated to correct the manner in which we accounted for (1) the issuance of the ten million shares to Constantin Jitaru and Anatolie Sirbu, (2) the accounting for certain shares issued under consulting and employee stock awards in fiscal 2003, (3) the portion of fiscal 2002 for which our consolidated results of operations included the operations of S.A. Vitis Hincesti, and (4) certain accounting related to the our Merger with Asconi S.R.L. in April 2001.

The evaluation of our disclosure controls and procedures carried out by our management considered whether weaknesses in our disclosure controls and procedures were a cause of the errors for which our fiscal 2002 and interim 2003 financial statements had to be restated. We concluded that our disclosure controls and procedures were not effective to ensure that material information is recorded, processed, summarized and reported by our management on a timely basis in order to comply with our disclosure obligations under the Exchange Act and the rules and regulations thereunder due to the following reasons:

•

we lacked a chief accounting officer having the necessary level of experience with U.S. generally accepted accounting principles (US GAAP) and SEC reporting;

•

we lacked controls to insure that agreements, contracts and other documents relating to debt and equity transactions, and investments in subsidiaries or investees, including transactions such as those discussed above, were provided to and reviewed by accounting and financial reporting personnel on a timely basis to insure that the financial reporting and disclosure implications of such transactions could be considered and reflected in the financial statements in the proper periods;

•

we lacked controls to insure that actions taken by our board of directors were documented in their minutes on a timely basis to insure that the financial reporting and disclosure implications of such actions could be considered and reflected in the financial statements in the proper periods; and

•

our audit committee was not adequately manned, or sufficiently active in accordance with its charter, including its duties to discuss, with management and our independent auditors, prior to the release of each periods’ financial statements, the financial statements themselves, significant accounting policies and estimates, our internal controls, and the scope and findings of the work performed by our independent auditor in its audit or review of the financial statements.

As a result of these findings, we have determined to take the following steps to improve our disclosure controls and procedures:

•

we will create the position of chief accounting officer who will report both to the chief executive officer and the audit committee, and hire for that position a person having adequate experience in the application of US GAAP and SEC reporting;

•

we will require that all contracts, agreements and other documents relating to debt or equity transactions, acquisition of assets or securities and investments in subsidiaries or investees, including transactions such as those discussed above, be reviewed and approved by the chief accounting officer prior to their execution;

•

we will require that all other material contracts or agreements be (1) in writing, (2) executed only by the chief executive officer or chief financial officer, (3) if not in English, translated into English as soon as practicable after execution, and (4) immediately forwarded to the chief accounting officer and our outside legal counsel;

•

we will require that the chief accounting officer attend all of the meetings of our board of directors to be aware of actions taken by the board of directors that have accounting or disclosure implications, and that the chief accounting officer act as the secretary for the board of director meetings and be responsible for the timely preparation of minutes of those meetings;

•

we will reconstitute our audit committee to, in accordance with its charter, be made up of independent directors who are financially literate, and to contain at least one member who is a “financial expert” as that term is defined in the SEC’s rules; and

•

we will require our audit committee to meet at least once every quarter, prior to the release of that periods’ financial statements, to, among other things, discuss, with management and our independent auditors, prior to the release of each periods’ financial statements, the financial statements themselves, significant accounting policies and estimates, our internal controls, and the scope and findings of the work performed by our independent auditor in its audit or review of the financial statements.

As of June 25, 2004 we have instituted the requirement that our audit committee meet at least once each quarter prior to the release of that periods’ financial statements, to, among other things, discuss, with management and our independent auditors, prior to the release of each periods’ financial statements, the financial statements themselves, significant accounting policies and estimates, our internal controls, and the scope and findings of the work performed by our independent auditor in its audit or review of the financial statements. We have also instituted the requirement that all material contracts or agreements be (1) in writing, (2) executed only by the chief executive officer or chief financial officer, (3) if not in English, translated into English as soon as practicable after execution, and (4) immediately forwarded to our outside legal counsel.

We anticipate that the remaining steps will be completed by July 31, 2004, and that the completion of these steps will allow us to conclude that our disclosure controls and procedures are effective to ensure that material information is recorded, processed, summarized and reported by our management on a timely basis in order to comply with our disclosure obligations under the Exchange Act and the rules and regulations thereunder.

PART II - OTHER INFORMATION

ITEM 1.LEGAL PROCEEDINGS

Other than as set forth below, we are not a party to any pending legal proceedings or are aware of any pending legal proceedings against us that, individually or in the aggregate, would have a material adverse affect on our business, results of operations or financial condition.

On or about April 16, 2004, one of the Company’s shareholders filed a class action complaint, Maureen E. Alfred et al vs. Constantin Jitaru, Anatolie Sirbu and Asconi Corp, Case 04-CV-534 in the United States District Court, Middle District of Florida (the “Alfred” complaint) alleging that the Company, along with Constantin Jitaru, its President, CEO and Chairman of the Board, and Anatolie Sirbu, its CFO, Treasurer and Secretary, violated certain federal securities laws. The complaint alleges, inter alia, that the defendants made material misrepresentations and omissions of material facts concerning the Company’s business performance and financial condition and failed to disclose certain related party transactions, thereby overstating the Company’s financial condition during a period from May 2003 to March 2004. The complaint specifically cites the Company’s March 23, 2004 press release in which the Company disclosed that it would be restating our financial statements for the fiscal quarters ended June 30, 2003 and September 30, 2003. The complaint alleges violations of Section 10(b) of the Exchange Act, and Rule 10b-5 promulgated thereunder against all of the defendants, as well as Section 20(a) violations against Messrs. Jitaru and Sirbu.

Subsequent to the filing of the Alfred complaint, seven additional complaints were filed, all of which are pending in the United States District Court for the Middle District of Florida. These complaints contain allegations that are substantially similar in nature to those in the Alfred complaint, except that while the proposed Class Period in the Alfred complaint is from May 15, 2003 to March 23, 2004, the other complaints’ proposed Class Period is from June 11, 2001 to March 23, 2004. The Company has been served with four of the lawsuits. In the cases where the Company has been served, the Company has filed or will file stipulations with the Court seeking an extension of its time to formally respond to the lawsuits by July 30, 2004. On or about June 15, 2004 the law firms of Milberg Weiss Bershad & Schumlan LLP and Vianale & Vianale LLP, respectively, filed motions for Consolidation, Appointment as Lead Plaintiffs and Approval / Selection of Lead Counsel each on behalf of five shareholders (the “Lead Plaintiff Motions”). The Company served its responses to the lead plaintiff motions on June 28, 2004, and has filed its response with the Court.

ITEM 2.CHANGES IN SECURITIES AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES.

(a)

None.

(b)

None.

(c)

On January 20, 2004 we issued 37,705 shares of our common stock in a private placement to six accredited investors, all individuals. The shares were sold at a price of $1.75 per share for an aggregate gross offering amount of $67,700. These securities were not registered under the Securities Act of 1933 (“the “Securities Act”), and the issuance of the securities was affected in reliance upon the exemption from registration under Rule 506 of Regulation D promulgated under Section 4(2) of the Securities Act as a transaction not involving a public offering. Each of the investors had access to the kind of information about us that we would provide in a registration statement, was an “accredited investor” as defined in Rule 501(a) of Regulation D promulgated under the Securities Act and represented to us his intention to acquire our securities for investment purposes only and not with a view to or for sale in connection with any distribution thereof. Appropriate legends were affixed to the certificates representing the securities issued. Commissions in the amount of $8,800 were paid in connection with the issuance of the securities.

On February 27, 2004 we issued 200,000 warrants for the purchase of 200,000 shares of our common stock to Amothy Corporation (“Amothy”) as consideration for strategic consulting services to be rendered by Amothy under a contract having a term of one year, but which, either we or Amothy can terminate the agreement after six months. 100,000 warrants have an exercise price of $7.00 per share and can be exercised from April 2004 to April 2009. 100,000 warrants have an exercise price of $7.50 per share and can be exercised from June 2004 to June 2009. These securities were not registered under the Securities Act, and the issuance of the securities was affected in reliance upon the exemption from registration under Rule 506 of Regulation D promulgated under Section 4(2) of the Securities Act as a transaction not involving a public offering. The warrants contain “piggyback” registration rights for the shares of common stock issueable upon the exercise, if any, of the warrants. The warrants also provide for cashless exercise if, at the time of any exercise, there is not effective a registration statement under the Securities Act for the shares of common stock issueable upon the exercise of the warrants. Amothy had access to the kind of information about us that we would provide in a registration statement, was an “accredited investor” as defined in Rule 501(a) of Regulation D promulgated under the Securities Act and represented to us its intention to acquire our securities for investment purposes only and not with a view to or for sale in connection with any distribution thereof. Appropriate legends were affixed to the certificates representing the securities issued. No underwriting discounts or commissions were paid in connection with the issuance of the securities.

(d)

None.

(e)

None.

ITEM 3.DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

None.

ITEM 5.OTHER INFORMATION.

None.

ITEM 6.EXHIBITS AND REPORTS ON FORM 8-K.

(a)

Exhibits


Exhibit		Description of Exhibit

3.1		Restated Articles of Incorporation.⁽¹⁾

3.2		Amended and Restated Bylaws.⁽¹⁾

31.1		Rule 13a-14 (a) and15d-14 (a) certification by Constantin Jitaru, Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002⁽²⁾

31.2		Rule 13a-14 (a) and 15d-14 (a) certification by Anatolie Sirbu, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002⁽²⁾

32.1		Certification by Constantin Jitaru, Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.⁽²⁾

32.2		Certification by Anatolie Sirbu, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.⁽²⁾

(1)	Incorporated by reference to our Quarterly Report on Form 10-QSB, filed on August 20, 2001, file no. 0-23712.

(2)	Filed herewith.

(b)

Reports on Form 8-K.

On February 4, 2004 we filed a Current Report on Form 8-K regarding our announcement in a press release dated January 28, 2004 of the projected fiscal 2004 earnings guidance as well as reiterated the projected fiscal 2003 earnings guidance

On March 25, 2004 we filed a Current Report on Form 8-K regarding our announcement in a press release dated March 23, 2004 that our periodic public reports for the quarters ended June 30, 2003 and September 30, 2003 will be restated and that the financial statements set forth in those reports and certain other publicly released information should not be relied upon.

No financial statements were filed in connection with the foregoing Current Reports on Form 8-K

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereto duly authorized.


		ASCONI CORPORATION

Date: June30, 2004		/s/ Constantin Jitaru
		Constantin Jitaru,
		President and Chief Executive Officer

EXHIBIT INDEX


Exhibit		Description of Exhibit

3.1		Restated Articles of Incorporation.⁽¹⁾

3.2		Amended and Restated Bylaws.⁽¹⁾

31.1		Rule 13a-14 (a) and 15d-14(a) certification by Constantin Jitaru, Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002⁽²⁾

31.2		Rule 13a-14 (a) and 15d-14 (a) certification by Anatolie Sirbu, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002⁽²⁾

32.1		Certification by Constantin Jitaru, Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.⁽²⁾

32.2		Certification by Anatolie Sirbu, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.⁽²⁾

(1)	Incorporated by reference to our Quarterly Report on Form 10-QSB, filed on August 20, 2001, file no. 0-23712.

(2)	Filed herewith.

Asconi (ASCD) Inactive 10QSB2004 Q1 Quarterly report (small business)

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