As filed with the Securities and Exchange Commission on ______, 2007
Commission File No. 333-______
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
Registration Statement Under
THE SECURITIES ACT OF 1933
NORTH AMERICAN FOOD AND BEVERAGE CORP.
-------------------------------------------------
(Exact name of registrant as specified in charter)
Colorado 3699 84-1039267
---------- ------ ------------
(State or other jurisdiction (Primary Standard Classi- (IRS Employer
of incorporation) fication Code Number) I.D. Number)
4600 Touchton Road
Building 100, Suite 150
Jacksonville, FL 32246
(904) 285-5885
-----------------------------------
(Address and telephone number of principal executive offices)
4600 Touchton Road
Building 100, Suite 150
Jacksonville, FL 32246
(904) 285-5885
------------------------------------------
(Address of principal place of business or intended principal place of business)
4600 Touchton Road
Building 100, Suite 150
Jacksonville, FL 32246
(904) 285-5885
------------------------------------------
(Name, address and telephone number of agent for service)
Copies of all communications, including all communications sent
to the agent for service, should be sent to:
William T. Hart, Esq.
Hart & Trinen, LLP
1624 Washington Street
Denver, Colorado 80203
303-839-0061
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box [X].
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
Title of each Proposed Proposed
Class of Maximum Maximum
Securities Securities Offering Aggregate Amount of
to be to be Price Per Offering Registration
Registered Registered Share (1) Price Fee
- ---------- ---------- ----------- --------- ------------
Common stock 2,562,035 $2.00 $5,124,070 $158
- ---------------------------------------------------------------------------
Total
- ---------------------------------------------------------------------------
(1) Offering price computed in accordance with Rule 457 (a).
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of l933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
PROSPECTUS
NORTH AMERICAN FOOD AND BEVERAGE CORP.
d/b/a
LIQUOR GROUP WHOLESALE, INC.
Common Stock
By means of this prospectus a number of our shareholders are offering to
sell up to 2,562,035 shares of our common stock. The shares owned by the selling
shareholders may be sold in the over-the-counter market, or otherwise, at prices
and terms then prevailing or at prices related to the then-current market price,
or in privately negotiated transactions.
We will not receive any proceeds from the sale of the common stock by the
selling stockholders.
Our common stock is not publicly traded. Although we plan to have our
shares listed on the OTC Bulletin Board, we may not be successful in
establishing any public market for our common stock.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is a
criminal offense.
THESE SECURITIES ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK. FOR A
DESCRIPTION OF CERTAIN IMPORTANT FACTORS THAT SHOULD BE CONSIDERED BY
PROSPECTIVE INVESTORS, SEE "RISK FACTORS" BEGINNING ON PAGE 3 OF THIS
PROSPECTUS.
The date of this prospectus is __________, 2007.
PROSPECTUS SUMMARY
THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION
APPEARING ELSEWHERE IN THIS PROSPECTUS.
We were incorporated in Colorado in 1988.
Since September 1, 2007, we have managed all wholesale operations and
received all net profits generated from the wholesale distribution of liquor and
wine to the customers of Liquor Group Holdings. Liquor Group Holdings was
organized in Florida in 2002 and distributes over 1,500 alcohol products on
behalf of manufacturers to customers in 31 U.S. states.
Our offices are located at 4600 Touchton Road, Building 100, Suite 150,
Jacksonville, FL 32246. Our telephone number is (904) 285-5885.
As of September 1, 2007 we had 9,504,557 outstanding shares of common
stock.
Our website is www.liquorgroup.com.
The Offering
By means of this prospectus a number of our shareholders are offering to
sell up to 2,562,035 shares of our common stock. The shares owned by the selling
shareholders may be sold in the over-the-counter market, or otherwise, at prices
and terms then prevailing or at prices related to the then-current market price,
or in negotiated transactions.
The purchase of the securities offered by this prospectus involves a high
degree of risk. Risk factors include the lack of any relevant operating history
and our possible need to sell shares of our common stock to raise additional
capital. See "Risk Factors" beginning on page 3 of this prospectus for
additional Risk Factors.
Forward Looking Statements
This prospectus contains various forward-looking statements that are based
on our beliefs as well as assumptions made by and information currently
available to us. When used in this prospectus, the words "believe", "expect",
"anticipate", "estimate" and similar expressions are intended to identify
forward-looking statements. These statements may include statements regarding
seeking business opportunities, payment of operating expenses, and the like, and
are subject to certain risks, uncertainties and assumptions which could cause
actual results to differ materially from projections or estimates. Factors which
could cause actual results to differ materially are discussed at length under
the heading "Risk Factors". Should one or more of the enumerated risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those anticipated, estimated or
projected. Investors should not place undue reliance on forward-looking
statements, all of which speak only as of the date made.
2
RISK FACTORS
Investors should be aware that this offering involves certain risks,
including those described below, which could adversely affect the value of our
common stock. We do not make, nor have we authorized any other person to make,
any representation about the future market value of our common stock. In
addition to the other information contained in this prospectus, the following
factors should be considered carefully in evaluating an investment in our common
stock.
Future operating results are uncertain and we may not be profitable in the
future.
Price increases or lack of product availability may affect our operating
results. We will be subject to brand suppliers' price determinations and may not
be able to pass on any price increases to customers. From time to time, we will
also be impacted by certain products not being available or having product
availability restricted under allocation arrangements. A substantial portion of
our business is concentrated in Florida and Michigan and is therefore impacted
by the general economic conditions in those States.
Our operating results will also be dependent on our ability to properly
manage operating and administrative costs. Our ability to control these costs in
the future will be impacted by a number of factors, including fuel costs and
employee benefits.
Our failure to obtain capital may restrict our proposed operations.
We may need additional capital. However, we do not have any commitments
from any person to provide us with any additional capital. We do not know what
the terms of any future capital raising may be but any future sale of our equity
securities would dilute the ownership of existing stockholders and could be at
prices substantially below the price of the shares of common stock sold in this
offering. Our failure to obtain the capital which we require may result in our
inability to expand our market and increase sales. There can be no assurance
that we will be able to obtain any capital which we will need.
If we lose some of distribution rights our revenues will decline.
The wine and spirits wholesale distribution industry has undergone
significant changes in recent years. Rapid consolidation has occurred in the
supplier sector and consolidation has led to extensive realignment of
distributor relationships. This realignment could result in the loss of
distribution rights and other adverse changes.
We are dependent upon our suppliers of key brands. Written distribution
agreements with several brand suppliers are typically extended on an annual
basis but are terminable upon 30 to 90 days written notice due to failure to
meet sales quotas or breaches of the agreements. Several agreements have longer
terms but may also be terminated under certain circumstances. The loss of key
brand suppliers would have a material adverse impact on our operations.
3
From time to time, distributors pay brand suppliers for the rights to add
key brands or enter new markets. As previously noted, a number of our
competitors have greater financial resources and as a policy we do not
participate in this practice, albeit legal. Additionally, in recent years
several major brand suppliers have undertaken programs designed to consolidate
and realign their distributor relationships.
Compliance with government regulations pertaining to the liquor industry may
result in increased costs.
The distribution of alcohol-based beverages is subject to extensive
regulation, which requires us to obtain and renew various permits and licenses
to import, warehouse, transport, distribute and sell wine and spirits. As a
condition to holding these permits and licenses, compliance with applicable
Federal and State regulations is necessary. Various government regulations
applicable to the alcohol-based beverage industry may be changed so as to impose
more stringent requirements on our operations.
We depend upon our executive officers, particularly C. J. Eiras, our President
and Chief Executive Officer, and the loss of the services of any of our officers
could adversely affect our business.
Our officers and directors own a majority of our common stock and will continue
to control us after this offering.
Our current officers and directors are able to control the election of
directors, the appointment of officers, and the outcome of other corporate
actions requiring shareholder approval. As a result of this concentration of
ownership, our shareholders do no have the voting power to change management,
even if a change in management would be perceived by the investment community as
being beneficial.
Our officers do not plan to devote their full time to our business.
Our officers and directors are not required to, and may not commit their
full time to our business. Our officers and directors are engaged in other
business endeavors and are not obligated to contribute any specific amount of
time to our business. Since our officers plan to devote only a portion of their
time to our business, our revenues may be less than if we had full time
management.
As of the date of this prospectus, there was no public market for our common
stock and if no public market develops, purchasers of the shares offered by this
prospectus may be unable to sell their shares.
If purchasers are unable to sell their shares, purchasers may never be
able to recover any amounts which they paid for our shares.
4
Should a market for our common stock ever develop, disclosure requirements
pertaining to penny stocks may reduce the level of trading activity in the
market for our common stock and investors may find it difficult to sell their
shares.
If a market ever develops for our common stock, trades of our common stock
will be subject to Rule 15g-9 of the Securities and Exchange Commission, which
rule imposes certain requirements on broker/dealers who sell securities subject
to the rule to persons other than established customers and accredited
investors. For transactions covered by the rule, brokers/dealers must make a
special suitability determination for purchasers of the securities and receive
the purchaser's written agreement to the transaction prior to sale. The
Securities and Exchange Commission also has rules that regulate broker/dealer
practices in connection with transactions in "penny stocks." Penny stocks
generally are equity securities with a price of less than $5.00 (other than
securities registered on certain national securities exchanges or quoted on the
NASDAQ system, provided that current price and volume information with respect
to transactions in that security is provided by the exchange or system). The
penny stock rules require a broker/ dealer, prior to a transaction in a penny
stock not otherwise exempt from the rules, to deliver a standardized risk
disclosure document prepared by the Commission that provides information about
penny stocks and the nature and level of risks in the penny stock market. The
broker/dealer also must provide the customer with current bid and offer
quotations for the penny stock, the compensation of the broker/dealer and its
salesperson in the transaction, and monthly account statements showing the
market value of each penny stock held in the customer's account. The bid and
offer quotations, and the broker/dealer and salesperson compensation
information, must be given to the customer orally or in writing prior to
effecting the transaction and must be given to the customer in writing before or
with the customer's confirmation.
MARKET FOR COMMON STOCK
Prior to June 2001 our common stock traded on the OTC Bulletin Board. In
June 2001 our common stock was delisted from the OTC Bulletin Board. After that
time our common stock traded on a sporadic basis in the unorganized inter-dealer
over-the-counter market through the "Pink Sheets" and under the symbol "ECBV".
Our common stock essentially stopped trading in November 2006.
Holders of common stock are entitled to receive such dividends as may be
declared by our Board of Directors out of funds legally available and, in the
event of liquidation, to share pro rata in any distribution of our assets after
payment of liabilities. Our Board of Directors is not obligated to declare a
common stock dividend. We have not paid any common stock dividends and we do not
have any current plans to pay any common stock dividends.
The provisions in our Articles of Incorporation relating to our preferred
stock would allow our directors to issue preferred stock with rights to multiple
votes per share and dividends rights which would have priority over any
dividends paid with respect to our common stock. The issuance of preferred stock
with such rights may make more difficult the removal of management even if such
removal would be considered beneficial to shareholders generally, and will have
5
the effect of limiting shareholder participation in certain transactions such as
mergers or tender offers if such transactions are not favored by incumbent
management.
MANAGEMENT'S DISCUSSION AND ANALYSIS
AND PLAN OF OPERATION
Between October 2001 and August 31, 2007 we were inactive. On August 31,
2007 we acquired a Florida corporation named Liquor Group Wholesale, Inc.
Liquor Group Wholesale was recently formed to take over the wholesale
alcohol distribution operations of Liquor Group Holdings, LLC, effective as of
September 1, 2007. Pursuant to an agreement between Liquor Group Wholesale and
Liquor Group Holdings, Liquor Group Wholesale manages all wholesale operations
and receives all net profits generated from the wholesale distribution of liquor
to the customers of Liquor Group Holdings. Liquor Group Holdings was organized
in Florida in 2002 and distributes alcohol products on behalf of manufacturers
in 31 U.S. States.
Between June and August 2007 we sold 65,000 shares of our common stock to
a group of private investors at a price of $2.00 per share.
We believe that cash generated from our operations will enable us to
slowly expand our markets and increase sales. However, with additional capital,
we believe that our expansion could occur much faster. However, as of the date
of this prospectus we had not made any decision as to whether we will attempt to
raise additional capital.
We believe that our cash on hand and collections from accounts receivable
will satisfy our working capital requirements if we decide to expand without
raising additional capital.
We do not have any commitments or arrangements from any persons to provide
us with any additional capital we may need.
We do not have any off balance sheet arrangements.
BUSINESS
BACKGROUND
- ----------
We are a Colorado corporation formed in 1986. In 1998 and 1999 we did
business under the name USA Service Systems, Inc. ("USA"). Between November 1998
and July 1999 we provided retail stores and manufacturers with product assembly,
product demonstrations, and inventory counts and audits. We were unable to
obtain the capital which was needed to finance these acquisitions and in July
1999 we discontinued our business.
6
In August 1999 we acquired all of the issued and outstanding shares of
East Coast Beverage Corp. in exchange for 5,040,000 shares of our common stock.
After August 31, 1999 we changed our name to East Coast Beverage Corp. and our
business involved the development, production and distribution of bottled coffee
drinks.
We sold our products through distributors and wholesalers to supermarkets,
mass-marketers, convenience stores, drug store chains and oil company
convenience stores. However, we were never able to generate a profit, suffered
substantial losses and discontinued our bottled coffee operations in October
2001.
On April 11, 2002 we filed a petition for reorganization under Chapter 11
of the Federal Bankruptcy Code.
Our Plan of Reorganization was approved by a majority of our creditors and
confirmed by the Federal Bankruptcy Court in July 2003.
Among other things, the Plan of Reorganization provided for the following:
1. The reverse split of our common stock so that each outstanding share
was converted into 1/15th of one share. Since there were 15,704,469 outstanding
shares prior to the bankruptcy, 1,046,965 shares were retained by our
shareholders after the reverse split. In addition, each common shareholder
received one warrant for each share held after the reverse split. Each warrant
entitles the holder to purchase one share of our common stock at a price of
$1.75 per share at any time prior to January 1, 2008.
2. The issuance of 2,000,000 shares of our common stock to Royal Brokerage
Group in exchange for 10% of the gross revenues which may be received by Royal
from the sale of olive oil products.
3. Unsecured creditors (Class 4 creditors) could either obtain payment of
their claims, up to a maximum of $3,500,000 from a percentage of our profits
over time or convert their debt into shares of our common stock at a conversion
rate of $1.75 per share.
4. The change of our name to North American Food and Beverage Corp.
When it became apparent that commissions from the sale of olive oil would
generate little, if any, revenues which could be used to pay its creditors, we
began to look for a privately held corporation which would be interested in a
merger to take advantage of our net operating losses and shareholder base.
ACQUISITION OF LIQUOR GROUP WHOLESALE
- -------------------------------------
In 2006 we began discussions with Liquor Group Holdings LLC, a Florida
limited liability company, which, since 2002, has been engaged in the wholesale
and state level distribution of liquor and wine.
7
In January 2007 we signed an agreement to acquire Liquor Group Wholesale,
Inc. in return for shares of our common and Series A preferred stock.
Liquor Group Wholesale is a Florida corporation which was recently formed
to take over the wholesale alcohol distribution operations of Liquor Group
Holdings. Pursuant to an agreement between Liquor Group Wholesale and Liquor
Group Holdings, Liquor Group Wholesale, as of September 1, 2007, manages all
wholesale operations and receives all net profits generated from the wholesale
distribution of liquor to the customers of Liquor Group Holdings. Liquor Group
Holdings was organized in Florida in 2002 and distributes alcohol products on
behalf of manufacturers in 31 US States.
The acquisition of Liquor Group Wholesale was contingent upon the
following:
1. The return and cancellation of up to 2,000,000 shares of our
common stock.
2. Persons holding Class 4 creditor claims of not less than
$3,250,000 agreeing to waive any right they may have to any
distributions contemplated by the Plan of Reorganization and
accepting one share of our common stock in full settlement of
each $24.50 which we owed to them.
On August 31, 2007 we met these contingencies and acquired Liquor Group
Wholesale in consideration for the issuance of the shares of our common and
Series A Preferred stock to the following persons:
Shares
Name Common Series A Preferred
---- ------ ------------------
VIGOR Holding Company 500,000 753,460 (1)
C. J. Eiras 500,000 170,000
Gray C. Solomon 350,000 10,000
Lowell Newman 50,000 5,000
Steven Dodge 50,000 5,000
Jan Philippe Eiras 350,000 10,000
Third parties 200,000 -
---------- -------------
Total: 2,000,000 953,460
========= =======
(1) Vigor Holding Company is controlled by C.J. Eiras. Vigor Holdings
subsequently assigned 7,777 shares of the Series A preferred stock to
Arnold Rosen and 5,000 Series A preferred shares to an unrelated third
party.
Each Series A preferred share may, at the option of the Holder, be
converted into 45 shares of our common stock. Each Series A preferred share is
entitled to 45 votes on any matter submitted to our shareholders. Each Series A
preferred share is entitled to an annual dividend of $1.00 per share, if such a
dividend is authorized by our directors. Our directors are not required to
declare any dividends and dividends not declared will not accumulate.
The Series A preferred shares may not be converted until September 1,
2008. Vigor Holding Company and C.J. Eiras, the largest holders of our Series A
8
preferred shares, have agreed that, unless we are sold or merged into an
unaffiliated corporation, between September 1, 2008 and August 31, 2012 they
will convert not more than 10,000 preferred shares (or 20,000 shares in total)
each year. We will not register any shares of common stock issuable upon the
exercise of the Series A preferred shares and it is not expected that a public
market will ever develop for the Series A preferred shares.
Any shares of common stock issuable upon the conversion of the Series A
preferred shares will be restricted securities and may, after August 31, 2008,
be sold to a market-maker or in brokerage transactions, provided that the amount
sold does not, during any three-month period, exceed l% of our outstanding
common stock.
The shares of common stock outstanding after the acquisition of Liquor
Group Wholesale, and as of October 31, 2007, as well as the shares which may be
issued upon the conversion of the Series A Preferred stock and the exercise of
outstanding warrants are shown below:
Shares outstanding prior to acquisition of Liquor
Group Wholesale 8,717,562
Shares of common stock issued to the shareholders of
Liquor Group Wholesale 2,000,000
Shares issued to Class 4 creditors in settlement of
their claims 124,985
Shares returned to treasury and cancelled (2,000,000)
Shares issued to Arnold Rosen for his services in
structuring the acquisition of Liquor Group Holdings 500,000
Shares issued to Arnold Rosen in payment of amounts
advanced to or on behalf of us 33,972
Shares issued to unrelated third parties in payment of
amounts owed by us prior to the acquisition of Liquor
Group Holdings 63,038
Shares sold to private investors at a price of $2.00
per share 65,000
--------------
Shares which may be issued in the future: 9,504,557
==============
Shares issuable upon exercise of outstanding warrants 1,046,965 (1)
Potential number of shares issuable upon conversion
of Series A preferred shares 42,905,700 (2)
(1) As part of our bankruptcy plan we issued warrants to our shareholders. Each
warrant entitles the holder to purchase one share of our common stock at a
price of $1.75 per share. The warrants expire on January 1, 2008.
(2) The number of Series A preferred shares which can be converted during any
single year is limited. See "Description of Securities - Preferred Stock"
for information concerning the conversion restrictions.
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BUSINESS OF LGW
- ---------------
Unless otherwise indicated, all references to our company include the
operations of Liquor Group Wholesale and, since September 1, 2007, the wholesale
liquor distribution business of Liquor Group Holdings. On December 20, 2007 we
will change our name to Liquor Group Wholesale, Inc.
Our major markets are Florida and Michigan, which are the second and sixth
largest markets for spirits in the United States, respectively. Other states in
which we have active sales efforts and or licensed operations include: Alabama,
Arkansas, California, Georgia, North Carolina, South Carolina, Virginia, West
Virginia, Oklahoma, Texas, Oregon, Washington, Wisconsin and Indiana. We have
sales contracts for several products in distribution in other states making up
the balance of the 31 markets. One of our state level distribution clients,
Liquor Group Florida, LLC is a fully licensed beer, wine and spirits distributor
holding the fourth largest spirits portfolio in Florida. Another of our state
level distribution clients, Liquor Group Michigan, LLC is a fully licensed
control state broker which currently has the fourth largest spirits portfolio in
Michigan.
Industry Overview
- -----------------
The wine and spirits wholesale industry has undergone significant changes
in recent years. Rapid consolidation has occurred in the supplier sector, and
distributors have expanded their operations to cover a larger number of states,
resulting in consolidation among distributors. In several states, only two major
distributors are operating, and the trend toward consolidation in the industry
is continuing. The market is still quite fragmented, and is ripe for up and
coming alcohol beverage distribution companies with the resources, innovative
processes and know-how to capitalize on the opportunities.
The United States wholesale wine and spirits market (excluding beer and
malt beverages) was approximately $35 billion during 2005 and is projected to be
approximately $37 billion for 2006 according to industry projections. According
to industry reports, consumption for distilled spirits increased 2.7% during
2005, slightly less than the 4.1% increase during 2004, but was primarily driven
by the higher end products. During 2005, United States wine consumption
increased 2.2% and was attributable to growth in both the domestic and import
categories. Consumers spent $9.7 billion more on spirits, wine, and beer
products during 2005 versus the previous year, while the on-premise segment of
the industry accounted for $6.1 billion of the retail dollar sales increase.
The United States alcohol-based beverage industry (excluding beer and malt
beverages) generated total retail sales of approximately $164.3 billion during
calendar 2005 versus $154.6 billion in calendar 2004, an increase of 6.3%. Sales
of wine and spirits, in which we primarily compete, accounted for approximately
15% and 33%, respectively, or $78.2 billion of total retail beverage alcohol
sales in 2005. The growth in the retail sales of spirits was primarily
attributable to the premium and high-end brands which included flavored and
imported vodkas, rums, and an expansion of flavors in the cordial and liqueur
product offerings. Wine consumption rose by 2.2% in calendar 2005 versus 2004,
and the increase was primarily attributable to imported wine which grew by 5.4%
10
while domestic products were up by 1.1% over the prior year. The increase in the
import category during 2005 was responsible for approximately 60% of the
increase in wine consumption while accounting for one quarter of the wine case
sales in the United States, according to industry surveys. We believe the
current trend of consumer preference for premium brands will continue.
Since the repeal of Prohibition in 1933, Federal and State governments
have regulated the sale of spirits, wine, and beer. State regulatory frameworks
fall into two types: control and open (commonly referred to as licensed). In the
18 control States*, the State controls the distribution and/or the retail sale
of alcohol beverages. In open States the distributors and retailers are
privately owned businesses. In the open "franchise" States, there are laws and
regulations that restrict the brand suppliers' ability to change distributors
affording distributors additional protection for their efforts.
* Control States include: Alabama, Idaho, Iowa, Maine, Maryland - (Montgomery
County), Michigan, Mississippi, Montana, New Hampshire, North Carolina, Ohio,
Oregon, Pennsylvania, Utah, Vermont, Virginia, Washington, West Virginia,
Wyoming.
Under the three-tier regulatory framework established by Federal and State
law, brand suppliers of alcohol-based beverages are generally prohibited from
selling their products directly to retail outlets or consumers, effectively
requiring brand suppliers to utilize distributors such as us. This regulatory
framework effectively insulates distributors from vertical competition from
brand suppliers or retail customers. Certain large chain retailers have
challenged the three tier structure in particular States in an attempt to gain
favorable pricing directly from wineries and breweries. A successful challenge
to the three tier system has not occurred, but is a potential long term threat
to the current framework.
In "Control States" the State law has historically mandated the state to
act as the exclusive wholesale distributor and/or retailer of alcohol-based
beverages. Brand suppliers must utilize state licensed "Brokers" to properly
represent their products in the control state marketplace. In 1996, Michigan
became the first control state to privatize aspects of the wholesale
distribution of spirits, and Liquor Group Michigan, LLC, an affiliated company,
is one of the larger brokerages of spirits in Michigan.
Given the three tier regulatory structure, the wine and spirits
distribution industry varies greatly from other industries such as food, drugs,
non-alcohol-based beverages or similar products. As brand suppliers can compete
directly with the distributors in these other industries by shipping directly to
retailers, distributor margins tend to be much lower than those in the wine and
spirits industry. In addition, the liquor industry as a whole has shown a
remarkable resilience to economic downturns relative to other industries.
Brand Suppliers and Products
- ----------------------------
We sell more than 1,500 individual products to our customers. In each of
the last three fiscal years, sales of wine and spirits to wholesale customers
accounted for more than 95% of the consolidated revenue of Liquor Group
Holdings.
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In most states liquor distributors are required by law to have exclusive
relationships with brand suppliers.
We have agreements with the majority of our brand suppliers that generally
may be extended on a bi-annual basis but are only terminable upon 30 to 90 days
written notice upon our failure to perform our duties, including any agreed upon
sales quotas. We have entered into these various long-term agreements with
certain brand suppliers in an effort towards "Brand Alignment", a key component
in its business model. In addition, we have informal arrangements with a very
small percentage of our brand suppliers whereby we distribute the brand
suppliers' products pursuant to bailment orders without written distribution
agreements. Although the terminable written agreements provide us with the
exclusive right to distribute the brand suppliers' products in a particular
State, in practice the brand suppliers have generally selected a distributor to
be the exclusive distributor of specified products in each state. We presently
act as the exclusive distributor with respect to virtually all of the products
we distribute.
Liquor Group Holding's import division holds exclusive import rights with
several brands that we represent. Liquor Group Holdings also holds agreements
for overriding distribution rights to expand our operations with several brand
suppliers in markets where the brand supplier currently uses other distribution
methods.
Customers
- ---------
Our only customers are State Level Clients (SLC), which consist of
licensed liquor distributors, and the 18 Control States. Most states require
wine and spirits retailers to purchase alcohol-based beverages from licensed
distributors. Brand suppliers in these states may not legally sell directly to
retail customers. In "license states" customers fall into two broad categories,
depending on where the alcohol-based beverage ultimately will be consumed:
on-premise and off-premise. Off-premise customers include package liquor stores,
grocery stores, alcohol licensed drug stores and mass merchandisers. On-premise
customers include hotels, restaurants, bars, nightclubs, golf clubhouses and
similar establishments. During 2006 sales to Liquor Group Florida, LLC (which is
controlled by two of our officers) represented 55% of Liquor Group Holding's
revenues from wholesale operations. In license states alcohol beverage licensees
are abundant; in fact no single state level licensee customer represented more
than 5.0% of Liquor Group Florida's revenues in 2006. Our products are generally
placed in bailment with these SLC to be sold to their customers under standard
purchase orders or individual representative orders.
Industry-wide the percentages of case sales of wine and spirits for
off-premise and on-premise in the United States for 2005 were approximately
76.9% and 23.1%, respectively. While the vast majority of case sales are from
the off-premise outlets, approximately 55.0% of industry-wide retail wine and
spirits dollar sales in the United States during 2005 were from on-premise
outlets.
We believe that the regulatory nature of the alcohol distribution industry
strengthens our business liquidity and operational freedom with its SLC. One
example of such advantageous regulation is in Florida, which has a 15-day credit
12
law beyond which retail customers are restricted from buying alcohol-based
beverages from any distributor in the market; many other states have similar
strict credit laws siding with the distributor (cash on delivery, or "COD" terms
in some cases), providing us with a relatively safe credit risk with our SLC. On
the other end of the client spectrum are the Control States which pay us for
100% of the product distributed within their borders backed by the full credit
and sovereignty of the individual state. The average bad debt expense for our
state level clientele in the past five fiscal years has been approximately
0.001% of total revenue.
Marketing and Sales
- -------------------
We recognize the benefits of a dedicated approach to brand management, and
separating it from sales execution is important. Brand suppliers appreciate and
depend upon the local expertise and understanding of the intricacies of the
market that a brand manager can provide. Our brand manager analyzes the
competitive landscape, and through interaction with our sales teams adjust brand
suppliers' national brand strategies to plans that work in our respective
States.
We use sales divisions to adapt to industry changes and product portfolio
growth. Under this structure products are positioned in the market to gain focus
and grow the business. Although we have used this structure for more than three
years in Florida, recent supplier consolidation has led to the creation of
separate sales divisions in Michigan, as well as an expanded organization in
Virginia among other markets.
Our organizational design is predicated upon category knowledge and
expertise, trade channel knowledge, and geographic coverage. Through our
marketing and sales force, we act as the top level marketing arm of our brand
suppliers by maintaining regular contact with our customers. Our sales
organizational strategy is to focus on the leading various on and off premise
trade channels such as independents, national chains, membership clubs, and
grocery chains through their purchasing departments paving the way for more
sales within the geographic territory. This trade focused strategy is
implemented through a performance based compensation structure that aligns the
goals of the customer and supplier with internal profitability. Additionally, we
provide our customers with a wide variety of services, including item selection
and SKU optimization using space and financial tools, fact-based business
presentations to capitalize on fair share, and consumer marketing programs.
Warehousing and Distribution
- ----------------------------
We never take possession of any products as they are transferred from
manufacturers to the SLC directly. Our SLC operations utilize a series master
warehouses strategically located throughout the U.S. and Control State
warehouses to store and ship products pending sale to customers. Our SLC
customers ordinarily receive either next day or second-day delivery in most
markets. In general, an SLC's orders are collected and immediately processed
during the day for batch routing and order "picking". The master warehouses each
use an automated material handling system, including scanners, dispensers and
sorters. Products from the master warehouses are then often shuttled nightly to
a cross-docking facility where the orders are consolidated and loaded onto
delivery trucks. Cross-docking facilities further extend the service areas of
the master warehouses. Orders for delivery are picked in the master warehouses,
13
shipped in during the night, and then transferred onto local delivery trucks for
final delivery. As a result of a number of factors, including state laws and
regulations, our SLCs maintain independent distribution networks in each of
their territories.
Competition
- -----------
There are significant barriers to entry into the wholesale wine and
spirits distribution business. These barriers include established
supplier-distributor relationships, specialized distribution equipment such as
material handling systems and delivery vehicles, important industry knowledge
regarding pricing, inventory management, and distribution logistics, not to
mention the cost of licenses, inventory, equipment, delivery vehicles and cash
or surety bond requirements. Historically, it is extremely rare for
organizations not already engaged as wine and spirits distributors to enter the
business. New distributors typically enter existing markets through acquisition.
Our operations are less cumbersome than the typical wholesale operator
since we merely facilitate the transaction between the manufacturer and the
SLC's.
The wine and spirits wholesale distribution business is highly
competitive. Intuitively one would think that our primary competition includes
Southern Wine & Spirits, Charmer Sunbelt, Premier Beverage, Republic/National
Distributing Company and Glazier's. This in fact is not the case, as the bulk of
the business operations of these organizations is built on "popular priced"
commodity products often referred to as "well products". These distribution
power houses often vie for the top selling brands which demand exclusive
attention and command smaller margins. This leaves the mid to small brands with
less attention making them wide open for us to contract. Given the ongoing
consolidation among distributors as well as brand suppliers, the competitive
landscape is subject to continuing change. Distributors commonly compete for new
brand suppliers or brands based on reputation, market share, access to customers
and ability to satisfy supplier demands, however a more recent trend is to rely
only on the major brand families to provide enough product variety to sustain
and grow a distribution operation. This however is not our goal or modus
operandi, as we attempt to provide a variety of products that suit the needs of
our customers, regardless of the supplier.
Government Regulation
- ---------------------
The manufacturing, importation, distribution and sale of alcohol-based
beverages are subject to regulation by the Federal government through the
Alcohol and Tobacco Tax and Trade Bureau (TTB), as well as by State and local
regulatory agencies. Brand suppliers, distributors and retailers must be
properly licensed in order to sell alcohol-based beverages.
In most states, the alcohol-based beverage industry operates within what
is commonly referred to as a three-tier system of distribution. The three tiers
are identified as follows: (1) (2) (3).
14
Tier one (1) is comprised of brand suppliers and manufacturers
that produce alcohol-based beverages and/or importers of alcohol-based
beverages, bringing products into the United States through US Customs
control.
Tier two (2) is comprised of SLC distributors such as Liquor Group
Florida, other sub-distributors and the Control States which in turn
market the products through brokers such as Liquor Group Michigan.
Tier three (3) is comprised of licensees, both on and off premise
customers, commonly referred to as retailers which sell the products
to the public consumers.
Under this system, brand suppliers and manufacturers sell to distributors
and or Control States, distributors and or Control States sell to licensees or
state stores, and licensees sell to consumers. For the most part, brand
suppliers may not sell to licensees or consumers and distributors may not sell
directly to consumers. All States prohibit brand suppliers or distributors from
having an interest in retail licensees. We fit between Tier 1 and Tier 2,
however directly and through its affiliates we hold Federal basic permits,
whereas the Tier 2 SLC holds State permits/licenses as a distributor and
importer to the individual state territory. We hold out-of-State shipper permits
that allow us to ship products from one State to a licensed distributor in any
one of the other States or to any Control State. We also have a unique
relationship with many of our brand suppliers in Control States where we act as
both the vendor of product to the Control State on behalf of the actual brand
supplier while an affiliated company acts as the broker for the brands within
the Control State to provide a turn key service and generate additional revenues
for us.
We are required to have each of our officers, directors and principal
owners qualified by Federal and State governmental agencies. Our officers,
directors and principal owners must be qualified by the Alcohol and Tobacco Tax
and Trade Bureau and state regulatory agencies to hold licenses/permits as a
wholesaler/importer.
Our distributors face scrutiny in a number of important areas, including
initial licensing or permitting and ongoing sales and marketing activities with
or on behalf of retail customers. In many states the SLC distributors may not
give or transfer anything of value to their customers in exchange for business
or other consideration; however the definition of "value" differs from State to
State. We participate in significant promotional activities for brand suppliers
and customers, whom are increasingly requesting that distributors to be
responsible for activities and related costs formerly undertaken by brand
suppliers as brand suppliers pursue ways to reduce their operating costs. These
increased demands will likely challenge distributors, including LGW and its SLC,
which desire to meet the wishes of their brand suppliers and customers. As a
result, we regularly provide training and education programming for our sales
and marketing personnel.
We believe that we are in compliance with applicable regulations in all
material respects. Consistent with industry practice, the sales and marketing
activities permitted by distributors for the benefit of tier one brand suppliers
are generally regulated by State licensing authorities, which authorize various
trade practice activities by statute, regulation or administrative bulletin. We
15
rely on such enforcement guidance, which is subject to change at the discretion
of the regulatory authorities, in determining the scope of its permitted sales
and marketing activities.
As part of our regulatory compliance program, we are in frequent contact
with regulatory agencies so that we can: (1) be kept current on regulatory
developments affecting our business; (2) obtain answers from the agencies to
questions from company personnel regarding compliance issues; (3) encourage
enforcement of applicable laws and regulations on a consistent basis throughout
our markets. We believe that prompt and consistent enforcement by the regulatory
agencies is important and benefits us.
We adhere strictly to the DISCUS Code of Responsible Practices for
Beverage Alcohol Advertising and Marketing and will not condone, participate in
nor permit any activity not in accordance with the guidelines contained therein.
In some instances the guidelines we adhere to exceed the DISCUS guidelines and
we reserve the right to decline to participate in, or prohibit any promotional
activity within in our territories that we deem in our sole discretion to be
outside of our own guidelines. More information on DISCUS guidelines can be
found at: www.Discus.org
General
- -------
As of October 31, 2007 our only employees were C.J. Eiras, Lowell Newman,
and Steven Dodge, all of whom are officers of our Company.
Our officers are located at 4600 Touchton Road, Building 100, Suite 150,
Jacksonville, FL 32246. We sub-lease this space, consisting of 500 square feet,
from Liquor Group Holdings for $1,000 per month. The lease on our space expires
in November 2008.
MANAGEMENT
Name Age Position
---- --- --------
C.J. Eiras 34 President, Chief Executive Officer and a Director
Lowell Newman 53 Vice President - License States Operations and
a Director
Steven Dodge 50 Vice President - Control State Operations and a
Director
Jason Bandy 34 Principal Financial and Accounting Officer
Arnold Rosen 66 Director
Jan Philippe Eiras 45 Director
Our directors serve in such capacity until the first annual meeting of our
shareholders and until their successors have been duly elected and qualified.
Our officers serve at the discretion of our directors.
The principal occupations of our officers, directors and consultants,
during the past several years are as follows:
16
C. J. (Christopher John) Eiras has been one of our officers and directors since
August 2007. Mr. Eiras has been the a managing member of Liquor Group Holdings
since its inception in 2002 and has also been President and owner of Happy Vodka
Corporation, the controlling company for all the Happy brand beverages worldwide
since it's inception in August of 2001. Mr. Eiras recently acquired Urban Brands
& Spirits, LLC whose portfolio includes the Party A-Go-Go alcohol products, the
Cadillac Margarita and the "Hype" trademark branded energy beverage, which Eiras
recently sold. Eiras is also the sole owner of Wild Orchid Vineyards, as well as
the wine brands Orchidia and Wilde Orchid.
Lowell Newman has been one of our officers and directors since September 2007.
Mr. Newman has been an officer of Liquor Group Holdings since May of 2005.
Between 2002 and 2005 Mr. Newman was general manager of Joseph's Liquor in
Orlando, Florida. Between 2000 and 2002 Mr. Newman was a wine consultant for ABC
Fine Wine and Spirits. Newman's duties with Liquor Group include sales
representative training and the selection of brands for distribution based on
taste profiles, overall value and merchantability.
Steven Dodge has been one of our officers and directors since September 2007.
Mr. Dodge has been the control state coordinator for Liquor Group Holdings and
state manager of Liquor Group Michigan, LLC since March of 2006. Between 1994
and 2006 Mr. Dodge was the General Manager for General Wine and Liquor. Mr.
Dodge manages the Control State operations of Liquor Group.
Jason Bandy has been one of our officers since September 2007. Mr. Bandy has
managed his own accounting firm since 2002, primarily serving clients in the
alcohol beverage industry. Between 1997 and 2002 Mr. Bandy was employed by Price
Waterhouse Coopers, an international public accounting firm. Mr. Bandy is a
certified public accountant.
Arnold L. Rosen became one of our directors in 2003 following the confirmation
of our Chapter 11 bankruptcy plan. Mr. Rosen was past President of the Mortgage
Bankers Association of Greater Miami, was the founder and a former Director of
the Gold Coast National Bank in Miami, Florida, and has been a licensed mortgage
and real estate broker for the last 35 years. Mr. Rosen received a Bachelor of
Business Administration from the University of Miami,
Jan Phillipe Eiras has been one of our directors since September 2007. Mr. Eiras
the Chief Executive Officer of Quadrus, a US Missile Defense Contractor and
software development firm since 1995.
C.J. Eiras and Jan Phillipe Eiras are brothers.
Executive Compensation
- ----------------------
The following table shows the compensation paid or accrued during the year
ended December 31, 2006 to our chief executive officer. None of our officers
received compensation in excess of $100,000 during the year ended December 31,
2006.
17
All
Other
Annual
Stock Option Compen-
Name and Principal Fiscal Salary Bonus Awards Awards sation
Position Year (1) (2) (3) (4) (5) Total
- ------------------ ------ ------ ----- ------ ------ ------- -----
William R. Smith, 2006 $13,265 -- -- -- -- $13,265
President
(1) The dollar value of base salary (cash and non-cash) earned.
(2) The dollar value of bonus (cash and non-cash) earned.
(3) During the periods covered by the table, the value of our shares issued as
compensation for services to the persons listed in the table.
(4) The value of all stock options granted during the periods covered by the
table.
(5) All other compensation received that we could not properly report in any
other column of the table.
Mr. Smith resigned as an officer and director on August 31, 2007.
We do not have employment agreements with any of our officers.
The following shows the amounts which we expect to pay to our officers
during the twelve-month period ending August 31, 2008, and the time these
persons plan to devote to our business. We do not have employment agreements
with any of its officers or consultants.
Proposed Time to be Devoted
Name Compensation LGW's Business
---- ------------ ------------------
C.J. Eiras $250,000 40 hours per week
Lowell Newman $ 90,000 40 hours per week
Steven Dodge $ 90,000 40 hours per week
Long Term Incentive Plans - Awards in Last Fiscal Year
- ------------------------------------------------------
None
Employee Pension, Profit Sharing or Other Retirement Plans
- ----------------------------------------------------------
None
Compensation of Directors During Year Ended December 31, 2006
- -------------------------------------------------------------
During our last fiscal year we did not compensate our directors for serving
on our Board.
18
Stock Option and Bonus Plans
- ----------------------------
We do not have any stock option or stock bonus plans, although we may
adopt these plans in the future.
Transactions With Related Parties
- ---------------------------------
During 2006 approximately 76% of Liquor Group Holding's revenues from its
wholesale operations were from sales to Florida and Michigan. We use Liquor
Group Florida, LLC as our exclusive distributor in Florida. In Michigan, we use
Liquor Group Michigan, LLC as our exclusive broker in that state. Liquor Group
Florida and Liquor Group Michigan are both controlled by C.J. Eiras, an officer
and director of LGW. During 2006 Liquor Group Holding's sales to Liquor Group
Florida were approximately $648,000, and Liquor Group Florida had gross income
of $886,000 and gross profits of $240,000. In September 2006 Liquor Group
Michigan, LLC was formed. During the last four months of 2006 Liquor Group
Holdings paid brokerage commissions of $9,101 to Liquor Group Michigan against
$195,000 in sales to the state of Michigan. During the last four months of 2006
Liquor Group Michigan had net income of $19,696.
During the nine months ended September 30, 2007 approximately 75% of
Liquor Group Holding's revenues from its wholesale operations were the result of
sales to Liquor Group Florida. During the nine months ended September 30, 2007
Liquor Group Holdings paid brokerage commissions of $31,282 to Liquor Group
Michigan against sales of $188,037.
C.J. Eiras, our President and Chief Executive Officer, owns Happy Vodka
Corporation. During the year ended December 31, 2006 and the eight months ended
August 31, 2007 approximately 31% and 8% respectively of the sales made by
Liquor Group Holdings were for products supplied to it by Happy Vodka. We will
continue to purchase product from Happy Vodka. We believe the price and terms
provided to us by Happy Vodka are the same, if not better, than prices and terms
available from our independent suppliers.
PRINCIPAL SHAREHOLDERS
The following table shows, as of October 31, 2007, the share ownership of
those persons who own 5% or more of our common and preferred stock and the
number and percentage of outstanding shares owned by each of our officers and
directors and by all the officers and directors as a group. Unless otherwise
indicated, each owner has sole voting and investment power over his shares.
19
Number of Shares
------------------------------
Common Series A Percent of
Name and Address Stock Preferred Stock Class (1)
- ---------------- ----------- --------------- ---------------
C.J. Eiras 500,000 170,000 15.3%
4600 Touchton Road
Building 100/Suite 150
Jacksonville, FL 32246
Lowell Newman 50,000 5,000 0.5%
4600 Touchton Road
Building 100, Suite 150
Jacksonville, FL 32246
Steven Dodge 50,000 5,000 0.5%
39555 Orchard Hill Place
Suite 600
Novi, MI 48375
Jason Bandy -- -- --
1 Corporate Center
Grand Cayman, Cayman Islands
KY1-1204
Arnold Rosen 1,898,812 7,777 4.2%
7138 Ayrshire Lane
Boca Raton, FL 33496
Jan Philippe Eiras 350,000 10,000 1.5%
6275 University Drive
Suite 37-215
Huntsville, AL 35806
VIGOR Holding Company (2) 500,000 740,683 63.3%
1015 - 255 Atlantic Blvd.
Atlantic Beach, FL 32233
All Officers and Directors
as a group (6 persons) 3,348,812 938,460 85.4%
(1) Assumes all Series A Preferred shares are converted into shares of our
common stock.
(2) VIGOR Holding Company is controlled by C.J. Eiras.
20
SELLING SHAREHOLDERS
The persons listed in the following table plan to offer the shares shown
opposite their respective names by means of this prospectus. The owners of the
shares to be sold by means of this prospectus are referred to as the "selling
shareholders".
We will not receive any proceeds from the sale of the shares by the
selling shareholders. We will pay all costs of registering the shares offered by
the selling shareholders. The selling shareholders will pay all sales
commissions and other costs of the sale of the shares offered by them.
Share Percentage
Shares to be Ownership Ownership
Shares Sold in this After After
Name Owned Offering Offering (5) Offering (5)
- ---- ----- ------------- ------------ ------------
Vigor Holding Co. 500,000 500,000 -- --
Christopher J. Eiras 500,000 500,000 -- --
Gray C. Solomon 350,000 350,000 -- --
Lowell Newman 50,000 50,000 -- --
Steven Dodge 50,000 50,000 -- --
Jan P. Eiras 350,000 350,000 -- --
Louis Maggio 25,000 25,000 -- --
Steven Wang 25,000 25,000 -- --
Louis Frezza 25,000 25,000 -- --
Jerry L. Corwin 25,025 25,025 -- --
-----------
1,900,025 (1)
Arnold Rosen 1,898,812 33,972 1,864,840 19.6%
Steven N. Lippman 6,738 6,738 -- --
Howard Tescher 1,436 1,436 -- --
Jay Valinsky 692 692 -- --
John A. Coniglio 7,172 7,172 -- --
Ronald Neiwirth 39,000 39,000 -- --
William R. Smith 35,667 8,000 27,667 0.3%
-------
97,010 (2)
Illene Klasfeld and
Jon Klasfeld, Joint
Trustees 10,000 10,000 -- --
Elliot J. Brody 50,000 50,000 -- --
Melvin Getlan 5,000 5,000 -- --
---------
65,000 (3)
Arnold Rosen 500,000 (4) 500,000 -- --
(1) The selling shareholders owning 1,900,025 shares acquired their shares in
connection with the acquisition of Liquor Group Wholesale.
21
(2) The selling shareholders owning 97,010 shares received their shares in
payment of amounts we owed to them.
(3) The selling shareholders owning 65,000 shares purchased their shares from us
in a private offering at a price of $2.00 per share.
(4) Arnold Rosen received his 500,000 shares for services rendered.
(5) Does not reflect the conversion of any Series A preferred shares.
C.J. Eiras, Lowell Lewman, Steven Dodge, Jan P. Eiras and Arnold Rosen are
officers and/or directors. No other selling shareholder has, or had, any
material relationship with us, or our officers or directors.
C.J. Eiras controls Vigor Holding Co.
Arnold Rosen, a director, and William Smith, a former officer and
director, have collectively agreed not to sell 1,208,932 shares of our common
stock prior to September 1, 2008.
Manner of Sale
The shares of common stock owned by the selling shareholders may be
offered and sold by means of this prospectus from time to time as market
conditions permit. The shares owned by the selling shareholders may be sold in
the over-the-counter market, or otherwise, at prices and terms then prevailing
or at prices related to the then-current market price, or in negotiated
transactions. These shares may be sold by one or more of the following methods,
without limitation:
o a block trade in which a broker or dealer so engaged will attempt to
sell the shares as agent but may position and resell a portion of the
block as principal to facilitate the transaction;
o purchases by a broker or dealer as principal and resale by such broker
or dealer for its account pursuant to this prospectus;
o ordinary brokerage transactions and transactions in which the broker
solicits purchasers; and
o face-to-face transactions between sellers and purchasers without a
broker/dealer.
In competing sales, brokers or dealers engaged by the selling shareholders
may arrange for other brokers or dealers to participate. Brokers or dealers may
receive commissions or discounts from selling shareholders in amounts to be
negotiated. As to any particular broker-dealer, this compensation might be in
excess of customary commissions. Neither LGW nor the selling stockholders can
presently estimate the amount of such compensation. Notwithstanding the above,
22
no NASD member will charge commissions that exceed 8% of the total proceeds from
the sale.
The selling shareholders and any broker/dealers who act in connection with
the sale of the shares may be deemed to be "underwriters" within the meaning of
ss.2(11) of the Securities Acts of 1933, and any commissions received by them
and any profit on any resale of the shares as principal might be deemed to be
underwriting discounts and commissions under the Securities Act.
If any selling shareholder enters into an agreement to sell his or her
shares to a broker-dealer as principal, and the broker-dealer is acting as an
underwriter, we will file a post-effective amendment to the registration
statement, of which this prospectus is a part, identifying the broker-dealer,
providing required information concerning the plan of distribution, and
otherwise revising the disclosures in this prospectus as needed. We will also
file the agreement between the selling shareholder and the broker-dealer as an
exhibit to the post-effective amendment to the registration statement.
The selling stockholders may also sell their shares pursuant to Rule 144
under the Securities Act of 1933.
We have advised the selling shareholders that they and any securities
broker/dealers or others who may be deemed to be statutory underwriters will be
subject to the prospectus delivery requirements under the Securities Act of
1933. We have also advised each selling shareholder that in the event of a
"distribution" of the shares owned by the selling shareholder, such selling
shareholder, any "affiliated purchasers", and any broker/dealer or other person
who participates in the distribution may be subject to Rule 102 of Regulation M
under the Securities Exchange Act of 1934 ("1934 Act") until their participation
in that distribution is completed. Rule 102 makes it unlawful for any person who
is participating in a distribution to bid for or purchase stock of the same
class as is the subject of the distribution. A "distribution" is defined in Rule
102 as an offering of securities "that is distinguished from ordinary trading
transactions by the magnitude of the offering and the presence of special
selling efforts and selling methods". We have also advised the selling
shareholders that Rule 101 of Regulation M under the 1934 Act prohibits any
"stabilizing bid" or "stabilizing purchase" for the purpose of pegging, fixing
or stabilizing the price of the common stock in connection with this offering.
DESCRIPTION OF SECURITIES
Common Stock
We are authorized to issue 100,000,000 shares of common stock. Holders of
common stock are each entitled to cast one vote for each share held of record on
all matters presented to shareholders. Cumulative voting is not allowed; hence,
the holders of a majority of the outstanding common stock can elect all
directors.
Holders of common stock are entitled to receive such dividends as may be
declared by the Board of Directors out of funds legally available therefore and,
in the event of liquidation, to
23
share pro rata in any distribution of our assets after payment of liabilities.
The board is not obligated to declare a dividend. It is not anticipated that
dividends will be paid in the foreseeable future.
Holders of common stock do not have preemptive rights to subscribe to
additional shares if issued by us. There is no conversion, redemption, sinking
fund or similar provisions regarding the common stock. All outstanding shares of
common stock are fully paid and non-assessable.
Preferred Stock
We are authorized to issue up to 20,000,000 shares of Preferred Stock. Our
Articles of Incorporation provide that the Board of Directors has the authority
to divide the Preferred Stock into series and, within the limitations provided
by the Colorado Business Corporation Act, to fix by resolution the voting power,
designations, preferences, and relative participation, special rights, and the
qualifications, limitations or restrictions of the shares of any series so
established. As the Board of Directors has authority to establish the terms of,
and to issue, the Preferred Stock without shareholder approval, the Preferred
Stock could be issued to defend against any attempted take-over of our company.
In connection with the acquisition of Liquor Group Wholesale, we issued
953,460 shares of our Series A preferred stock to the shareholders of Liquor
Group Wholesale. Each Series A preferred share may, at the option of the Holder,
be converted into 45 shares of our common stock. Each Series A preferred share
is entitled to 45 votes on any matter submitted to our shareholders. Each Series
A preferred share is entitled to an annual dividend of $1.00 per share, if such
a dividend is authorized by our directors. Our directors are not required to
declare any dividends and dividends not declared will not accumulate.
The Series A preferred shares may not be converted until September 1,
2008. Vigor Holding Company and C.J. Eiras, the largest holders of the Series A
preferred shares, have agreed that between September 1, 2008 and August 31,
2012, they will convert not more than 10,000 preferred shares (or 20,000 shares
in total) during each year. We will not register any shares of common stock
issuable upon the conversion of the Series A preferred shares and it is not
expected that a public market will ever develop for the Series A preferred
shares.
Any shares of common stock issuable upon the conversion of the Series A
preferred shares will be restricted securities and may, after August 31, 2008,
be sold to a market-maker or in brokerage transactions, provided that the amount
sold does not, during any three-month period, exceed l% of our outstanding
common stock.
Transfer Agent
- --------------
Computershare Trust Co., Inc.
350 Indiana St., Suite 800
Golden, CO 80401-5099
Telephone 303-262-0600
Fax 303-262-0604.
24
INDEMNIFICATION
Our Bylaws authorize indemnification of a director, officer, employee or
agent of LGW against expenses incurred by him in connection with any action,
suit, or proceeding to which he is named a party by reason of his having acted
or served in such capacity, except for liabilities arising from his own
misconduct or negligence in performance of his duty. In addition, even a
director, officer, employee, or agent of LGW who was found liable for misconduct
or negligence in the performance of his duty may obtain such indemnification if,
in view of all the circumstances in the case, a court of competent jurisdiction
determines such person is fairly and reasonably entitled to indemnification.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers, or persons controlling LGW
pursuant to the foregoing provisions, we have been informed that in the opinion
of the Securities and Exchange Commission, such indemnification is against
public policy as expressed in the Act and is therefore unenforceable.
AVAILABLE INFORMATION
We have filed with the Securities and Exchange Commission a Registration
Statement on Form SB-2 (together with all amendments and exhibits) under the
Securities Act of 1933, as amended, with respect to the Securities offered by
this prospectus. This prospectus does not contain all of the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Securities and Exchange
Commission. For further information, reference is made to the Registration
Statement which may be read and copied at the Commission's Public Reference Room
at 100 F. Street, N.E., Washington, D.C. 20549. The public may obtain
information on the operation of the Public Reference Room by calling the
Commission at 1-800-SEC-0330. The Registration Statement is also available at
www.sec.gov, the website of the Securities and Exchange Commission.
25
NORTH AMERICAN FOOD AND BEVERAGE CORP.
d/b/a LIQUOR GROUP WHOLESALE, INC.
INDEX TO FINANCIAL STATEMENTS
Page
Number
------
Audited Financial Statements
Report of Independent Registered Public Accounting Firm F-1
Balance sheets as of December 31, 2006 and 2005 F-2
Statements of operations for the years ended December 31, 2006 and 2005 F-3
Statements of changes in stockholders' deficit for the years ended
December 31, 2006 and 2005 F-4
Statements of cash flows for the years ended December 31, 2006 and 2005 F-5
Notes to financial statements for the years ended December 31, 2006
and 2005 F-6 - F-17
Interim Unaudited Financial Statements
- --------------------------------------
Balance sheet as of September 30, 2007 (unaudited) F-19
Statements of operations for the three and nine months
ended September 30, 2007 (unaudited) F-20
Statements of changes in stockholders' equity for the
three and nine months ended September 30, 2007 (unaudited) F-21
Statements of cash flows for the three and nine months
ended September 30, 2007 (unaudited) F-22
Notes to financial statements for the three and nine months
ended September 30, 2007 (unaudited) F-23 - F-32
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE BOARD OF DIRECTORS
NORTH AMERICAN FOOD AND BEVERAGE CORP.
d/b/a LIQUOR GROUP WHOLESALE, INC.
We have audited the accompanying balance sheets of North American Food and
Beverage Corp. d/b/a Liquor Group Wholesale, Inc. (the "Company"), as of
December 31, 2006 and 2005, and the related statements of operations, changes in
stockholders' deficit, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company as of December 31,
2006 and 2005, and the related statements of operations, deficiency in assets,
and cash flows for the years then ended, in conformity with accounting
principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As described in Note 2 to the financial
statements, the Company has suffered losses from operations and has a negative
tangible net worth that raised substantial doubt about its ability to continue
as a going concern. Management's plans in regard to these matters are also
described in Note 2. The accompanying financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
STEVENS, POWELL & COMPANY, P.A.
Jacksonville, Florida
November 13, 2007
F-1
NORTH AMERICAN FOOD AND BEVERAGE CORP.
d/b/a LIQUOR GROUP WHOLESALE, INC.
BALANCE SHEETS
DECEMBER 31, 2006 AND 2005
2006 2005
---- ----
ASSETS
Cash and cash equivalents $ 80 $ 33
----------- -----------
TOTAL ASSETS $ 80 $ 33
=========== ===========
LIABILITIES
Class 4 debtors, claims in bankruptcy
(Note 2) $3,500,000 $3,500,000
Due to Internal Revenue Service (Note 6) 135,429 123,203
Accounts payable 59,694 59,694
Notes payable, unsecured, without interest
(Note 3) 93,400 69,850
----------- -----------
Total current liabilities 3,788,523 3,752,747
----------- -----------
COMMITMENTS AND CONTINGENCIES - -
----------- -----------
TOTAL LIABILITIES 3,788,523 3,752,747
----------- -----------
STOCKHOLDERS' DEFICIT
Common stock, $0.0001 par value, 100,000,000
shares authorized, 8,717,562 issued and
outstanding 872 872
Additional paid in capital 434,099 434,099
Retained deficit (4,223,414) (4,187,685)
----------- -----------
Total stockholders' deficit (3,788,443) (3,752,714)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 80 $ 33
=========== ===========
The accompanying notes are an integral part of these financial statements.
F-2
NORTH AMERICAN FOOD AND BEVERAGE CORP.
d/b/a LIQUOR GROUP WHOLESALE, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005
2006 2005
---- ----
OPERATING EXPENSES
Professional and consulting fees $ 13,265 $ 20,214
Interest expense 12,226 8,026
Telephone 2,856 2,899
Office expense 851 1,845
Automobile and travel 5,788 1,019
Postage and delivery 238 602
Storage - 572
Other 505 563
-------------- -------------
Total operating expenses 35,729 35,740
-------------- -------------
OPERATING LOSS 35,729 35,740
-------------- -------------
OTHER EXPENSES
Loss on disposal of fixed assets - 2,946
-------------- -------------
Total other expense - 2,946
-------------- -------------
LOSS BEFORE PROVISION (BENEFIT)
FOR INCOME TAXES 35,729 38,686
-------------- -------------
PROVISION (BENEFIT) FOR INCOME TAXES (Note 6)
Current - -
Deferred - -
-------------- -------------
Total provision (benefit) for income taxes - -
-------------- -------------
NET LOSS $ 35,729 $ 38,686
============== =============
The accompanying notes are an integral part of these financial statements.
F-3
NORTH AMERICAN FOOD AND BEVERAGE CORP.
d/b/a LIQUOR GROUP WHOLESALE, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005
Common Stock Additional
Voting Paid in Retained Stockholders'
Shares Amount Capital Deficit Deficit
---------- -------- ---------- -------- -------------
Balance, December 31, 2004 8,717,562 $ 872 $ 434,099 $ (4,148,999) $ (3,714,028)
Net loss - - - (38,686) (38,686)
---------- ---------- ---------- ------------- --------------
Balance, December 31, 2005 8,717,562 872 434,099 (4,187,685) (3,752,714)
Net loss - - - (35,729) (35,729)
---------- ---------- ---------- ------------- --------------
Balance, December 31, 2006 8,717,562 $ 872 $ 434,099 $ (4,223,414) $ (3,788,443)
========== ========== ========== ============= ==============
The accompanying notes are an integral part of these financial statements.
F-4
NORTH AMERICAN FOOD AND BEVERAGE CORP.
d/b/a LIQUOR GROUP WHOLESALE, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005
2006 2005
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Cash paid to suppliers, professionals, and consultants $ (23,503) $ (10,791)
Increase in notes payable used for operating activities 23,550 8,700
Interest received - -
Interest paid - -
------------ ------------
Net cash provided (used) by operating activities 47 (2,091)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net cash provided (used) by investing activities - -
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net cash provided (used) by financing activities - -
------------ ------------
NET INCREASE (DECREASE)
IN CASH AND CASH EQUIVALENTS 47 (2,091)
CASH AND CASH EQUIVALENTS, BEGINNING 33 2,124
------------ ------------
CASH AND CASH EQUIVALENTS, ENDING $ 80 $ 33
============ ============
RECONCILIATION OF NET LOSS TO NET CASH
PROVIDED (USED) BY OPERATING ACTIVITIES
Net loss $ (35,729) $ (38,686)
------------ ------------
Adjustments to reconcile net loss to net cash provided (used)
by operating activities:
Loss on disposal of fixed assets - 2,946
Changes in assets and liabilities:
Increase in:
Accounts payable - 16,923
Notes payables 23,550 8,700
Other liabilities 12,226 8,026
------------ ------------
Total adjustments 35,776 36,595
------------ ------------
Net cash provided (used) by operating activities $ 47 $ (2,091)
============ ============
The accompanying notes are an integral part of these financial statements.
F-5
NORTH AMERICAN FOOD AND BEVERAGE CORP.
d/b/a LIQUOR GROUP WHOLESALE, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Description and Activity - North American Food and Beverage Corp. d/b/a
Liquor Group Wholesale, Inc. ("the Company" or "LGW"), is a Colorado corporation
that prior to September 1999 conducted its business under the name USA Service
Systems, Inc. ("USA"). Between November 1998 and July 1999, USA provided retail
stores and manufacturers with product assembly, product demonstrations,
point-of-sale product displays, and inventory counts and audits.
As of July 1999, USA had entered into letters of intent for the acquisition of
four companies engaged in the same business as that conducted by USA. However,
USA was unable to obtain additional equity capital that was needed to finance
these acquisitions. In July 1999, USA essentially discontinued its business and
made plans to distribute its remaining assets (having a minimal value) to
certain officers and directors of USA.
Effective August 31, 1999, USA acquired all of the issued and outstanding shares
of East Coast Beverage Corp. ("East Coast"), in exchange for 5,040,000 shares of
USA's common stock. In connection with this transaction, the management of USA
resigned and was replaced by the management of East Coast. After August 31,
1999, the Company's business involved the development, production, and
distribution of Coffee House USA, a proprietary line of all-natural, ready to
drink bottled coffee drinks.
In February 2000, USA changed its name to East Coast Beverage Corp.
The Company sold its products through distributors and wholesalers to
supermarkets, mass-marketers, convenience stores, drug store chains, and oil
company convenience stores. However, the Company was never able to generate a
profit. During the year ended December 31, 2000, the Company estimated that it
had lost in excess of $10,000,000. The Company has not prepared any financial
statements since that date but it is believed that the Company's losses since
December 31, 2000 have been substantial.
Because of the Company's inability to raise capital to fund its continuing
operating losses, the Company discontinued its bottled coffee operations in
October 2001.
On November 27, 2001, William Smith became the sole officer and director of the
Company. His objective was to reorganize the Company without the necessity of a
bankruptcy proceeding. Mr. Smith's plan was to have substantially all the
Company's creditors agree to accept shares of the Company's common stock in
settlement of amounts owed to the creditors by the Company. Although many
creditors were willing to accept the plan proposed by Mr. Smith, a number of
creditors refused to agree to the Smith proposal.
F-6
NORTH AMERICAN FOOD AND BEVERAGE CORP.
d/b/a LIQUOR GROUP WHOLESALE, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
On April 11, 2002, the Company filed a petition for reorganization under Chapter
11 of the Federal Bankruptcy Code in the United States Bankruptcy Court for the
Southern District of Florida (Case No. 02-22675-BKC-PGH). After its bankruptcy
filing, and in accordance with the provisions of the Federal Bankruptcy Code, a
committee of the Company's largest unsecured creditors was formed to assist in
the reorganization of the Company. The Creditors Committee developed a Plan of
Reorganization of the Company that was approved by a majority of the Company's
creditors, and confirmed by the Federal Bankruptcy Court on July 8, 2003. A
final decree and discharge of trustee was entered in the bankruptcy on January
31, 2005.
Among other things, the Plan of Reorganization provided for the following:
1. The reverse split of East Coast's common stock so that each outstanding
share was converted into 1/15th of one share. Since there were 15,704,469
outstanding shares prior to the bankruptcy, 1,046,965 shares were retained
by East Coast's shareholders after the reverse split. In addition, each
common shareholder received one warrant for each share held after the
reverse split. Each warrant entitles the holder to purchase one share of
East Coast's common stock at a price of $1.75 per share at any time prior to
January 1, 2008.
2. The issuance of 2,000,000 shares of East Coast's common stock to Royal
Brokerage Group in exchange for 10% of the gross revenues which may be
received by Royal from the sale of olive oil products.
3. Unsecured creditors (Class 4 creditors) could either obtain payment of their
claims, up to a maximum of $3,500,000 from a percentage of East Coast's
profits over time or convert their debt into shares of LGW's common stock at
a conversion rate of $1.75 per share.
4. The change of East Coast's name to North American Food and Beverage Corp.
("North American").
When it became apparent that commissions from the sale of olive oil would
generate little, if any, revenues which could be used to pay its creditors,
North American (formerly East Coast) began to look for a privately held
corporation which would be interested in a merger to take advantage of North
American's net operating losses and shareholder base.
In 2006, North American began discussions with Liquor Group Holdings LLC, a
Florida limited liability company, which, since 2002, has been engaged in the
wholesale and state level distribution of liquor.
In January 2007, North American signed an agreement to acquire Liquor Group
Wholesale, Inc. ("Liquor Group Wholesale") in return for shares of North
American's common and Series A preferred stock.
F-7
NORTH AMERICAN FOOD AND BEVERAGE CORP.
d/b/a LIQUOR GROUP WHOLESALE, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Liquor Group Wholesale is a Florida corporation, which was formed in September
5, 2007, to take over the wholesale alcohol distribution operations of Liquor
Group Holdings. Pursuant to an agreement between LGW and Liquor Group Holdings,
LGW manages all wholesale operations and receives all net profits generated from
the wholesale distribution of liquor to the customers of Liquor Group Holdings.
Liquor Group Holdings was organized in Florida in 2002 and distributes alcohol
products on behalf of manufacturers in 31 U.S. states.
The acquisition of Liquor Group Wholesale was contingent upon the following:
1. The return and cancellation of up to 2,000,000 shares of North American's
common stock.
2. Persons holding Class 4 creditor claims of not less than $3,250,000
agreeing to waive any right they may have to any distributions contemplated
by the Plan of Reorganization and accepting one share of North American's
common stock in full settlement of each $24.50 owed to them by North
American.
On August 31, 2007, North American met these contingencies and acquired Liquor
Group Wholesale in consideration for the issuance of the shares of North
American's common and Series A Preferred stock (see Note 8).
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles 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 revenues and expenses during the
reporting period. Actual results could differ from those estimates.
The Company has recorded a deferred tax asset of approximately $9,644,000 and
$9,631,000 at December 31, 2006 and 2005, respectively, which is completely
offset by a valuation allowance. Realization of the deferred tax asset is
dependent on generating sufficient taxable income in the future. The amount of
the deferred tax asset considered realizable could change in the near term if
estimates of future taxable income are modified or as net operating loss
carryforward periods expire.
Cash and Equivalents - For purposes of the statement of cash flows, the Company
considers cash and highly liquid securities (consisting of a
non-interest-bearing checking account) with an original maturity or redemption
option of three months or less to be cash and equivalents.
During 2006 and 2005, the Company maintained cash and equivalents with a bank.
Bank deposits are insured by the FDIC up to $100,000. The Company may, from time
to time, maintain balances in excess of these insured limits.
F-8
NORTH AMERICAN FOOD AND BEVERAGE CORP.
d/b/a LIQUOR GROUP WHOLESALE, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes - The Company accounts for income taxes under the liability method
according to Statement of Financial Accounting Standards No. 109. Deferred tax
assets and liabilities are recognized for future tax consequences attributable
to differences between the financial statements' carrying amounts of existing
assets and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled.
Through December 31, 1998, the Company had elected, with the consent of the
stockholders, to be taxed under S Corporation provisions of the Internal Revenue
Code. Under these provisions, the taxable income of the Company is reflected by
the stockholders on their personal income tax returns. Effective January 1,
1999, in contemplation of issuing preferred stock, the Company terminated its S
Corporation status.
Net Loss Per Share - During 2006 and 2005, the Company had average common shares
outstanding totaling 8,717,562 and the net loss per share was $0.004 for both
2006 and 2005.
Fair Value of Financial Instruments - The carrying values of cash and
equivalents, notes payable, and other liabilities, approximate their fair values
due to the short maturity of these instruments.
Comprehensive Income - The items affecting comprehensive income are not material
to the financial statements and, accordingly, are not presented herein.
Recent Accounting Pronouncements - In March 2006, the FASB issued Statement of
Financial Accounting Standards No. 156, Accounting for Servicing Financial
Assets, an amendment of SFAS No. 140 ("SFAS 156"). This statement amends SFAS
140 to require that all separately recognized servicing assets and liabilities
be initially measured at fair value, if practical. The effective date of this
statement is as of the beginning of its first fiscal year that begins after
September 15, 2006; however, early adoption is permitted as of the beginning of
any fiscal year, provided the entity has not issued financial statements for the
interim period. The initial recognition and measurement of servicing assets and
servicing liabilities are required to be applied prospectively to transactions
occurring after the effective date. The adoption of SFAS 156 is not expected to
have a material impact on the Company's financial position, results of
operations, or liquidity.
In July 2006, the FASB issued FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes ("FIN 48"). FIN 48 clarifies the accounting for
uncertainty in income taxes recognized in an enterprise's financial statements
in accordance with SFAS 109, Accounting for Income Taxes. FIN 48 prescribes a
recognition threshold and measurement attributable for the financial statement
recognition and measurement of a tax position taken or expected to be taken
F-9
NORTH AMERICAN FOOD AND BEVERAGE CORP.
d/b/a LIQUOR GROUP WHOLESALE, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
in a tax return. FIN 48 also provides guidance on derecognition, classification,
interest and penalties, accounting in interim periods, disclosures, and
transitions. FIN 48 is effective for fiscal years beginning after December 15,
2006. The adoption of FIN 48 is not expected to have a material impact on the
Company's financial position, results of operations, or liquidity.
In September, 2006, the FASB issued Statement of Financial Accounting Standards
No. 157, Fair Value Measurements ("SFAS 157"). This statement defines fair
value, establishes a framework for measuring fair value in generally accepted
accounting principles (GAAP), and expands disclosures about fair value
measurements. This Statement applies under other accounting pronouncements that
require or permit fair value measurements, the FASB having previously concluded
in those accounting pronouncements that fair value is the relevant measurement
attribute. Accordingly, this statement does not require any new fair value
measurements. However, for some entities, the application of this statement will
change current practice. In developing this statement, the FASB considered the
need for increased consistency and comparability in fair value measurements and
for expanded disclosures about fair value measurements. This statement is
effective for financial statements issued for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal years. The adoption
of SFAS 157 is not expected to materially impact the Company's financial
position, results of operations, or liquidity.
In September 2006, the SEC issued Staff Accounting Bulletin No. 108 ("SAB 108").
SAB 108 provides interpretive guidance on how the effects of the carryover or
reversal of prior year misstatements should be considered in quantifying a
potential current year misstatement. Prior to SAB 108, companies might evaluate
the materiality of financial statement misstatements using either the income
statement or balance sheet approach, with the income statement approach focusing
on new misstatements added in the current year, and the balance sheet approach
focusing on the cumulative amount of misstatement present in a company's balance
sheet. Misstatements that would be material under one approach could be viewed
as immaterial under another approach, and not be corrected. SAB 108 now requires
that companies view financial statement misstatements as material if they are
material according to either the income statement or balance sheet approach.
Management has analyzed SAB 108 and determined that upon adoption it will have
no impact on the Company's reported results of operations or financial
conditions.
In February 2007, the FASB issued Statement of Financial Accounting Standards
No. 159, The Fair Value Option for Financial Assets and Financial Liabilities -
including an amendment of FASB Statement No. 115 ("SFAS 159"). This statement
permits entities to choose to measure many financial instruments and certain
other items at fair value. The objective is to improve financial reporting by
providing entities with the opportunity to mitigate volatility in reported
earnings caused by measuring related assets and liabilities differently without
having to apply complex hedge accounting provisions. SFAS 159 is expected to
expand the use of fair value
F-10
NORTH AMERICAN FOOD AND BEVERAGE CORP.
d/b/a LIQUOR GROUP WHOLESALE, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
measurement, which is consistent with the Board's long-term measurement
objectives for accounting for financial instruments. SFAS 159 is effective as of
the beginning of an entity's first fiscal year that begins after November 15,
2007. Early adoption is permitted as of the beginning of a fiscal year that
begins on or before November 15, 2007, provided the entity also elects to apply
the provisions of SFAS 157. The Company not completed its evaluation of this
statement; however, the initial assessment is that adoption will not materially
impact its financial position, results of operations, or liquidity.
In June 2007, the FASB ratified an Emerging Issues Task Force (EITF) consensus
regarding Accounting for Income Tax Benefits of Dividends on Share-Based Payment
Awards, which becomes effective for us on January 1, 2008. Management has not
completed its review of this guidance, but expects the effect upon
implementation will not materially impact the Company's financial position,
results of operations, or liquidity.
Also, recently, the FASB has issued several proposals to amend, supersede, or
interpret existing accounting standards, which may impact our financial
statements at a later date:
o Proposed amendment to SFAS 128, Earnings per Share;
o Proposed replacement of SFAS 141 regarding Business Combinations; and
o Proposed replacement of Accounting Research Bulletin No. 151 regarding
Consolidated Financial Statements, Including Accounting and Reporting
for Noncontrolling Interests.
A variety of proposed or otherwise potential accounting standards are currently
under study by standard-setting organizations and various regulatory agencies.
Because of the tentative and preliminary nature of these proposed standards,
management has not determined whether implementation of such proposed standards
would be material to our financial statements.
NOTE 2 - GOING CONCERN
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplate continuation of the
Company as a going concern. The Company has sustained substantial operating
losses and negative cash flows from operations since inception. In the absence
of achieving profitable operations and positive cash flows from operations or
obtaining additional debt or equity financing, the Company may have difficulty
meeting current obligations.
F-11
NORTH AMERICAN FOOD AND BEVERAGE CORP.
d/b/a LIQUOR GROUP WHOLESALE, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005
NOTE 2 - GOING CONCERN (Continued)
Plan of Operation - Following its bankruptcy filing, the Company planned to
derive revenue from the sale of olive oil products and the sale of beverages.
The Company was not successful in implementing this business plan.
In 2006, the Company began negotiating with Liquor Group Holdings, LLC, a
Florida limited liability company, which, since 2002, has been engaged in the
wholesale and retail distribution of liquor. In 2007, the Company reached an
agreement with Liquor Group to acquire Liquor Group Wholesale, Inc. ("LGW"), in
return for shares of the Company's common stock and preferred stock (see Notes 1
and 8 for additional information).
In view of these matters, realization of a major portion of the assets in the
accompanying balance sheet is dependent upon continued operations of the
Company, which in turn is dependent upon the Company's ability to meet its
financial obligations. Management believes that actions presently being taken,
as described in the preceding paragraph, provide the opportunity for the Company
to continue as a going concern.
NOTE 3 - NOTES PAYABLE
The Company has recorded demand notes payable totaling $93,400 and $69,850 at
December 31, 2006 and 2005, respectively, to certain related parties. The
Company had been negotiating to convert this debt to common stock. However, the
total amount outstanding is in dispute with three of the four creditors. As of
September 30, 2007, those creditors have demanded amounts totaling $128,908
(including interest of $26,232). The principal balance of $78,900 reflected in
the Company records for these creditors was based on advances deposited into
Company bank accounts, which totaled $78,900, excluding interest. Accordingly,
the amounts in dispute at September 30, 2007, total $50,008 including interest.
In addition, these creditors have indicated that they do not plan to convert any
of this debt to common stock. The fourth creditor with $14,500 has agreed to
convert this debt for 8,000 shares of common stock in 2007.
NOTE 4 - STOCKHOLDERS' DEFICIT
Preferred Stock - The Company is authorized to issue up to 20,000,000 shares of
preferred stock. The Company's Articles of Incorporation provide that the Board
of Directors has the authority to divide the preferred stock into series and,
within the limitations provided by the Colorado Business Corporation Act, to fix
by resolution the voting power, designations, preferences, and relative
participation, special rights, and the qualifications, limitations or
restrictions of the shares of any series so established. As the Board of
Directors has authority to establish the terms of, and to issue, the preferred
stock without shareholder approval, the Preferred Stock could be issued to
defend against any attempted takeover of the Company. At December 31, 2006 and
2005, no preferred stock had been issued.
F-12
NORTH AMERICAN FOOD AND BEVERAGE CORP.
d/b/a LIQUOR GROUP WHOLESALE, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005
NOTE 4 - STOCKHOLDERS' DEFICIT (Continued)
Common Stock - The Company is authorized to issue 100,000,000 shares of common
stock. Holders of common stock are each entitled to cast one vote for each share
held of record on all matters presented to shareholders. Cumulative voting is
not allowed; hence, the holders of a majority of the outstanding common stock
can elect all directors.
Holders of common stock are entitled to receive such dividends as may be
declared by the Board of Directors out of funds legally available therefore and,
in the event of liquidation, to share pro rata in any distribution of the
Company's assets after payment of liabilities. The board is not obligated to
declare a dividend. It is not anticipated that dividends will be paid in the
foreseeable future.
Holders of common stock do not have preemptive rights to subscribe to additional
shares if issued by the Company. There is no conversion, redemption, sinking
fund, or similar provisions regarding the common stock. All outstanding shares
of common stock are fully paid and non-assessable.
NOTE 5 - RELATED PARTY TRANSACTIONS
In addition to the Notes Payable (see Note 3) outstanding to Mr. William R.
Smith and related parties, the Company has expensed consulting and other fees to
Mr. Smith and related parties in 2006 and 2005 totaling $13,265 and $4,237,
respectively.
All other obligations to related parties have been cancelled either in the
confirmed Plan of Reorganization or pursuant to the transaction with LGW (see
Note 2).
NOTE 6 - INCOME TAXES
The components of the income tax benefit for the years ended December 31, 2006
and 2005, were as follows:
Years Ended December 31,
2006 2005
---- ----
Current Benefit:
Federal $ - $ -
State - -
Deferred Benefit:
Federal (11,440) (12,387)
State (1,959) (2,121)
Increase in Valuation Allowance 13,399 14,508
--------- ---------
Total income tax provision $ - $ -
========= =========
F-13
NORTH AMERICAN FOOD AND BEVERAGE CORP.
d/b/a LIQUOR GROUP WHOLESALE, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005
NOTE 6 - INCOME TAXES (Continued)
The major elements contributing to the difference between the income tax benefit
and the amount computed by applying the federal statutory tax rate of 34% to
loss before income taxes are as follows for 2006 and 2005:
Years Ended December 31,
2006 2005
---- ----
Tax benefit at U.S. Statutory rates $(11,440) $(12,387)
State income tax benefit (1,959) (2,121)
Change in valuation allowance 13,399 14,508
---------- ---------
Income tax benefit $ - $ -
========== =========
At December 31, 2006 and 2005, the Company had deferred tax assets of $9,644,000
and $9,631,000, respectively, principally comprised of net operating losses. The
deferred tax assets were offset by a valuation allowance in the same amount.
Deferred tax assets, net of a valuation allowance, are recorded when management
believes it is more likely than not that tax benefits will be realized.
The Company has net operating loss carryforwards totaling approximately $25.8
million that begin expiring in 2014.
Prior to July 2003, the Company failed to pay its withheld income and employment
taxes for its employees. In 2003, the Company entered into an installment
agreement to pay 36 equal payments of $5,710 to satisfy its obligation. Payments
were discontinued in late-2004, and on June 8, 2006, the Internal Revenue
Service filed a Notice of Federal Tax Lien in the amount of $128,762. The
Company has estimated its liability at December 31, 2006 and 2005, at $135,429
and $123,203, respectively. However, the Company has been negotiating a
reduction in the remaining amount due.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
Contingencies - The Company is involved in various claims and legal proceedings
of a nature considered normal to its business. The Company believes that the
results of these claims will not have a material adverse effect on the Company's
financial condition.
In connection with the confirmed Plan of Reorganization, various obligations
including leases, employment agreements, options, and other commitments were
discharged in bankruptcy. Additional obligations have been limited or otherwise
canceled in connection with the LGW transaction (see Note 2).
F-14
NORTH AMERICAN FOOD AND BEVERAGE CORP.
d/b/a LIQUOR GROUP WHOLESALE, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005
NOTE 8 - SUBSEQUENT EVENTS
On January 31, 2007, the Securities Exchange Commission conducted its
administrative proceedings against the Company, which included revocation of the
Company's securities that at the time were traded under the symbol "NFBC" on the
over-the-counter markets.
On January 28, 2007, an agreement was executed whereby the Company acquired all
the issued and outstanding stock of Liquor Group Wholesale Inc. ("LGW"), in
exchange for shares of the Company's common (to a maximum of 49.9%) stock and
preferred stock. LGW is a Florida-based corporation. As part of the agreement,
the Company is offering up to 1,125,000 shares through a private offering at
$2.00 per share.
On August 31, 2007, North American met these contingencies and acquired Liquor
Group Wholesale in consideration for the issuance of the shares of North
American's common and Series A Preferred stock. Each Series A preferred share
may, at the option of the Holder, be converted into 45 shares of LGW's common
stock. Each Series A preferred share is entitled to 45 votes on any matter
submitted to the shareholders of LGW. Each Series A preferred share is entitled
to an annual dividend of $1.00 per share, if such a dividend is authorized by
LGW's directors. LGW's directors are not required to declare any dividends, and
dividends not declared will not accumulate.
The Series A preferred shares may not be converted until September 1, 2008.
Vigor Holding Company and C.J. Eiras, the largest holders of the Series A
preferred shares, have agreed that, unless LGW is sold or merged into an
unaffiliated corporation, between September 1, 2008 and August 31, 2012 they
will convert not more than 10,000 preferred shares (or 20,000 shares in total)
each year. LGW will not register any shares of common stock issuable upon the
exercise of the Series A preferred shares, and it is not expected that a public
market will ever develop for the Series A preferred shares.
The shares of common stock outstanding after the acquisition of Liquor Group
Wholesale, and as of September 30, 2007, as well as the shares that may be
issued upon the conversion of the Series A preferred stock and the exercise of
outstanding warrants are shown below:
Shares outstanding prior to acquisition of Liquor
Group Wholesale 8,717,562
Shares of common stock issued to the shareholders of
Liquor Group Wholesale 2,000,000
Shares issued to Class 4 creditors in settlement of their
claims 124,985
Shares returned to treasury and cancelled (2,000,000)
Shares issued to Arnold Rosen for his services in structuring
the acquisition of Liquor Group Holdings 500,000
Shares issued to Arnold Rosen in payment of amounts advanced to
or on behalf of LGW 33,972
F-15
NORTH AMERICAN FOOD AND BEVERAGE CORP.
d/b/a LIQUOR GROUP WHOLESALE, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005
NOTE 8 - SUBSEQUENT EVENTS (Continued)
Shares issued to unrelated third parties in payment of amounts
owed by LGW prior to the acquisition of Liquor Group Holdings 63,038
Shares sold to private investors at a price of $2.00 per share 65,000
-------------
9,504,557
Shares that may be issued in the future:
Shares issuable upon exercise of outstanding warrants 1,046,965(1)
Potential number of shares issuable upon conversion
of Series A preferred shares 42,905,700(2)
-------------
Total potential outstanding shares 53,457,222
=============
(1) As part of its bankruptcy plan North American (now LGW) issued warrants to
its shareholders. Each warrant entitles the holder to purchase one share of
LGW's common stock at a price of $1.75 per share. The warrants expire on
January 1, 2008.
(2) Any shares of common stock issuable upon the conversion of the Series A
preferred shares will be restricted securities and may, after August 31,
2008, be sold to a market-maker or in brokerage transactions, provided that
the amount sold does not, during any three-month period, exceed 1% of LGW's
outstanding common stock.
The following table outlines, for the periods presented, the maximum
increase in LGW's outstanding common shares upon the allowable conversion
of the Series A preferred shares and the shares of LGW's common stock
available for resale upon the conversion of the preferred shares. The
numbers in the table assume there is no change in the control of LGW prior
to September 30, 2012.
2008 -0-
2009 2,225,000
2010 900,000
2011 900,000
2012 900,000
------------
4,925,000
Shares issuable upon conversion of all
remaining Series A Preferred shares 37,980,700*
----------
Total 42,905,700
==========
F-16
NORTH AMERICAN FOOD AND BEVERAGE CORP.
d/b/a LIQUOR GROUP WHOLESALE, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005
NOTE 8 - SUBSEQUENT EVENTS (Continued)
* This total is not the number of common shares that can be sold, but only
the total number of shares allowed to be converted. There is a
restriction that the amount of common shares allowed to be sold during
any three-month period, cannot exceed 1% of LGW's outstanding common
stock.
F-17
NORTH AMERICAN FOOD AND BEVERAGE CORP.
d/b/a LIQUOR GROUP WHOLESALE, INC.
INTERIM UNAUDITED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS
ENDED SEPTEMBER 30, 2007
F-18
NORTH AMERICAN FOOD AND BEVERAGE CORP.
d/b/a LIQUOR GROUP WHOLESALE, INC.
BALANCE SHEET
SEPTEMBER 30, 2007 (UNAUDITED)
ASSETS
Cash and cash equivalents $ 47,486
Accounts receivable 1,591,067
-------------
Total current asssets 1,638,553
-------------
TOTAL ASSETS $ 1,638,553
=============
LIABILITIES
Accounts payable $ 1,243,578
Due to Internal Revenue Service 145,931
Notes payable, unsecured, without interest 78,900
-------------
Total current liabilities 1,468,409
-------------
COMMITMENTS AND CONTINGENCIES -
-------------
TOTAL LIABILITIES 1,468,409
-------------
STOCKHOLDERS' EQUITY
Convertible preferred stock, Series A, $0.0001 par value,
2,000,000 shares authorized, 953,460 issued and outstanding 95
Common stock, $0.0001 par value, 100,000,000 shares
authorized, 9,504,557 issued and outstanding 951
Additional paid in capital 158,887
Retained earnings 10,211
-------------
Total stockholders' equity 170,144
-------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,638,553
=============
The accompanying notes are an integral part of these financial statements.
F-19
NORTH AMERICAN FOOD AND BEVERAGE CORP.
d/b/a LIQUOR GROUP WHOLESALE, INC.
STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2007 (UNAUDITED)
Three months ended Nine months ended
September 30, 2007 September 30, 2007
------------------ ------------------
REVENUE
Sales $ 97,983 $ 97,983
Cost of sales 61,188 61,188
------------------ ------------------
Gross profit on sales 36,795 36,795
------------------ ------------------
EXPENSES
Insurance 16,440 16,440
Licenses and fees 8,000 8,000
Telephone 2,000 2,000
Rent 1,000 1,000
Bank service charges 203 203
------------------ ------------------
Total operating expenses 27,643 27,643
------------------ ------------------
OPERATING INCOME 9,152 9,152
------------------ ------------------
OTHER INCOME 1,059 1,059
------------------ ------------------
INCOME BEFORE PROVISION (BENEFIT)
FOR INCOME TAXES 10,211 10,211
------------------ ------------------
PROVISION (BENEFIT) FOR INCOME TAXES
Current 80,565 80,565
Deferred (80,565) (80,565)
------------------ ------------------
Total provision (benefit) for income taxes -- --
------------------ ------------------
NET INCOME $ 10,211 $ 10,211
================== ==================
The accompanying notes are an integral part of these financial statements.
F-20
NORTH AMERICAN FOOD AND BEVERAGE CORP.
d/b/a LIQUOR GROUP WHOLESALE, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2007 (UNAUDITED)
Preferred Stock Common Stock Additional Retained
Convertible Voting Paid in Earnings Stockholders'
Shares Amount Shares Amount Capital (Deficit) Equity
Balance, December 31, 2006 - $ - 8,717,562 $ 872 $ 434,099 $(4,223,414) $(3,788,443)
Issuance of common stock
for cash - - 65,000 7 129,993 - 130,000
Issuance of common stock in
exchange for debt, vendor
payables, and services - - 721,995 72 3,606,005 - 3,606,077
Shares issued in reverse
acquisition 953,460 95 2,000,000 - (4,040,104) 4,040,009 -
Shares canceled in reverse
acquisition - - (2,000,000) - - - -
Contributed assets, net of
liabilities assumed and costs
of reverse acquisition - - - - 28,894 183,405 212,299
Net income - - - - - 10,211 10,211
--------- ---------- ----------- ---------- ------------ ------------- ------------
Balance, September 30, 2007 953,460 $ 95 9,504,557 $ 951 $ 158,887 $ 10,211 $ 170,144
========= ========== =========== ========== ============ ============= ============
The accompanying notes are an integral part of these financial statements.
F-21
NORTH AMERICAN FOOD AND BEVERAGE CORP.
d/b/a LIQUOR GROUP WHOLESALE, INC.
STATEMENTS OF CASH FLOWS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2007 (UNAUDITED)
Three months ended Nine months ended
September 30, 2007 September 30, 2007
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from customers and other $ 8,749 $ 8,749
Cash paid to suppliers, professionals, and
consultants (91,283) (91,343)
Increase in notes payable used for operating activities - -
------------- -------------
Net cash used by operating activities (82,534) (82,594)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net cash provided (used) by investing activities - -
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from common stock issued 130,000 130,000
------------- -------------
Net cash provided by financing activities 130,000 130,000
------------- -------------
NET DECREASE IN CASH AND CASH EQUIVALENTS 47,466 47,406
CASH AND CASH EQUIVALENTS, BEGINNING 20 80
------------- -------------
CASH AND CASH EQUIVALENTS, ENDING $ 47,486 $ 47,486
============= =============
RECONCILIATION OF NET INCOME TO NET
CASH USED BY OPERATING ACTIVITIES
Net income $ 10,211 $ 10,211
------------- -------------
Adjustments to reconcile net income to net cash
used by operating activities:
Stock issued for services 59,501 59,501
Changes in net assets transferred in reverse
Acquisition (212,299) (212,299)
Changes in assets and liabilities:
Accounts receivable (90,293) (90,293)
Accounts payable 11,918 11,918
Other liabilities 138,428 138,368
------------- -------------
Total adjustments (92,745) (92,805)
------------- -------------
Net cash used by operating activities $ (82,534) $ (82,594)
============= =============
SUPPLEMENTAL DISCLOSURES OF NON-CASH ITEMS
Exchange of debt, vendor payables, and services
for common stock $ 3,606,077 $ 3,606,077
============= =============
The accompanying notes are an integral part of these financial statements.
F-22
NORTH AMERICAN FOOD AND BEVERAGE CORP.
d/b/a LIQUOR GROUP WHOLESALE, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2007 (UNAUDITED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying condensed financial statements include the accounts of the
North American Food and Beverage Corp. d/b/a Liquor Group Wholesale, Inc. (the
"Company" or "LGW"). The Company's primary business activity is wine and spirits
wholesale distribution, and it operates in only one reportable industry segment.
References to the Company or LGW throughout these condensed financial statements
may be made using the first-person notations of "we," "our," and "us." The
accounting and reporting policies of the Company conform with accounting
principles generally accepted in the United States of America and to general
practices within the wine and spirits wholesale distribution industry.
Our condensed financial statements for the three and nine months ended September
30, 2007, have not been audited and do not include information or footnotes
necessary for a complete presentation of financial condition, results of
operations, and cash flows in conformity with accounting principles generally
accepted in the United States of America. In management's opinion, the
accompanying condensed financial statements contain all adjustments, which are
of a normal recurring nature, necessary for a fair presentation. Our results of
operations for the interim periods are not necessarily indicative of the results
that may be expected for an entire year. The accounting policies followed by us
are set forth in the financial statements for the years ended December 31, 2006
and 2005, and are incorporated herein by reference.
In January 2007, North American Food and Beverage Corp. ("North American")
signed an agreement to acquire LGW in return for shares of North American's
common and Series A preferred stock.
LGW is a Florida corporation, which was formed in September 5, 2007, to take
over the wholesale alcohol distribution operations of Liquor Group Holdings.
Pursuant to an agreement between LGW and Liquor Group Holdings, LGW manages all
wholesale operations and receives all net profits generated from the wholesale
distribution of liquor to the customers of Liquor Group Holdings. Liquor Group
Holdings was organized in Florida in 2002 and distributes alcohol products on
behalf of manufacturers in 31 U.S. states.
The acquisition of LGW was contingent upon the following:
1. The return and cancellation of up to 2,000,000 shares of North American's
common stock.
2. Persons holding Class 4 creditor claims arising from North American's
bankruptcy filing of not less than $3,250,000 agreeing to waive any right
they may have to any distributions contemplated by the Plan of
Reorganization and accepting one share of North American's common stock in
full settlement of each $24.50 owed to them by North American.
F-23
NORTH AMERICAN FOOD AND BEVERAGE CORP.
d/b/a LIQUOR GROUP WHOLESALE, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2007 (UNAUDITED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
On August 31, 2007, North American met these contingencies and acquired Liquor
Group Wholesale in consideration for the issuance of the shares of North
American's common and Series A Preferred stock (see Note 8). In September 2007,
LGW transferred trade receivables of $1,500,774, trade payables of $1,171,966,
and other costs of $116,509 in connection with the reverse acquisition,
resulting in a net contribution of $212,299. For financial reporting purposes,
the merger has been accounted for as a recapitalization of LGW with LGW viewed
as the accounting acquirer in what is commonly called a reverse acquisition.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles 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 revenues and expenses during the
reporting period. Actual results could differ from those estimates.
The Company has recorded a deferred tax asset of approximately $9.5 million at
September 30, 2007, which is completely offset by a valuation allowance.
Realization of the deferred tax asset is dependent on generating sufficient
taxable income in the future. The amount of the deferred tax asset considered
realizable could change in the near term if estimates of future taxable income
are modified or as net operating loss carryforward periods expire.
Revenue Recognition - Revenue from product sales is recognized by the Company
when title and risk of loss passes to the distributor, which generally occurs
upon shipment from the manufacturing facilities or third party storage
facilities.
Concentration of Credit Risk - Financial instruments that potentially subject
the Company to credit risk consist principally of trade receivables. Trade
receivables terms are generally 30 days. The Company performs services and
extends credit based on an evaluation of the customers' financial condition
without requiring collateral. Exposure to losses on receivables is expected to
vary by customer due to the financial condition of each customer. The Company
monitors exposure to credit losses and maintains allowances for anticipated
losses considered necessary under the circumstances.
Income Taxes - The Company accounts for income taxes under the liability method
according to Statement of Financial Accounting Standards No. 109. Deferred tax
assets and liabilities are recognized for future tax consequences attributable
to differences between the financial statements' carrying amounts of existing
assets and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled.
F-24
NORTH AMERICAN FOOD AND BEVERAGE CORP.
d/b/a LIQUOR GROUP WHOLESALE, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2007 (UNAUDITED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Rent - The Company leases facilities and equipment using short term lease
agreements. The Company is responsible for maintenance, taxes, and other
operating costs. During the three and nine months ended September 30, 2007, rent
expense totaled $1,000.
Net Income Per Share - During the three and nine months ended September 30,
2007, the Company had average common shares outstanding totaling 8,739,540 and
8,724,969, respectively. Under the treasury method, the fully diluted common
shares outstanding for the same periods totaled 22,730,529 and 13,439,881,
respectively. For purposes of calculating fully diluted common shares
outstanding, we assumed that all of the preferred stock would be converted as of
September 1, 2007. The basic earnings per common share for both the three and
nine months ended September 30, 2007, was $0.001. The fully diluted earnings per
common share for the same periods totaled $0.001 and $-0-, respectively.
Fair Value of Financial Instruments - The carrying values of cash and
equivalents, notes payable, and other liabilities, approximate their fair values
due to the short maturity of these instruments.
Comprehensive Income - The items affecting comprehensive income are not material
to the financial statements and, accordingly, are not presented herein.
Comparative Financial Statements - Comparative financial statements for the
three and nine months ended September 30, 2006, for North American have not been
presented since North American was essentially dormant during 2006.
Recent Accounting Pronouncements - In March 2006, the FASB issued Statement of
Financial Accounting Standards No. 156, Accounting for Servicing Financial
Assets, an amendment of SFAS No. 140 ("SFAS 156"). This statement amends SFAS
140 to require that all separately recognized servicing assets and liabilities
be initially measured at fair value, if practical. The effective date of this
statement is as of the beginning of its first fiscal year that begins after
September 15, 2006; however, early adoption is permitted as of the beginning of
any fiscal year, provided the entity has not issued financial statements for the
interim period. The initial recognition and measurement of servicing assets and
servicing liabilities are required to be applied prospectively to transactions
occurring after the effective date. The adoption of SFAS 156 did not have a
material impact on our financial position, results of operations, or liquidity.
In July 2006, the FASB issued FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes ("FIN 48"). FIN 48 clarifies the accounting for
uncertainty in income taxes recognized in an enterprise's financial statements
in accordance with SFAS 109, Accounting for Income Taxes. FIN 48 prescribes a
recognition threshold and measurement attributable for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a
tax return. FIN 48 also provides guidance on derecognition, classification,
interest and
F-25
NORTH AMERICAN FOOD AND BEVERAGE CORP.
d/b/a LIQUOR GROUP WHOLESALE, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2007 (UNAUDITED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
penalties, accounting in interim periods, disclosures, and transitions. FIN 48
is effective for fiscal years beginning after December 15, 2006. The adoption of
FIN 48 did not have a material impact on our financial position, results of
operations, or liquidity.
In September, 2006, the FASB issued Statement of Financial Accounting Standards
No. 157, Fair Value Measurements ("SFAS 157"). This statement defines fair
value, establishes a framework for measuring fair value in generally accepted
accounting principles (GAAP), and expands disclosures about fair value
measurements. This Statement applies under other accounting pronouncements that
require or permit fair value measurements, the FASB having previously concluded
in those accounting pronouncements that fair value is the relevant measurement
attribute. Accordingly, this statement does not require any new fair value
measurements. However, for some entities, the application of this statement will
change current practice. In developing this statement, the FASB considered the
need for increased consistency and comparability in fair value measurements and
for expanded disclosures about fair value measurements. This statement is
effective for financial statements issued for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal years. The adoption
of SFAS 157 is not expected to materially impact our financial position, results
of operations, or liquidity.
In September 2006, the SEC issued Staff Accounting Bulletin No. 108 ("SAB 108").
SAB 108 provides interpretive guidance on how the effects of the carryover or
reversal of prior year misstatements should be considered in quantifying a
potential current year misstatement. Prior to SAB 108, companies might evaluate
the materiality of financial statement misstatements using either the income
statement or balance sheet approach, with the income statement approach focusing
on new misstatements added in the current year, and the balance sheet approach
focusing on the cumulative amount of misstatement present in a company's balance
sheet. Misstatements that would be material under one approach could be viewed
as immaterial under another approach, and not be corrected. SAB 108 now requires
that companies view financial statement misstatements as material if they are
material according to either the income statement or balance sheet approach.
Management has analyzed SAB 108 and determined that upon adoption it will have
no impact on our reported results of operations or financial conditions.
In February 2007, the FASB issued Statement of Financial Accounting Standards
No. 159, The Fair Value Option for Financial Assets and Financial Liabilities -
including an amendment of FASB Statement No. 115 ("SFAS 159"). This statement
permits entities to choose to measure many financial instruments and certain
other items at fair value. The objective is to improve financial reporting by
providing entities with the opportunity to mitigate volatility in reported
earnings caused by measuring related assets and liabilities differently without
having to apply complex hedge accounting provisions. SFAS 159 is expected to
expand the use of fair value measurement, which is consistent with the Board's
long-term measurement objectives for
F-26
NORTH AMERICAN FOOD AND BEVERAGE CORP.
d/b/a LIQUOR GROUP WHOLESALE, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2007 (UNAUDITED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
accounting for financial instruments. SFAS 159 is effective as of the beginning
of an entity's first fiscal year that begins after November 15, 2007. Early
adoption is permitted as of the beginning of a fiscal year that begins on or
before November 15, 2007, provided the entity also elects to apply the
provisions of SFAS 157. We have not completed our evaluation of this statement;
however, the initial assessment is that adoption will not materially impact our
financial position, results of operations, or liquidity.
In June 2007, the FASB ratified an Emerging Issues Task Force (EITF) consensus
regarding Accounting for Income Tax Benefits of Dividends on Share-Based Payment
Awards, which becomes effective for us on January 1, 2008. Management has not
completed its review of this guidance, but expects the effect upon
implementation will not materially impact our financial position, results of
operations, or liquidity.
Also, recently, the FASB has issued several proposals to amend, supersede, or
interpret existing accounting standards, which may impact our financial
statements at a later date:
o Proposed amendment to SFAS 128, Earnings per Share;
o Proposed replacement of SFAS 141 regarding Business Combinations; and
o Proposed replacement of Accounting Research Bulletin No. 151 regarding
Consolidated Financial Statements, Including Accounting and Reporting
for Noncontrolling Interests.
A variety of proposed or otherwise potential accounting standards are currently
under study by standard-setting organizations and various regulatory agencies.
Because of the tentative and preliminary nature of these proposed standards,
management has not determined whether implementation of such proposed standards
would be material to our financial statements.
NOTE 2 - GOING CONCERN
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplate continuation of the
Company as a going concern. The Company has sustained substantial operating
losses and negative cash flows from operations since inception. In the absence
of achieving profitable operations and positive cash flows from operations or
obtaining additional debt or equity financing, the Company may have difficulty
meeting current obligations.
F-27
NORTH AMERICAN FOOD AND BEVERAGE CORP.
d/b/a LIQUOR GROUP WHOLESALE, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2007 (UNAUDITED)
NOTE 3 - MAJOR CUSTOMERS
Individual accounts receivable balances at September 30, 2007, in excess of 10%
of total accounts receivable to affiliated and unaffiliated customers were as
follows:
% of Accounts
Amount Receivable, Net
------ ---------------
Affiliated Customers
Liquor Group Florida $1,321,339 83%
Unaffiliated Customers
ABC Michigan $ 209,596 13%
Sales to affiliated customers, Liquor Group Florida and Liquor Group Holdings,
were approximately 48% and 22%, respectively, and for ABC Michigan,
approximately 30%.
NOTE 4 - NOTES PAYABLE
The Company has recorded demand notes payable totaling $93,400 at December 31,
2006, to certain related parties. The Company had been negotiating to convert
this debt to common stock. However, the total amount outstanding is in dispute
with three of the four creditors. As of September 30, 2007, those creditors have
demanded amounts totaling $128,908 (including interest of $26,232). The
principal balance of $78,900 reflected in the Company records for these
creditors was based on advances deposited into Company bank accounts, which
totaled $78,900, excluding interest. Accordingly, the amounts in dispute at
September 30, 2007, total $50,008 including interest. In addition, these
creditors have indicated that they do not plan to convert any of this debt to
common stock. The fourth creditor with $14,500 has agreed to convert this debt
for 8,000 shares of common stock effective September 30, 2007.
NOTE 5 - INCOME TAXES
The provision (benefit) for income taxes on income is summarized as follows
(dollars in thousands):
For the three For the nine
months ended months ended
September 30, 2007 September 30, 2007
------------------ ------------------
Current:
Federal $ 68,790 $ 68,790
State 11,775 11,775
----------- -----------
$ 80,565 $ 80,565
---------- ----------
F-28
NORTH AMERICAN FOOD AND BEVERAGE CORP.
d/b/a LIQUOR GROUP WHOLESALE, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2007 (UNAUDITED)
NOTE 5 - INCOME TAXES (Continued)
For the three For the nine
months ended months ended
September 30, 2007 September 30, 2007
------------------ ------------------
Deferred:
Federal $ (68,790) $ (68,790)
State (11,775) (11,775)
----------- -----------
$ (80,565) $ (80,565)
----------- -----------
Total income tax provision (benefit) $ - $ -
=========== ===========
The major elements contributing to the difference between the income tax benefit
and the amount computed by applying the federal statutory tax rate of 34% to
loss before income taxes are as follows for the three and nine months ended
September 30, 2007:
For the three For the nine
months ended months ended
September 30, 2007 September 30, 2007
------------------ ------------------
Tax benefit at U.S. Statutory rates $ 3,472 $ 3,472
Taxable reverse acquisition costs, net 69,574 69,574
State income tax 7,519 7,519
Utilization of net operating losses (80,565) (80,565)
------------ ------------
Income tax provision (benefit) $ - $ -
============ ============
At September 30, 2007, the Company had deferred tax assets of $9.5 million,
principally comprised of net operating losses. The deferred tax assets were
offset by a valuation allowance in the same amount.
For the three and nine months ended September 30, 2007, net operating losses of
$222,510 were used to offset taxable income, which resulted in utilization of
deferred tax assets of $80,565. Deferred tax assets, net of a valuation
allowance, are recorded when management believes it is more likely than not that
tax benefits will be realized. The Company has net operating loss carryforwards
totaling approximately $25.6 million that begin expiring in 2014.
At September 30, 2007, the Company has an outstanding Federal Tax Lien of
$128,762, plus accrued interest, for an estimated liability of $145,931.
However, the Company has been negotiating a reduction in the remaining amount
due.
F-29
NORTH AMERICAN FOOD AND BEVERAGE CORP.
d/b/a LIQUOR GROUP WHOLESALE, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2007 (UNAUDITED)
NOTE 6 - STOCKHOLDERS' EQUITY
Preferred Stock - The Company is authorized to issue up to 20,000,000 shares of
preferred stock. The Company's Articles of Incorporation provide that the Board
of Directors has the authority to divide the preferred stock into series and,
within the limitations provided by the Colorado Business Corporation Act, to fix
by resolution the voting power, designations, preferences, and relative
participation, special rights, and the qualifications, limitations or
restrictions of the shares of any series so established. As the Board of
Directors has authority to establish the terms of, and to issue, the preferred
stock without shareholder approval, the Preferred Stock could be issued to
defend against any attempted takeover of the Company.
In connection with the reverse acquisition of LGW, the Company issued 953,460
shares of its Series A preferred stock to the shareholders of Liquor Group
Wholesale. Each Series A preferred share may, at the option of the Holder, be
converted into 45 shares of LGW's common stock. Each Series A preferred share is
entitled to 45 votes on any matter submitted to the shareholders of LGW. Each
Series A preferred share is entitled to an annual dividend of $1.00 per share,
if such a dividend is authorized by LGW's directors. LGW's directors are not
required to declare any dividends, and dividends not declared will not
accumulate.
The Series A preferred shares may not be converted until September 1, 2008.
Vigor Holding Company and C.J. Eiras, the largest holders of the Series A
preferred shares, have agreed that between September 1, 2008 and August 31,
2012, they will convert not more than 10,000 preferred shares (or 20,000 shares
in total) during each year. LGW will not register any shares of common stock
issuable upon the conversion of the Series A preferred shares, and it is not
expected that a public market will ever develop for the Series A preferred
shares.
Arnold Rosen, a director of LGW, and William Smith, a former officer and
director of LGW, have collectively agreed not to sell 1,208,932 shares of LGW's
common stock prior to September 1, 2008.
Common Stock - The Company is authorized to issue 100,000,000 shares of common
stock. Holders of common stock are each entitled to cast one vote for each share
held of record on all matters presented to shareholders. Cumulative voting is
not allowed; hence, the holders of a majority of the outstanding common stock
can elect all directors.
Holders of common stock are entitled to receive such dividends as may be
declared by the Board of Directors out of funds legally available therefore and,
in the event of liquidation, to share pro rata in any distribution of the
Company's assets after payment of liabilities. The board is not obligated to
declare a dividend. It is not anticipated that dividends will be paid in the
foreseeable future.
F-30
NORTH AMERICAN FOOD AND BEVERAGE CORP.
d/b/a LIQUOR GROUP WHOLESALE, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2007 (UNAUDITED)
NOTE 6 - STOCKHOLDERS' EQUITY (Continued)
Holders of common stock do not have preemptive rights to subscribe to additional
shares if issued by the Company. There is no conversion, redemption, sinking
fund, or similar provisions regarding the common stock. All outstanding shares
of common stock are fully paid and non-assessable.
The following is a recap of the activity in common stock:
Shares outstanding prior to acquisition of Liquor
Group Wholesale 8,717,562
Shares of common stock issued to the shareholders of Liquor
Group Wholesale 2,000,000
Shares issued to Class 4 creditors in settlement of their
claims 124,985
Shares returned to treasury and cancelled (2,000,000)
Shares issued to Arnold Rosen for his services in structuring
the acquisition of Liquor Group Holdings 500,000
Shares issued to Arnold Rosen in payment of amounts advanced
to or on behalf of LGW 33,972
Shares issued to unrelated third parties in payment of amounts
owed by LGW prior to the acquisition of Liquor Group Holdings 63,038
Shares sold to private investors at a price of $2.00 per share 65,000
-----------
9,504,557
Shares that may be issued in the future:
Shares issuable upon exercise of outstanding warrants 1,046,965(1)
Potential number of shares issuable upon conversion
of Series A preferred shares 42,905,700(2)
-----------
Total potential outstanding shares 53,457,222
===========
(1) As part of its bankruptcy plan North American (now LGW) issued warrants to
its shareholders. Each warrant entitles the holder to purchase one share of
LGW's common stock at a price of $1.75 per share. The warrants expire on
January 1, 2008.
(2) Any shares of common stock issuable upon the conversion of the Series A
preferred shares will be restricted securities and may, after August 31,
2008, be sold to a market-maker or in brokerage transactions, provided that
the amount sold does not, during any three-month period, exceed 1% of LGW's
outstanding common stock.
F-31
NORTH AMERICAN FOOD AND BEVERAGE CORP.
d/b/a LIQUOR GROUP WHOLESALE, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2007 (UNAUDITED)
NOTE 6 - STOCKHOLDERS' EQUITY (Continued)
The following table outlines, for the periods presented, the maximum increase in
LGW's outstanding common shares upon the allowable conversion of the Series A
preferred shares and the shares of LGW's common stock available for resale upon
the conversion of the preferred shares. The numbers in the table assume there is
no change in the control of LGW prior to September 30, 2012.
2008 -0-
2009 2,225,000
2010 900,000
2011 900,000
2012 900,000
------------
4,925,000
Shares issuable upon conversion of all
remaining Series A Preferred shares 37,980,700*
------------
Total 42,905,700
============
* This total is not the number of common shares that can be sold, but only
the total number of shares allowed to be converted. There is a
restriction that the amount of common shares allowed to be sold during
any three-month period, cannot exceed 1% of LGW's outstanding common
stock.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
Contingencies - The Company is involved in various claims and legal proceedings
of a nature considered normal to its business. The Company believes that the
results of these claims will not have a material adverse effect on the Company's
financial condition.
In connection with the confirmed Plan of Reorganization, various obligations
including leases, employment agreements, options, and other commitments were
discharged in bankruptcy. Additional obligations have been limited or otherwise
canceled in connection with the LGW transaction (see Notes 2 and 4).
The Company has attempted to contact all of its Class 4 debtors with the
exchange offer discussed in Note 1. Substantially all of the debtors have agreed
to the exchange of debt for Company stock; however, a number of the creditors
have not responded or are out of business. The Company has estimated its maximum
unsettled contingent claims at $250,000, all of which expire in January 2008.
Based on the high probability that none of these claims will be presented before
the expiration date, and if presented, the claims would be settled by issuing
common stock; therefore, no liability has been recorded in the balance sheet for
these claims at September 30, 2007.
F-32
TABLE OF CONTENTS
Page
PROSPECTUS SUMMARY ............................................
RISK FACTORS ..................................................
USE OF PROCEEDS ...............................................
MARKET FOR COMMON STOCK .......................................
MANAGEMENT'S DISCUSSION AND ANALYSIS
AND PLAN OF OPERATION ....................................
BUSINESS.......................................................
MANAGEMENT ....................................................
PRINCIPAL SHAREHOLDERS.........................................
SELLING SHAREHOLDERS...........................................
DESCRIPTION OF SECURITIES......................................
INDEMNIFICATION ...............................................
AVAILABLE INFORMATION..........................................
FINANCIAL STATEMENTS...........................................
No dealer, salesperson or other person has been authorized to give any
information or to make any representation not contained in this prospectus, and
if given or made, such information or representations must not be relied upon as
having been authorized by Security Devices. This prospectus does not constitute
an offer to sell, or a solicitation of an offer to buy, any of the securities
offered in any jurisdiction to any person to whom it is unlawful to make an
offer by means of this prospectus.
PART II
Information Not Required in Prospectus
Item 24. Indemnification of Officers and Directors
The Colorado Business Corporation Act provides that the Company may
indemnify any and all of its officers, directors, employees or agents or former
officers, directors, employees or agents, against expenses actually and
necessarily incurred by them, in connection with the defense of any legal
proceeding or threatened legal proceeding, except as to matters in which such
persons shall be determined to not have acted in good faith and in the Company's
best interest.
Item 25. Other Expenses of Issuance and Distribution.
The following table lists the costs and expenses payable by the Company in
connection with the issuance and distribution of the securities being
registered. Although no expenses will be charged to the selling stockholders, it
is estimated that the cost of registering the shares to be offered by the
selling shareholders will be $2,000, which is included as part of the total
costs of the offering shown below.
SEC Filing Fee $ 158
Blue Sky Fees and Expenses 500
Printing Expenses 100
Legal Fees and Expenses 30,000
Accounting Fees and Expenses 30,000
Miscellaneous Expenses 4,242
---------
TOTAL $65,000
=========
All expenses other than the SEC filing fee are estimated.
Item 26. Recent Sales of Unregistered Securities.
The following lists all shares issued by the Company since July 31, 2003
which were not registered with the Securities and Exchange Commission.
Common Stock - Group A
- ----------------------
Name Shares
- ---- ------
Vigor Holding Co. 500,000
C.J. Eiras 500,000
Gray C. Solomon 350,000
Lowell Newman 50,000
Steven Dodge 50,000
Jan P. Eiras 350,000
Louis Maggio 25,000
Steven Wang 25,000
Louis Frezza 25,000
Jerry L. Corwin 25,025
1
Common Stock - Group B
- ----------------------
Name Shares
- ---- ------
Arnold Rosen 8,840
Patrick Hennessy 521
John K. Hart 141
John T. Quayhackx 361
Larkin Schmidt 2,772
Mel Leiner 2,701
James Graney 124
Conrad Wagner 999
Rene H. Caron 878
Maria Molinsky 2,270
Drew Carver 2,424
Pete Tauscher 93
Blue Pacific Flavors 8,485
Kaufman & Rossin 2,172
Elliott Zenkel 908
William Flamank 171
David E. Schlecht 22,730
David E. Schlecht 21,675
Kathleen Beale 217
John Spencer 303
Mike Mulrain 2,506
Edward D. Shanahan 841
Michael & Kim Scheft 3,689
Robert G. Anderson 4,062
Michael R. Patterson 12,124
John Vallan 828
John Banks 109
Erich Steich 2,558
Catalina Marketing
Charitable Foundation 3,100
Jacob Henson 710
Hannaford Brothers 318
Brandon Luvie 2,143
John Mullin 649
Martin Volpe 8,430
Raymond Nowack 3,775
William W. Anderson 408
2
Common Stock - Group C
- ----------------------
Name Date Shares Consideration
- ---- ---- ------ -------------
Arnold Rosen 500,000 Services rendered
Arnold Rosen 33,972 Payment of debt in amount of $59,451
Steven N. Lippman 6,738 Payment of debt in amount of $13,476
Howard Tescher 1,436 Payment of debt in amount of $2,872
Jay Valinsky 692 Payment of debt in amount of $1,384
John A. Coniglio 7,172 Payment of debt in amount of $14,344
Ronald Neiwirth 39,000 Payment of debt in amount of $78,000
William R. Smith 8,000 Payment of debt in amount of $14,500
Illene Klasfeld and Jon Klasfeld,
Joint Trustees 10,000 $ 20,000
Eliot J. Brody 50,000 $100,000
Melvin Getlan 5,000 $ 10,000
Preferred Stock - Group D
- -------------------------
Name Shares
- ---- ------
Vigor Holding Co. 753,460 (1)
C.J. Eiras 170,000
Gray C. Solomon 10,000
Jan P. Eiras 10,000
Lowell Newman 5,000
Steven Dodge 5,000
(1) Subsequent to August 31, 2007 Vigor Holding Co. assigned 7,777 Series A
preferred shares to Arnold Rosen and 5,000 Series A preferred shares to
Jerry L. Corwin.
Group A. Shares were issued on August 31, 2007 in exchange for shares of Liquor
Group Wholesale, Inc., which was acquired by the Company on that same
date. The Company relied upon the exemption provided by Section
4(2) of the Securities Act of 1933 with respect to the issuance of
these shares. The persons who acquired these shares were sophisticated
investors. The persons who acquired these shares acquired them for
their own accounts. The certificates representing these shares will
bear a restricted legend providing that they cannot be sold except
pursuant to an effective registration statement or an exemption from
registration.
3
Group B. Shares were issued on August 31, 2007 in payment of outstanding
Class 4 claims. The Class 4 claims were the general debtor class in
the Company's Chapter 11 Plan of Reorganization. The Company relied
upon the exemption provided by Section 3(a)(9) of the Securities Act
of 1933 for the issuance of these shares.
Group C. The Company relied upon the exemption provided by Section 4(2) of
the Securities Act of 1933 with respect to the issuance of these
shares. The persons who acquired these shares were sophisticated
investors. The persons who acquired these shares acquired them for
their own accounts. The certificates representing these shares will
bear a restricted legend providing that they cannot be sold except
pursuant to an effective registration statement or an exemption from
registration.
Group D. Shares were issued on August 31, 2007 in exchange for shares of Liquor
Group Wholesale, Inc., which was acquired by the Company on that same
date. The Company relied upon the exemption provided by Section 4(2)
of the Securities Act of 1933 with respect to the issuance of these
shares. The persons who acquired these shares were sophisticated
investors. The persons who acquired these shares acquired them for
their own accounts. The certificates representing these shares will
bear a restricted legend providing that they cannot be sold except
pursuant to an effective registration statement or an exemption from
registration.
Item 27. Exhibits
The following exhibits are filed with this Registration Statement:
Exhibit
Number Exhibit Name
- ------- ------------
3.1 Articles of Incorporation, as amended (1)
3.2 Amendment to Articles of Incorporation
3.3 Designation of Series A preferred stock
3.4 Bylaws
5 Opinion of Counsel
10.1 Agreement pertaining to the acquisition of Liquor Group Wholesale, Inc.
10.2 Agreement between Liquor Group Wholesale and Liquor
Group Holdings, Inc.
10.3 Standard form of agreement with vendors
10.4 Standard form of agreement with State Level Clients
23.1 Consent of Attorneys
4
23.2 Consent of Accountants
(1) Incorporated by reference, and as same exhibit number, from the Company's
registration statement on Form SB-2 (Commission File No. 333-31188).
Item 28. Undertakings
(a) The small business issuer will:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this Registration Statement to.
(i) Include any Prospectus required by Section l0 (a)(3) of the
Securities Act:
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the information in
the registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any deviation
from the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price represent no more
than a 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration statement;
and
(iii) Include any additional or changed material information on the
plan of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
(4) For determining liability of the undersigned small business issuer
under the Securities Act to any purchaser in the initial distribution of the
securities, the undersigned small business issuer undertakes that in a primary
offering of securities of the undersigned small business issuer pursuant to this
registration statement, regardless of the underwriting method used to sell the
securities to the purchaser, if the securities are offered or sold to such
purchaser by means of any of the following communications, the undersigned small
business issuer will be a seller to the purchaser and will be considered to
offer or sell such securities to such purchaser:
(i) Any preliminary prospectus or prospectus of the undersigned
small business issuer relating to the offering required to be filed pursuant to
Rule 424;
(ii) Any free writing prospectus relating to the offering prepared
by or on behalf of the undersigned small business issuer or used or referred to
by the undersigned small business issuer;
5
(iii) The portion of any other free writing prospectus relating to
the offering containing material information about the undersigned small
business issuer or its securities provided by or on behalf of the undersigned
small business issuer; and
(iv) Any other communication that is an offer in the offering made
by the undersigned small business issuer to the purchaser.
(e) Insofar as indemnification for liabilities arising under the
Securities Act of l933 (the "Act") may be permitted to directors, officers and
controlling persons of the Small Business Issuer pursuant to the foregoing
provisions or otherwise, the Small Business Issuer has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the Small Business Issuer of expenses incurred or paid by a
director, officer or controlling person of the Small Business Issuer in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Small Business Issuer will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(g) That, for the purpose of determining liability under the Securities
Act to any purchaser:
(1) If the small business issuer is relying on Rule 430B:
(i) Each prospectus filed by the undersigned small business issuer
pursuant to Rule 424(b)(3) shall be deemed to be part of the registration
statement as of the date the filed prospectus was deemed part of and included in
the registration statement; and
(ii) Each prospectus required to be filed pursuant to Rule
424(b)(2), (b)(5), or (b)(7) as part of a registration statement in reliance on
Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i), (vii), or
(x) for the purpose of providing the information required by section 10(a) of
the Securities Act shall be deemed to be part of and included in the
registration statement as of the earlier of the date such form of prospectus is
first used after effectiveness or the date of the first contract of sale of
securities in the offering described in the prospectus. As provided in Rule
430B, for liability purposes of the issuer and any person that is at that date
an underwriter, such date shall be deemed to be a new effective date of the
registration statement relating to the securities in the registration statement
to which that prospectus relates, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof. Provided,
however, that no statement made in a registration statement or prospectus that
is part of the registration statement or made in a document incorporated or
deemed incorporated by reference into the registration statement or prospectus
that is part of the registration statement will, as to a purchaser with a time
of contract of sale prior to such effective date, supersede or modify any
statement that was made in the registration statement or prospectus that was
part of the registration statement or made in any such document immediately
prior to such effective date; or
(2) If the small business issuer is subject to Rule 430C, include the
following:
6
Each prospectus filed pursuant to Rue 424(b) as part of a registration
statement relating to an offering, other than registration statements relying on
Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be
deemed to be part of and included in the registration statement as of the date
it is first used after effectiveness. Provided, however, that no statement made
in a registration statement or prospectus that is part of the registration
statement or made in a document incorporated or deemed incorporated by reference
into the registration statement or prospectus that is part of the registration
statement will, as to a purchaser with a time of contract of sale prior to such
first use, supersede or modify any statement that was made in the registration
statement or prospectus that was part of the registration statement or made in
any such document immediately prior to such date of first use.
7
SIGNATURES
In accordance with the requirements of the Securities Act of l933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned in Jacksonville, Florida
on the 16th day of November 2007.
NORTH AMERICAN FOOD AND BEVERAGE CORP.
By: /s/ C.J. Eiras
----------------------------------------
C.J. Eiras, President
By: /s/ Jason Bandy
----------------------------------------
Jason Bandy, Principal Financial
and Accounting Officer
In accordance with the requirements of the Securities Act of l933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated:
Signature Title Date
/s/ C.J. Eiras Director November 16, 2007
- -------------------------
C.J. Eiras
/s/ Lowell Newman Director November 17, 2007
- -------------------------
Lowell Newman
/s/ Steven Dodge Director November 17, 2007
- -------------------------
Steven Dodge
/s/ Arnold Rosen Director November 16, 2007
- -------------------------
Arnold Rosen
/s/ Jan Philippe Eiras Director November 19, 2007
- -------------------------
Jan Philippe Eiras
NORTH AMERICAN FOOD AND BEVERAGE CORP.
d/b/a
LIQUOR GROUP WHOLESALE, INC.
FORM SB-2
EXHIBITS