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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[ ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 2007
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to _____________
Commission File Number: 333-120949
NASCENT WINE COMPANY, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Nevada 82-0576512
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2355 Paseo de las Americas
San Diego, Ca. 92154
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(Address of principal executive offices) (Zip Code)
(619) 661 0458
--------------
(Registrant's telephone number, including area code)
N/A
---
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: July 25, 2007 82,716,547 shares
outstanding
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NASCENT WINE COMPANY, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PAGE
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PART I - FINANCIAL INFORMATION
Unaudited Financial Statements 2
Consolidated Balance Sheets 3
Consolidated Statements of Operations 4
Consolidated Statements of Cash Flows 5
Notes to Financial Statements 6
Management's Discussion and Plan of Operation 11
Controls and Procedures 13
PART II - OTHER INFORMATION 13
Item 1. Legal Proceedings 13
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 13
Item 3. Defaults On Senior Securities 13
Item 4. Submission of Items to a Vote 13
Item 5. Other Information 13
Item 6. (a) Exhibits 13
(b) Reports on Form 8K 13
SIGNATURES AND CERTIFICATES 14
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UNAUDITED FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial reporting and pursuant to the rules and regulations of the Securities
and Exchange Commission ("Commission"). While these statements reflect all
normal recurring adjustments which are, in the opinion of management, necessary
for fair presentation of the results of the interim period, they do not include
all of the information and footnotes required by generally accepted accounting
principles for complete financial statements. For further information, refer to
the financial statements and footnotes that are included in the Company's
December 31, 2006 annual report on Form 10-KSB previously filed with the
Commission on April 17, 2007, and subsequent amendments made thereto.
2
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NASCENT WINE COMPANY, INC. AND ITS CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
JUNE 30, 2007 DECEMBER 31, 2006
--------------- -------------------
ASSETS
Current assets:
Cash $ 842,385 $ 476,376
Accounts receivable, less allowance of
$50,000 & $50,000 3,749,811 1,327,153
Inventory 4,219,474 1,137,459
Prepaid and deposits 830,701 177,976
--------------- -------------------
TOTAL CURRENT ASSETS 9,642,371 3,118,964
Property and equipment, net 1,491,589 593,691
Other assets:
License to distribution Miller Beer
(net)of amortization 7,183,541 8,110,000
Licensed Marks 4,400,000 --
Goodwill 11,104,286 11,936,217
--------------- -------------------
TOTAL ASSETS $ 33,821,787 $ 23,758,872
=============== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,118,264 $ 2,179,342
Accrued expenses 491,928 137,037
Accrued interest 212,164 276,991
Credit cards 114,469 62,784
Bank loans 610,078 324,849
Loans payable, less un-amortized debt interest 776,029 932,005
Other loans payable 99,491 309,434
Capital lease deferred 824,567 --
Acquisition loans 4,412,500 --
Shareholder loans 628,208 2,440,148
--------------- -------------------
TOTAL CURRENT LIABILITIES 12,287,698 6,662,590
Long term debt -- 186,672
--------------- -------------------
TOTAL LIABILITIES 6,849,262
Stockholders' equity:
Preferred stock, $0.001 par value, 5,000,000
shares authorized no shares issued and
outstanding -- --
Common stock, $0.001 par value, 195,000,000
shares authorized 82,716,547 and 52,050,000
shares issued and outstanding as of June 30,
2007 and December 31,2006, respectively 82,716 52,050
Additional paid-in capital 27,084,501 16,314,478
Subscribed stock less cost to sell 222,340 2,334,727
Accumulated other comprehensive loss 31,140 (1)
Deficit accumulated (5,886,608) (1,791,644)
--------------- -------------------
TOTAL STOCKHOLDERS' EQUITY 21,534,,089 16,909,610
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 33,821,787 $ 23,758,872
=============== ===================
The accompanying notes are an integral part of these financial statements.
3
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NASCENT WINE COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE SIX FOR THE SIX FOR THE THREE FOR THE THREE
MONTHS ENDED MONTHS ENDED MONTHS ENDED MONTHS ENDED
JUNE 30, 2007 JUNE 30, 2006 JUNE 30, 2007 JUNE 30, 2006
--------------- --------------- --------------- ---------------
REVENUES $ 12,925,678 $ 389 $ 7,790,751 $ --
COST OF REVENUES 10,742,867 243 6,581,513 --
--------------- --------------- --------------- ---------------
GROSS PROFIT 2,182,811 146 1,209,238 --
OPERATING EXPENSES
General and administrative expenses 5,038,405 265,408 3,484,412 253,475
--------------- --------------- --------------- ---------------
TOTAL OPERATING EXPENSES 5,038,405 265,408 3,484,412 253,475
LOSS FROM OPERATIONS (2,855,594) (265,408) (2,275,174) (253,475)
OTHER INCOME AND (EXPENSE)
Interest income 6,052 911 3,011 911
Interest expense (980,163) (71,704) (423,970) (71,704)
Provision for income taxes -- -- --
--------------- --------------- --------------- ---------------
NET LOSS $ (3,829,705) $ (335,055) $ (2,696,133) $ (323,268)
=============== =============== =============== ===============
NET (LOSS) PER SHARE - BASIC AND FULLY
DILUTED $ (0.07) $ (0.01) $ (0.05) $ (0.01)
=============== =============== =============== ===============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING BASIC AND FULLY DILUTED 53,184,119 23,687,845 54,281,188 29,807,692
=============== =============== =============== ===============
The accompanying notes are an integral part of these financial statements.
4
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NASCENT WINE COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE SIX FOR THE SIX
MONTHS ENDED MONTHS ENDED
JUNE 30, 2007 JUNE 30, 2006
--------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (3,829,704) $ (335,055)
Adjustment to reconcile net loss to net cash
used for operating activities:
Shares issued for expenses 84,000 --
Depreciation 86,328 164
Amortization of distribution rights 926,459 131,250
Warrants issued for interest 556,524 51,942
Changes in operating assets and liabilities:
Increase in accounts receivable (2,881,898) (201,955)
(Increase) decrease in inventory (1,723,114) (284,566)
Increase in deposits (186,414) (39,104)
Increase (decrease)in accrued interest (48,703) 18,762
Increase in accounts payable 3,160,045 314,990
Increase in credit cards 51,685 --
Decrease in accrued expense (148,592) --
--------------- ---------------
NET CASH USED FOR OPERATING ACTIVITIES (3,953,384) (343,572)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets (776,504) (37,940)
Acquisition of license to distribute Miller Beer -- (800,000)
Acquisition of Licensed Marks (4,400,000) --
Acquisition of Pasani\Eco Pac, net of cash acquired (1,577,959) --
--------------- ---------------
NET CASH USED FOR INVESTING ACTIVITIES (6,754,463) (837,940)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in bridge loans payable (556,000) 1,520,000
Common stock issued for cash-less expenses 7,286,544 --
Increase in acquisition loans 4,412,500 --
Increase in bank loans 16,271 --
Decrease in shareholder loans (965,425) --
Increase in other loans 54,318 --
Increase in capital leases 824,567 --
--------------- ---------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 11,072,775 1,520,000
EFFECT OF EXCHANGE RATE CHANGES ON CASH 1,082 (153)
--------------- ---------------
NET INCREASE (DECREASE) IN CASH 366,010 338,335
Cash - Beginning 476,375 14,254
--------------- ---------------
CASH - Ending $ 842,385 $ 352,589
=============== ===============
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITY:
Issuance of stock for shareholder loans $ 1,130,391 $ --
=============== ===============
Issuance of stock for Miller distribution license -- 7,875,000
=============== ===============
Issuance of stock for services $ 84,000 $ --
=============== ===============
Warrants issued and attached to debt $ 156,000 $ 626,000
=============== ===============
Interest paid $ $ --
=============== ===============
The accompanying notes are an integral part of these financial statements.
5
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NASCENT WINE COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2007
(UNAUDITED)
NOTE A - COMPANY OVERVIEW AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INTERIM FINANCIAL INFORMATION
The consolidated financial statements of Nascent Wine Company, Inc. (the
"Company"), and its wholly-owned subsidiaries, Best Beer S.A. de C. V., (Best
Beer) International Foodservice Specialists, Inc. (IFS), Palermo Italian Foods,
LLC (Palermo), Pasani, S.A de C.V. and Eco Pac Distributing, LLC as of June 30,
2007 and related footnote information are unaudited. All adjustments (consisting
only of normal recurring adjustments) have been made which, in the opinion of
management, are necessary for a fair presentation. Results of operations for the
six months ended June 30, 2007 and 2006 are not necessarily indicative of the
results that may be expected for any future period.
Certain information and footnote disclosures, normally included in financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America, have been omitted. These financial statements
should be read in conjunction with the audited financial statements and notes
for the year ended December 31, 2006.
COMPANY OVERVIEW
The Company was incorporated under the laws of the State of Nevada, on December
31, 2002 (Date of inception). The Company had minimal operations until it
acquired the rights to distribute Miller Beer in Baja California, Mexico from
Piancone Group International, Inc. (PGII), issuing 17,500,000 shares of common
stock at the par value $0.45 per share ($7,875,000) and paying off $800,000 debt
of previous license holder. It started its distribution operations as of July 1,
2006. In addition to Beer it distributes food and beverage products.
In accordance with SFAS #7, the Company was considered a development stage
company until it started operations on July 1, 2006.
The Company incorporated Best Beer S.A. de C. V. (Best Beer) in May 2006 in
order to distribute in Baja California.
The Company acquired the assets of Piancone Group International, Inc., which was
merged into Nascent, and Palermo Italian Foods, LLC in the fourth quarter of
2006.
In May 2007 the Company acquired Pasani, S.A.de C.V. and Eco Pac Distributing,
LLC that distributes imported products throughout Mexico.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries, Best Beer S.A. de C. V., (Best Beer)
International Foodservice Specialists, Inc. (IFS), Palermo Italian Foods, LLC
(Palermo), Pasani, S.A de C.V. and Eco Pac Distributing, LLC
The financial statements have been consolidated with the parent company and all
inter-company transactions and balances have been eliminated in consolidation.
FOREIGN CURRENCY TRANSLATION
The Company translates the foreign currency financial statements of its foreign
operations in accordance with Generally Accepted Accounting Principles by
translating balance sheet accounts at the appropriate historical or current
exchange rate on the balance sheet date and the income statement accounts using
the prevailing exchange rates at the transaction date. Cash flow statements are
are prepared in the foreign currency prior to translation. Translation gains and
losses are recorded in stockholders' equity and realized gains and losses are
reflected in operations.
BASIS OF PREPARATION OF FINANCIAL STATEMENTS
The accompanying financial statements are prepared in accordance with U.S.
generally accepted accounting standards (GAAP). The financial statements have
been prepared assuming that the Company will continue as a going concern.
6
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USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets, and liabilities on the date of
the financial statements and the reported amounts of revenues and expenses
during the period. Actual results could differ from those estimates, however the
Company is not currently aware of any changes in such estimates.
INVENTORIES
Inventories are accounted for on the first-in, first-out basis. Any products
reaching their expiration dates are written off.
REVENUE RECOGNITION
The Company reports revenue using the accrual method, in which revenues are
recorded as services are rendered or as products are delivered and billings are
generated.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Company has not had sufficient experience with bad debts to establish a
policy. However, the Company has reviewed all accounts and determined that an
allowance for uncollectible accounts required at June 30, 2007 is $50,000
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost and depreciated using the straight-line
method over the estimated useful life of the assets, which is three to ten
years.
IMPAIRMENT OF LONG-LIVED ASSETES
The Company acquired long-lived assets during the last six month of the year
ended December 31, 2006 and first six months of 2007. The company will review
the carrying values of its long-lived assets for possible impairment whenever
events or changes in circumstances indicate that the carrying amount of the
assets may not be recoverable and\or annually. No impairment losses were
recorded in 2007.
TAXES ON INCOME
The Company follows Statement of Financial Accounting Standard No. 109
"Accounting for Income Taxes" (SFAS No. 109) for recording the provision for
income taxes. Deferred tax assets and liabilities are computed based upon the
differences between the financial statement and income tax basis of assets and
liabilities using the enacted marginal tax rate applicable when the related
asset or liability is expected to be realized or settled. Deferred income tax
expense or benefit is based on the change in the asset or liability each period.
If available evidence suggests that is more likely than not that some portion or
all of the deferred tax assets will not be realized, a valuation allowance is
required to reduce the deferred tax asset to the amount that is more likely than
not to be realized. Future changes in such valuation allowance are included in
the provision for deferred income taxes in the period of change.
Deferred income taxes may arise from temporary differences resulting from income
and expense items reported for financial accounting and tax purposes in
different periods. Deferred taxes are classified as current or non-current,
depending on the classification of assets and liabilities to which they relate.
Deferred taxes arising from temporary differences that are not related to an
asset or liability are classified as current or non-current depending on the
periods in which the temporary differences are expected to reverse.
STOCK - BASED COMPENSATION
The Company accounts for stock-based compensation in accordance with Statement
of Financial Accounting Standards No. 123r share based payment. The Company
recognizes in the statement of operations the grant-date fair value of stock
options and other equity based compensation issued to employees and non
employees. The Company did not grant any new employee options and no options
were cancelled or exercised during the six months ended June 30, 2007.
EARNINGS PER SHARE
Basic earnings per share is calculated by dividing net income (loss) by the
weighted average number of common shares outstanding during the period.
7
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GOING CONCERN
The Company's financial statements are prepared using the generally accepted
accounting principles applicable to a going concern, which contemplates the
realization of assets and the liquidation of liabilities in the normal course of
business.
The Company commenced operations distributing Miller beer and other products in
Baja California, Mexico starting July 1, 2006. The Company has acquired
additional distribution companies during the past year.
NOTE B - NOTES PAYABLE
The Company has obtained Bridge loan financing that reached $4,515,000 at the
end of May 2007. The balance at June 30, 2007 is $1,520,000 with interest
payable at rate 8% annually. As additional consideration to obtain the loans,
the Company issued warrants to the lenders to purchase 10,774,000 shares of
common stock at a price per share of $0.25 to $1.05. The difference between the
price to purchase shares and the closing price of the stock on the date of grant
of the warrants $1,305,000 is being written off over the life of the loans (one
year). The un-amortized interest, $744,000 has been deducted from total of the
loans payable at June 30, 2007. Interest amortized during the period was
$502,000
NOTE C - STOCKHOLDERS' EQUITY
The Company is authorized to issue 195,000,000 shares of common stock at $.001
par value, and 5,000,000 shares of preferred stock at $.001 par value.
On April 12, 2006, the Company did a 20 for 1 split. The balance of shares
issued after the split was 86,568,800. On April 27, 2006, 69,068,800 shares were
cancelled.
On April 27, 2006, the Company issued 17,500,000 shares of common stock to
acquire the distribution rights for Miller beer in Baja California, Mexico at a
per share value of $0.45 per share ($7,875,000) and paid off the debt of the
previous license holder to Miller Beer ($800,000). The total cost of the license
was $8,675,000. The Company is amortizing the acquisition over 10 year and will
evaluate the value of the intangible asset on an annual basis.
During the six months ended June 30, 2007 the Company issued 75,000 shares of
common stock for services rendered in the amount of $84,000 and 2,821,000 shares
of common stock to redeem notes payable to shareholders in the amount of
$1,130,000. The Company received subscriptions for an additional 21,304,000
shares of common stock in the amount of $8,522,000 less expenses of $1,235,000.
At June 30, 2007 the Company had outstanding warrants to purchase 18,788,553
shares of common stock at a price of between $0.25 and $1.05 expiring in 2010.
If all warrants were exercised the Company would receive $7,070,000.
NOTE D- SEGMENT INFORMATION
The Company has adopted FAS Statement No. 131, "Disclosures about Segments of a
Business Enterprise and Related Information".
United
States Mexico
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Net loss for the six months ended June 30, 2007 $ 3,333,846 $ 495,859
Net loss for the six months ended June 30, 2006 $ 196,000 $ 8,000
Long lived assets (net) at June 30, 2007 $ 976,533 $ 515,056
Long lived assets (net) at June 30, 2006 $ 3,000 $ 37,000
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NOTE E - RELATED PARTY TRANSACTIONS
The Company has unsecured loans form stockholders totaling $628,000 at June 30,
2007. The loans have various due dates and contain interest rates ranging from
10% to 18%. During the six months ended June 30, 2007 the Company issued
2,820,977 to retire $1,130,391 of shareholder debt.
The maturities of notes payable at June 30, 2007 are as all within one year.
On May 3, 2006, we acquired the exclusive rights from Piancone Group
International, Inc. to market Miller Beer in Baja California, Mexico, in
exchange for 17,500,000 shares of our common stock. At that time, neither Sandro
Piancone nor Piancone Group was an affiliate. Concurrent with the acquisition of
these rights, Sandro Piancone became our Chief Executive Officer and a director.
In October 2006, we acquired substantially all of the assets of Piancone Group
in exchange for the issuance of 15,000,000 shares of our common stock. Sandro
Piancone, our Chief Executive Officer and a director, was the Chief Executive
Officer, a director and the controlling stockholder of Piancone Group
International, Inc. at the time its assets were acquired by us. We believe our
purchase of Piancone Group's assets was fair and reasonable.
NOTE F - ACQUISITION OF PASANI, S.A. DE C.V.(PASANI) AND ECO PAC DISTRUBUTING,
LLC (ECO)
On May 11, 2007, the Company issued notes payable in the amount of $1,600,000
with interest at 8% to acquire Pasani and Eco (a related company to Pasani)
distribution companies based in Mexico City. The note is payable $500,000 with
interest November 11, 2007 and $1,000,000 May 11, 2008 with interest. The notes
may be converted to common stock at $1.40 per share
Current assets $ 2,843,087
Property, plant and equipment 172,017
Goodwill (682,907)
Current liabilities (732,196)
---------------
TOTAL PURCHASE PRICE $ 1,600,000
===============
The pro forma financial information is that of the consolidated operations of
the Company as if the Pasani acquisitions had occurred as of the beginning of
the period present below.
FOR THE SIX MONTHS ENDED JUNE 30, 2007
------------------------------------------------------------------------
AS REPORTED
BY THE FOUR MONTHS FOUR MONTHS
COMPANY PASANI ECO PRO FORMA
--------------- --------------- --------------- ---------------
REVENUES $ 12,925,678 $ 2,279,922 $ 109,711 $ 15,315,311
COST OF SALES 10,742,867 1,383,948 -- 12,126,815
--------------- --------------- --------------- ---------------
GROSS PROFIT 2,182,811 895,974 109,711 3,188,496
GENERAL AND ADMINISTATIVE EXPENSES 5,038,405 469,738 35,549 5,543,692
--------------- --------------- --------------- ---------------
GAIN (LOSS) FROM OPERATIONS (2,855,594) 426,236 74,162 (2,355,196)
OTHER INCOME (EXPENSE)
INTEREST INCOME 6,052 6,052
INTEREST EXPENSE (980,163) (269) (5,075) (985,487)
PROVISION FOR INCOME TAXES -- -- -- --
--------------- --------------- --------------- ---------------
NET LOSS $ (3,829,705) $ 425,987 $ 69,087 $ (3,334,631)
=============== =============== =============== ===============
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Pro Forma Statement of operations for the sx months ended June 30, 2006 includes
PGII and Palermo, which were acquired in the fourth quarter of 2006 and
Pasani/Eco Pac acquired in May 2007. The Pro Forma Statement of operations for
the six months ended June 30, 2007 includes Parsani/Eco Pac acquired in May
2007.
Pro Forma Pro Forma
for the six for the six
months ended months ended
June 30, 2007 June 30, 2006
--------------- ---------------
REVENUES $ 15,315,311 $ 9,933,000
COST OF REVENUES 12,126,815 6,791,000
--------------- ---------------
GROSS PROFIT 3,188,496 1,142,000
OPERATING EXPENSES
General and administrative expenses 5,543,692 2,568,000
--------------- ---------------
GAIN FROM OPERATIONS (2,355,196) 574,000
OTHER INCOME AND (EXPENSE)
Interest income 6,052 2,000
Interest expense (985,487) (570,000)
Provision for income taxes -- --
--------------- ---------------
NET GAIN $ (3,334,631) $ 6,000
=============== ===============
NOTE G - ACQUISITION OF LICENSED MARKS
On May 11, 2007 the company entered into a License Agreement with One Seven
Props, Inc. whereby the Company was granted an exclusive license to use Licensed
Marks in the United States and Mexico. The Company paid $1,900,000 and a promise
to pay $2,500,000 May 11, 2008.The Company will amortize the license total
$4,400,000 over 20 years.
NOTE H - SUBSEQUENT EVENT
In July, 2007 the Company acquired Groupo Sur Promociones de Mexico S.A. de C.V.
(Groupo Sur) and related companies for a purchase price of $4,500,000. The
amount of the purchase price is payable $1,000,000 at closing and the issuance
of a note payable in the amount of $3,500,000 at an interest rate of 6% The note
is payable $1,500,000 on June 30, 2008 and $2,000,000 with interest on December
31, 2008. The note is payable in cash or convertible into shares at the market
closing sales price on the day immediately prior to the conversion.
Grupo Sur has been in the Mexican market for 30 years and is one of the leading
field marketing and below the line marketing organization in Mexico with 4,500
contract employees servicing 240,000 retail accounts including supermarkets and
convenience stores. Gurop Sur's expertise includes merchandising, promotions,
sampling , retail data collection and sales and marketing of retail products
On July 3, 2007 the Company sold $8,000,000 of its Series A Convertible
Preferred Stock, par value $0.001 per share to York Select Unit Trust, Your
Credit Opportunities and York Select (York). The Series A Convertible Preferred
Stock is convertible into 20,000,000 shares of the Company's common stock, par
value $0.001, of the Company, based upon a conversion price of $0.40 per share
and a liquidation amount of $8.00 per share.
The Company paid a cash finder's fee of $560,000 and issued to the finder an
aggregate of 1,600,000 common share warrants, each warrant exercisable to
purchase one share of common stock at any time until July 3, 2010 at a purchase
price of $0.40 per share.
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MANAGEMENT'S DISCUSSION AND PLAN OF OPERATION
FORWARD-LOOKING STATEMENTS
This Quarterly Report contains forward-looking statements about Nascent
Wine Company, Inc.'s business, financial condition and prospects that reflect
management's assumptions and beliefs based on information currently available.
We can give no assurance that the expectations indicated by such forward-looking
statements will be realized. If any of our management's assumptions should prove
incorrect, or if any of the risks and uncertainties underlying such expectations
should materialize, Nascent's actual results may differ materially from those
indicated by the forward-looking statements.
The key factors that are not within our control and that may have a
direct bearing on operating results include, but are not limited to, acceptance
of our services, our ability to expand our customer base, managements' ability
to raise capital in the future, the retention of key employees and changes in
the regulation of our industry.
There may be other risks and circumstances that management may be
unable to predict. When used in this Quarterly Report, words such as,
"BELIEVES," "EXPECTS," "INTENDS," "PLANS," "ANTICIPATES," "ESTIMATES" and
similar expressions are intended to identify forward-looking statements,
although there may be certain forward-looking statements not accompanied by such
expressions.
The information contained in this section has been derived from our
consolidated financial statements and should be read together with our
consolidated financial statements and related notes included elsewhere in this
annual report. The discussion contains forward-looking statements that involve
risks and uncertainties. Our actual results may differ materially from those
expressed or implied in these forward-looking statements as a result of various
factors, including those set forth at the end of this section under "Factors
That May Impact Our Results of Operations".
OVERVIEW
The Company is incorporated in Nevada and until May 2006 the company
was a development stage company. In May the company secured the distribution
rights for Miller Beer in Baja California, Mexico, and began distributing food
products and beer in July 2006. The company acquired two additional distribution
companies operations, Piancone Group International, Inc. and Palermo Italian
Food, LLC expanding the Mexico operations, offering more than 2,000 food and
food-related products to over 1,300 customers primarily in the Baja California
region of Mexico and Miami Florida at the year end 2006. Our customers
includePUT IN PASANI grocery stores, convenience stores, hotels, resorts,
cafeterias, schools, industrial caterers and restaurants. We distribute a full
line of frozen foods, such as meats, fully prepared entrees and desserts, and a
full line of canned and dry goods, fresh meats and imported specialties. We also
distribute a wide variety of food-related items such as disposable napkins,
plates and cups, and have the exclusive right to distribute Miller beer in Baja
California, Mexico.
We believe that prompt and accurate delivery of orders, close contact
with customers and the ability to provide a full array of products and services
to assist customers in their food service operations are of primary importance
in the marketing and distribution process. We offer daily delivery to certain
customer locations and have the capability of delivering special orders on short
notice. Through our 56 member sales force, we stay informed of the needs of our
customers and acquaint them with new products and services. We also provide
ancillary services to our customers relating to food service distribution such
as providing product usage reports and other data, menu-planning advice, food
safety training and assistance in inventory control.
RESULTS OF OPERATIONS
Six months ended June 30, 2007 as compared to six months ended June 30, 2006
The Company was in the development stage until June 30, 2006.
We generated revenues of $12,926,000 compared to $389 for the six months ended
June 30, 2007 and 2006 respectively. The increase is due primarily to the
increase in sales of Miller Beer, the distribution contract we acquired in May
2006 and our not starting operations until July 1, 2006.
Gross profit for the period ended June 30, 2007 was $2,183,000 (17%) of sales as
compared to $146 of sales for the same period in 2006. In addition to increasing
sales volumes the Company is also striving to increase the percentage of gross
profit.
Selling, general and administrative expenses were $5,038,000 for the six months
ended June 30, 2007 as compared to $265,000 for the same period 2006. The
increase is due to the increase in amortization of the Miller Beer license
$926,000, legal and other professional fees associated with the public offering
and financing $1,376,000 and the opening of additional distribution warehouses
in Puerto Penasco, Mexicali and Cabo San Lucas $300,000 By combining corporate
duties and sales efforts we plan to eliminate a substantial amount of overhead.
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Net loss from operation $2,855,000 is the result of all the factors above. The
Company will continue to increase sales and margins on sales and reducing
overhead expenses.
Net loss of $3,830,000 is a result of the Company's debt interest of $980,000.
The Company continues on working to convert debt to equity.
The Pro Forma statement of operations for the six months ended June 30, 2006
includes PGII and Palermo, which were acquired in the fourth quarter of 2006,
and Pasani\Eco Pac acquired in May 2007. The Pro Forma statement of operations
for the six months ended June 30, 2007 includes Pasani\Eco Pac acquired in May
2007.
Pro Forma Pro Forma
for the six for the six
months ended months ended
June 30, 2007 June 30, 2006
--------------- ---------------
REVENUES $ 15,315,311 $ 9,933,078
COST OF REVENUES 12,126,815 6,790,840
--------------- ---------------
GROSS PROFIT 3,188,496 3,142,238
OPERATING EXPENSES
General and administrative expenses 5,543,692 2,568,270
--------------- ---------------
GAIN (LOSS) FROM OPERATIONS (2,355,196) 573,968
OTHER INCOME AND (EXPENSE)
Interest income 6,052 2,224
Interest expense (985,487) (569,760)
Provision for income taxes -- --
--------------- ---------------
NET GAIN (LOSS) $ (3,334,631) $ 6,432
=============== ===============
We generated revenues of $15,315,000 compared to $9,933,000 for the six months
ended June 30, 2007 and 2006 respectively. The increase is due primarily to the
increase in sales of Miller Beer, the distribution contract we acquired in May
2006 and the increase in sales of the companies we acquired during the last
year.
Gross profit for the period ended June 30, 2007 was $3,188,000 (21%) of sales as
compared to $3,142,000 (31%) of sales for the same period in 2006. The reason
for the higher gross profit percentage in 2006 was the result of Pasani\Eco Pac
higher rate of gross profit percentage in 2006 as compared o 2007. In addition
to increasing sales volumes of the subsidiaries the Company is also striving to
increase the percentage of gross profit.
Selling, general and administrative expenses were $5,038,000 for the six months
ended June 30, 2007 as compared to $2,568,000 for the same period 2006. The
increase is due to the increase in amortization of the Miller Beer license
$926,000, legal and other professional fees associated with the public offering
and financing $1,376,000 and the opening of additional distribution warehouses
in Puerto Penasco, Mexicali and Cabo San Lucas $300,000. By combining corporate
duties and sales efforts we plan to eliminate a substantial amount of overhead.
Net loss from operation $2,355,000 is the result of all the factors above. The
Company will continue to increase sales and margins on sales and reducing
overhead expenses.
Net loss of $3,334,000 is a result of the Company's debt interest of $985,000.
The Company continues on working to convert debt to equity.
Liquidity and capital resources
The Company had a cash balance of $842,385 at June 30, 2007 as compared to
$476,376 at December 31, 2007. The Company has been able to raise capital for
operations, which include $2,882,000 increase in accounts receivable, $1,723,000
increase in inventories with a $3,160,000 increase in payables. In addition the
Company paid down debt of $1,130,000 with stock during this period.
The Company acquired assets, licensed marks and Pasani\Eco Pac for $6,754,000,
financing with $6,000,000 in loans. The Company issued stock for cash $7,287,000
which financed the pay down of debt and loss for the period.
The Company expects to finance the capital needed with additional issuances of
its securities. During the quarter ended June 30, 2007 the Company closed out
the share offering provided by Brookstreet Securities Corporation.
Subsequent to June 30, 2007 the Company obtained additional financing from York
Capital in the amount of $8,000,000 in order to make additional acquisitions.
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Item 8-A. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. The Chief Executive Officer
and Chief Financial Officer, after evaluating the effectiveness of the Company's
disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e))
and 15d-15(e) as of the end of the period June 30, 2007, have concluded that its
disclosure controls and procedures are effective to reasonably ensure that
material information required to be disclosed by the Company in the reports that
are filed or submitted under the Exchange Act is recorded, processed, summarized
and reported within the time periods specified by Securities and Exchange
Commissions' Rules and Forms and that such information is accumulated and
communicated to our Management, including our Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions regarding required
disclosure.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING.
There were no changes made during our most recently completed fiscal quarter in
our internal control over financial reporting that have materially affected, or
are reasonably likely to materially affect, our internal control over financial
reporting.
PART II. OTHER INFORMATION
Item 1. Legal proceedings NONE
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds NONE
Item 3. Defaults on Senior Securities NONE
Item 4. Submission of Items to a Vote NONE
Item 5. Other Information NONE
Item 6.
(a) Exhibits
The following Exhibits are incorporated herein by reference or are filed
with this report as indicated below.
------------- -------------------------------------------------------------
Exhibit No.
------------- -------------------------------------------------------------
*3.1 Articles of Incorporation filed on December 10, 2002
------------- -------------------------------------------------------------
*3.2 By-Laws adopted on December 12, 2002
------------- -------------------------------------------------------------
*3.3 Certificate of Amendment to Articles of Incorporation filed
on March 28, 2006
------------- -------------------------------------------------------------
*2.1 Asset Purchase Agreement and Exhibits thereto for acquisition
of Piancone Group International, Inc. June 5, 2006
------------- -------------------------------------------------------------
*2.2 Agreement Concerning the Exchange of Securities to acquire
Palermo Italian Foods, LLC Nov. 15, 2006
------------- -------------------------------------------------------------
*10.1 Stock Purchase Agreement, dated May 11, 2007, by and among
Nascent Wine Company, Inc., Pasani S.A. de C.V., and the
Shareholders of Pasani S.A. de C.V.
------------- -------------------------------------------------------------
*10.2 Promissory Note, dated as of May 11, 2007, in the principal
amount of $1,500,000, made by Nascent Wine Company, Inc. in
the name of Alejandro Gutierrez Pederzini and Leticia
Gutierrez Pederzini.
------------- -------------------------------------------------------------
*10.3 Pledge on Shares Agreement, dated May 11, 2007, by and among
Nascent Wine Company, Inc., Alejandro Gutierrez Pederzini and
Leticia Gutierrez Pederzini
------------- -------------------------------------------------------------
*10.4 Trademark License and Purchase Agreement, dated May 11, 2007
by and between Nascent Wine Company, Inc. and One Seven
Props, Inc.
------------- -------------------------------------------------------------
*10.5 Membership Interest Purchase Agreement, dated May 11, 2007,
by and among Nascent Wine Company, Inc., Eco Pak Distributing
LLC and Alejandro Gutierrez Pederzini.
------------- -------------------------------------------------------------
Exhibit 31 Certification of Chief Executive Officer and Chief Financial
Officer Pursuant to Section 302 of the Sarbanes-Oxley Act
------------- -------------------------------------------------------------
Exhibit 32 Certification of Chief Executive Officer and Chief Financial
Officer Pursuant to Section 906 of the Sarbanes-Oxley Act
------------- -------------------------------------------------------------
* Denotes filed previously
b) Reports on 8K during the quarter:
8-K dated 4/27/07 Item 3.02 Unregistered sales of equity securities.
8-K dated 5/11/07 Item 1.01 Entry into a material definitive agreement
2.01 Completion of acquisition or disposition of assets
8-K dated 6/28/07 Item 3.02 Unregistered sales of equity securities.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned, hereunto duly authorized.
NASCENT WINE COMPANY, INC.
Dated: August 13, 2007 By: /s/ Sandro Piancone
-----------------------
Sandro Piancone,
Chief Executive Officer
Pursuant to the requirements of the Exchange Act, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
/s/ Sandro Piancone Chief Executive Officer Date: 8/13/07
- ------------------------
Sandro Piancone
/s/ Victor Petrone President and Director Date: 8/13/07
- ------------------------
Victor Petrone
/s/ William Lindberg Chief Financial Officer Date: 8/13/07
- ------------------------
William Lindberg
14