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: September 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: October 20, 2007, 83,718,070
shares of common stock and 1,000,000 shares of its Series A Convertible
preferred stock outstanding
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 Operations 13
Controls and Procedures 16
PART II - OTHER INFORMATION 16
Item 1. Legal Proceedings 16
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 16
Item 3. Defaults On Senior Securities 16
Item 4. Submission of Items to a Vote 16
Item 5. Other Information 16
Item 6. (a) Exhibits 17
(b) Reports on Form 8K 13
SIGNATURES AND CERTIFICATES 18
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
NASCENT WINE COMPANY, INC. AND ITS CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
2007 2006
------------ ------------
ASSETS
Current assets:
Cash $ 1,905,734 $ 476,376
Accounts receivable, less allowance of $246,696
And $50,000 September 30, 2007 and December 31,
2006 respectively 6,474,159 1,327,153
Inventory 5,116,255 1,137,459
Investments 458,698 --
Prepaid and deposits 1,035,103 177,976
------------ ------------
TOTAL CURRENT ASSETS 14,989,949 3,118,964
Property and equipment, net 1,948,508 593,691
Other assets:
License to distribution Miller Beer (net)of
amortization 6,894,373 8,110,000
Licensed trade marks 4,363,333 --
Goodwill 14,645,046 11,936,217
------------ ------------
TOTAL ASSETS $ 42,841,209 $ 23,758,872
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,514,859 $ 2,179,342
Accrued expenses 929,162 137,037
Accrued interest 377,291 276,991
Bank loans 575,663 367,633
Loans payable, less un-amortized debt interest (515,059) 932,005
Other loans payable 411,345 309,434
Capital lease deferred 775,342 --
Acquisition loans-current portion 6,200,000 --
Shareholder loans 831,003 2,440,148
------------ ------------
TOTAL CURRENT LIABILITIES 13,099,606 6,662,590
Long term debt- Acquisition loans 2,000,000 186,672
------------ ------------
TOTAL LIABILITIES 15,099,606 6,849,262
Stockholders' equity:
Preferred stock, $0.001 par value, 5,000,000 shares
authorized 1,000,000 issued and outstanding at
September 30, 2007 1,000 --
Paid in preferred stock 7,342,305 --
Common stock, $0.001 par value, 195,000,000 shares
authorized 83,641,706 and 52,050,000 shares issued
and outstanding as of September 30, 2007 and
December 31,2006, respectively 83,642 52,050
Additional paid-in capital 28,853,464 16,314,478
Subscribed stock less cost to sell -- 2,334,727
Accumulated other comprehensive loss (76,799) (1)
Deficit accumulated (8,462,009) (1,791,644)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 27,741,603 16,909,610
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 42,841,209 $ 23,758,872
============ ============
The accompanying notes are an integral part of these financial statements.
3
NASCENT WINE COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE NINE FOR THE NINE FOR THE THREE FOR THE THREE
MONTHS ENDED MONTHS ENDED MONTHS ENDED MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2007 2006 2007 2006
------------ ------------ ------------ ------------
REVENUES $ 25,415,739 $ 1,203,826 $ 12,490,061 $ 1,203,437
COST OF REVENUES 21,074,023 990,352 10,331,156 990,109
------------ ------------ ------------ ------------
GROSS PROFIT 4,341,716 213,474 2,158,905 213,328
OPERATING EXPENSES
General and administrative expenses 7,848,583 1,076,153 2,810,178 810,745
------------ ------------ ------------ ------------
TOTAL OPERATING EXPENSES 7,848,583 1,076,153 2,810,178 810,745
LOSS FROM OPERATIONS (3,506,867) (832,679) (651,273) (597,417)
OTHER INCOME AND (EXPENSE)
Interest income 12,883 3,922 6,832 3,011
Interest expense (1,450,821) (361,646) (470,658) (290,942)
Warrant expense (1,460,300) -- (1,460,300) --
Provision for income taxes -- -- -- --
------------ ------------ ------------ ------------
NET LOSS $ (6,405,105) $ (1,220,403) $ (2,575,499) $ (885,348)
============ ============ ============ ============
NET (LOSS) PER SHARE - BASIC AND FULLY
DILUTED $ (0.10) $ (0.04) $ (0.03) $ (0.03)
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING BASIC AND FULLY DILUTED 63,266,449 30,961,538 83,102,336 35,000,000
============ ============ ============ ============
The accompanying notes are an integral part of these financial statements.
4
NASCENT WINE COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE NINE FOR THE NINE
MONTHS ENDED MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2007 2006
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (6,405,105) $ (1,220,403)
Adjustment to reconcile net loss to net cash
used for operating activities:
Shares issued for services 129,000 --
Depreciation 158,912 13,686
Amortization of distribution rights 1,252,294 348,125
Warrants issued expense 2,245,736 293,088
Changes in operating assets and liabilities:
Increase in accounts receivable (5,132,155) (468,770)
Increase in inventory (2,634,618) (321,242)
Increase in deposits (391,108) (84,860)
Increase in accrued interest 116,423 58,696
Increase in accounts payable 3,832,834 794,436
Decrease in accrued expense 206,387 91,821
Decrease in payroll taxes (980,839) --
------------ ------------
NET CASH USED FOR OPERATING ACTIVITIES (7,602,239) (495,423)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets (1,155,424) (361,217)
Acquisition of license to distribute Miller Beer -- (800,000)
Acquisition of Licensed trade marks (4,400,000) --
Acquisition of Pasani\Eco Pac, net of cash acquired (1,577,961) --
Acquisition of Grupo Sur, net of cash acquired (4,535,387) --
Investments (163,740)
------------ ------------
NET CASH USED FOR INVESTING ACTIVITIES (11,832,512) (1,161,217)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in bridge loans payable (2,217,500) 2,370,000
Common stock issued for cash-less expenses 8,459,183 --
Preferred stock issued 7,343,305
Increase in acquisition loans 8,200,000 --
Decrease in bank loans (43,077) --
Decrease in shareholder loans (1,751,521) --
Increase in other loans 155,269 281,826
Increase in capital leases 775,342 --
Decrease in notes receivable -- (599,179)
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 20,921,000 2,052,647
EFFECT OF EXCHANGE RATE CHANGES ON CASH (56,890) (725)
------------ ------------
NET INCREASE IN CASH 1,429,359 395,282
Cash - Beginning 476,376 14,254
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CASH - Ending $ 1,905,735 $ 409,536
============ ============
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING
ACTIVITY:
Issuance of stock for shareholder loans $ 1,172,693 $ --
============ ============
Issuance of stock for Miller distribution license -- 7,875,000
============ ============
Issuance of stock for services $ 136,000 $ --
============ ============
Warrants issued $ 1,616,800 $ 1,037,000
============ ============
Interest paid $ 1,248,200 $ --
============ ============
The accompanying notes are an integral part of these financial statements.
5
NASCENT WINE COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 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. (Pasani), Eco Pac Distributing, LLC (Eco Pac)
and Grupo Sur Promociones de Mexico, S.A de C.V (Grupo Sur) as of September 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
nine months and three months ended September 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.
In July 2007 the Company acquired Grupo Sur Promociones de Mexico, S.A. de C. V.
(Grupo Sur). Grupo Sur has been in the Mexican market for 30 years and is one of
the leading field marketing and below the line marketing organization in Mexico
with 4,500 contract employees servicing 240,000 retail accounts including
supermarkets and convenience stores. Grupo Sur's expertise includes
merchandising, promotions, sampling , retail data collection and sales and
marketing of retail products
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.(Pasani), Eco Pac Distributing, LLC (Eco Pac) and
Grupo Sur Promociones de Mexico, S.A. de C. V. (Grupo Sur).
The financial statements have been consolidated with the parent company and all
inter-company transactions and balances have been eliminated in consolidation.
6
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.
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 September 30, 2007 is $246,696.
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 nine 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.
7
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 nine months ended September 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.
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 three
additional distribution companies and a merchandising, promotions, sampling,
retail data collection company 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 September 30, 2007 is zero. 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, $515,000
will be expensed by December 31, 2007. Interest amortized during the period was
$785,426
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 nine months ended September 30, 2007 the Company issued 127,500
shares of common stock for services rendered in the amount of $129,000 and
2,926,181 shares of common stock to redeem notes payable to shareholders in the
amount of $1,171,872. The Company received subscriptions for an additional
21,304,000 shares of common stock in the amount of $8,522,468 less expenses of
$1,235,151.
At September 30, 2007 the Company had outstanding warrants (not including the
York warrants-see below) to purchase 18,120,476 shares of common stock at a
price of between $0.25 and $1.05 expiring in 2010. If all warrants were
exercised the Company would receive $7,070,000.
On July 3, 2007 the Company issued 1,000,000 shares of its Series A and Series B
Convertible Preferred Stock, par value $0.001 per share at $8.00 per share
($8,000,000) to York Capital Management (York). The Series A and Series B
Convertible Preferred Stock is convertible into 20,000,000 shares of the
Company's common stock, par value $0.001, of the Company, based upon a
conversion price of $0.40 per share and a liquidation amount of $8.00 per share.
The Preferred shares are entitled to a dividend of 15% payable quarterly in
preferred stock for three years.
8
In addition the Company issued the following warrants to purchase:
Series A-1 Warrants 500,000 shares of Series A preferred stock $8.00 per share Immediately exercisable and
expire July 3, 2010
Series A-2 Warrants 375,000 shares of Series A preferred stock $8.00 per share Immediately exercisable and
expire July 3, 2014
Series B Warrants Variable shares of Series B convertible 33% of the average of Immediately exercisable and
preferred stock depended on the per market the Per Share Market expire July 3, 2014
value of common shares Value of common stock 30
days preceding date of
exercise.
If total warrants exercised they would be convertible to up to 25,000,000 shares
of common stock or less, dependent on the Per Share Market Value of the common
stock when exercised.
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.
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
------------- ------------
Net loss for the nine months ended Sept. 30, 2007 $ 6,291,184 $ 113,921
Net loss for the nine months ended Sept. 30, 2006 $ 196,000 $ 8,000
Long lived assets (net) at Sept. 30, 2007 $ 961,255 $ 987,253
Long lived assets (net) at Sept. 30, 2006 $ 3,000 $ 37,000
9
NOTE E - RELATED PARTY TRANSACTIONS
The Company has unsecured loans form stockholders totaling $628,000 at September
30, 2007. The loans have various due dates and contain interest rates ranging
from 10% to 18%. During the nine months ended September 30, 2007 the Company
issued 2,926,181 to retire $1,171,872 of shareholder debt.
The maturities of notes payable at September 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 - ACQUISITIONS OF PASANI, S.A. DE C.V.(PASANI) AND ECO PAC DISTRUBUTING,
LLC (ECO) AND GRUPO SUR PROMOCIONES DE MEXICO S.A. DE C.V. (GRUPO SUR)
Acquisition of Pasani, S.A. de C.V.
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
===============
Acquisition of Grupo Sur Promociones de Mexico S.A. de C.V.
In July, 2007 the Company acquired Groupo Sur Promociones de Mexico S.A. de C.V.
(Groupo Sur) and related companies for a purchase price of $4,500,000. The
amount of the purchase price was 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. Grupo Sur's expertise includes merchandising, promotions,
sampling , retail data collection and sales and marketing of retail products.
Current assets $ 2,356,722
Property and equipment 158,349
Goodwill 3,490,760
Current liabilities (1,505,831)
---------------------
TOTAL PURCHASE PRICE $ 4,500,000
=====================
10
Additional Information
The pro forma financial information is that of the consolidated operations of
the Company as if the Pasani and Grupo Sur acquisitions had occurred as of the
beginning of the period presented below.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007
-----------------------------------------------------------------------
Per the Company
without Pasani and Total Pro
Grupo Sur Pasani Grupo sur Forma
------------ ------------ ------------ ------------
REVENUES $ 17,051,397 $ 4,801,952 $ 18,464,127 $ 40,317,476
COST OF SALES 14,884,420 3,297,725 15,782,370 33,964,515
------------ ------------ ------------ ------------
GROSS PROFIT 2,166,977 1,504,227 2,681,757 6,332,961
GENERAL AND ADMINISTATIVE EXPENSES 6,513,471 1,339,918 1,592,360 9,445,749
------------ ------------ ------------ ------------
GAIN (LOSS) FROM OPERATIONS (4,346,494) 164,309 1,089,397 (3,092,788)
OTHER INCOME (EXPENSE)
INTEREST INCOME 9,014 2,124 5,801 16,939
INTEREST EXPENSE (1,440,378) (15,518) -- (1,455,896)
WARRANT EXPENSES (1,460,300) -- -- (1,460,300)
PROVISION FOR INCOME TAXES -- -- -- --
------------ ------------ ------------ ------------
NET LOSS $ (7,238,158) $ 150,915 $ 1,095,198 $ (5,992,045)
============ ============ ============ ============
Pro Forma Statement of operations for the nine months ended September 30, 2006
includes PGII and Palermo, which were acquired in the fourth quarter of 2006 and
Pasani acquired in May 2007 and Group Sur acquired in July 2007. The Pro Forma
Statement of operations for the nine months ended September 30, 2007 includes
Parsani acquired in May 2007 and Grupo Sur acquired in July 2007.
PRO FORMA FOR THE PRO FORMA FOR THE
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 2007 SEPTEMBER 30, 2006
------------------ ------------------
REVENUES $ 40,317,476 $ 27,717,239
COST OF REVENUES 33,964,515 22,054,387
------------ ------------
GROSS PROFIT 6,332,961 5,662,852
GENERAL AND ANDMINISTRATIVE EXPENSES 9,445,749 4,863,352
------------ ------------
GAIN OR (LOSS) FROM OPERATIONS (3,092,788) 799,499
OTHER INCOME AND (EXPENES)
INTEREST INCOME 16,939 13,593
INTEREST EXPENSE (1,455,896) (898,737)
WARRANT EXPENSE (1,460,300) --
PROVISION FOR INCOME TAXES -- --
------------ ------------
NET INCOME (LOSS) $ (5,992,045) $ (85,644)
============ ============
11
NOTE G - ACQUISITION OF LICENSED TRADE 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
trade 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 EVENTS
Acquisition of Comerical Targa
On October 29, 2007, the Company entered into a Stock Purchase
Agreement (the "Stock Purchase Agreement") with Comercial Targa, S.A. de C.V.
(Targa), to purchase all of the issued and outstanding capital stock of the
Company. As a result of the Acquisition, the Company is a wholly-owned
subsidiary of the Company.
The purchase price for the Targa was $400,000, payable as
follows: (a) $150,000 in cash paid to the Sellers on the Closing Date; and (b)
$250,000 in cash deposited with Corporate Stock Transfer, Inc. on the Closing
Date to be held and disbursed pursuant to the terms of the Escrow Agreement
dated as of October 29, 2007, by and among the Company, the Sellers and the
Escrow Agent. The Escrow Agreement provides that the Escrow Funds will be held
for a period of six months following the Closing Date to satisfy any
indemnification losses and claims of the Company under the Stock Purchase
Agreement and the Trademark Assignment Agreement.
In connection with the Stock Purchase Agreement, the Company and
Olavarri de Arana entered into an Trademark Rights Transmission Contract dated
October 29, 2007 (the "Trademark Assignment Agreement") pursuant to which
Olavarri de Arana assigned to the Registrant all of Olavarri de Arana's right,
title and interest in and to the trademarks "Nery's Choice", "Puro Monterey",
"Nero's Puro Monterey" and "Nery's" (two versions) (collectively, the
"Trademarks") in exchange for the payment to Olavarri de Arana of $3,400,000 in
cash. The Trademarks are registered in Mexico.
Exercise of Warrants by York Capital Management
In October and November York Capital Management exercised all of its preferred
stock warrants outstanding (1,250,000 preferred share) in the amount of
$8,333,000.
12
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
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 include
grocery stores, convenience stores, hotels, resorts, cafeterias, schools,
industrial caterers and restaurants. We distribute a full line of frozen foods,
such as meats, fully prepared entrees and desserts, and a full line of canned
and dry goods, fresh meats and imported specialties. We also distribute a wide
variety of food-related items such as disposable napkins, plates and cups, and
have the exclusive right to distribute Miller beer in Baja California, 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
Nine months ended September 30, 2007 as compared to nine months ended September
30, 2006
The Company was in the development stage until June 30, 2006.
We generated revenues of $25,416,000 compared to $1,204,000 for the nine months
ended September 30, 2007 and 2006 respectively. The increase is due primarily to
the following reasons:
13
Change from prior
year nine months
------------------
Acquisition of Grupo Sur in July, 2007 $ 6,034,000
Acquisition of Pasani in May, 2007 2,563,000
Best Beer operated from July 1 to Sept. 30 in 2006 and had sales of
$1,137,000 for the quarter as compared to $2,340,000 sales in same
quarter in 2006 5,587,000
Acquisition of Palermo in October, 2007 8,769,000
International Food Services that started operations in October, 2006 1,225,000
------------------
$ 24,178,000
==================
Gross profit for the nine months ended September 30, 2007 was $4,342,000 (17%)
of sales as compared to $213,000 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 $7,849,000 for the nine months
ended September 30, 2007 as compared to $1,076,000 for the same period 2006.
The increases were due to the following:
Nine months ended Nine months ended
September 30, 2007 September 30, 2006
------------------- -------------------
Acquisition of Grupo Sur in July, 2007 $ 492,000 $ --
Acquisition of Pasani in May, 2007 $ 842,000 $ --
Acquisition of Palermo in October, 2007 $ 1,735,000 $ --
Amortization of Miller Beer license $ 1,253,000 $ 348,000
Accounting and legal fees increased because of acquisitions $ 602,000 $ 334,000
Salaries $ 538,000 $ 3,000
Opening of additional distribution warehouses $ 300,000 $ --
Net loss from operation $3,507,000 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 $6,405,000 is a result of the Company's debt interest of $1,451,000
and warrant expense of $1,460,300. The Company converted $1,173,000 of loans to
equity in the nine months ended September 30, 2007, which will help to reduce
interest expense in the future.
PRO FORMA
Pro Forma Statement of operations for the nine months ended September 30, 2006
includes PGII and Palermo, which were acquired in the fourth quarter of 2006 and
Pasani acquired in May 2007 and Group Sur acquired in July 2007. The Pro Forma
Statement of operations for the nine months ended September 30, 2007 includes
Parsani acquired in May 2007 and Grupo Sur acquired in July 2007.
14
PRO FORMA FOR THE PRO FORMA FOR THE
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 2007 SEPTEMBER 30, 2006
------------------ ------------------
REVENUES $ 40,317,476 $ 27,717,239
COST OF REVENUES 33,964,515 22,054,387
------------ ------------
GROSS PROFIT 6,332,961 5,662,852
GENERAL AND ANDMINISTRATIVE EXPENSES 9,445,749 4,863,352
------------ ------------
GAIN OR (LOSS) FROM OPERATIONS (3,092,788) 799,499
OTHER INCOME AND (EXPENES)
INTEREST INCOME 16,939 13,593
INTEREST EXPENSE (1,455,896) (898,737)
WARRANT EXPENSE (1,460,300) --
PROVISION FOR INCOME TAXES -- --
------------ ------------
NET INCOME (LOSS) $ (5,992,045) $ (85,644)
============ ============
The Company has acquired four companies in the past twelve months. The Company
is expending great effort in reducing general and administrative expenses and
interest expense by combining administrative and general expenses of the various
subsidiaries and converting debt to capital.
Liquidity and capital resources
The Company had a cash balance of $1,905,734 at September 30, 2007 as compared
to $476,376 at December 31, 2007. The Company has been able to raise capital or
obtain financing to acquire License trade marks for $4,400,000, Pasani for
$1,600,000 and Grupo Sur for $4,500,000. These acquisitions were financed with
notes payable of $8,200,000 and cash 2,300,000.
The net cash used for operations $7,595,000 and the pay down of debt 2,218,000
was financed by the sale shares during the nine months ended September 30, 2007.
The Company expects to finance the capital needed with additional issuances of
its securities. During the nine months ended September 30, 2007 the Company
closed out the share offering provided by Brookstreet Securities Corporation.
15
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 September 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
During the nine month period ended September 30, 2007, the Company
issued shares of its common and preferred stock in the following cash
transactions:
DATE ISSUED AMOUNT NAME CASH DESCRIPTION OF TRANSACTION
--------------------------- --------------- ------------------------------ ------------------ -----------------------------------
June and July 2007 $ 9,593,578 Brookstreet offering-common Cash Private Placement
July 2007 $ 7,343,305 York Select Unit Trust Cash Private Placement
Item 3. Defaults on Senior Securities NONE
Item 4. Submission of Items to a Vote NONE
Item 5. Other Information NONE
16
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.
17
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: November 9, 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: 11/9/07
- ------------------------
Sandro Piancone
/s/ Victor Petrone President and Director Date: 11/9/07
- ------------------------
Victor Petrone
/s/ William Lindberg Chief Financial Officer Date: 11/9/07
- ------------------------
William Lindberg
18