SCHEDULE 14C
(Rule 14c-101)
INFORMATION REQUIRED IN INFORMATION STATEMENT
SCHEDULE 14C INFORMATION
Information Statement Pursuant to Section 14(c) of the
Securities Exchange Act of 1934 (Amendment No. )
Check the appropriate box:
[X] Preliminary Information Statement [_] Confidential, For Use of the
Commission Only (as permitted
by Rule 14c-5(d)(2))
[_] Definitive Information Statement
GOURMET GROUP, INC.
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(Name of Registrant as Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14C-5(g) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[_] Fee paid previously with preliminary materials:
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[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1) Amount previously paid:
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4) Date Filed:
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INFORMATION STATEMENT
(DATED DECEMBER __, 2004)
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US
A PROXY. THE ACTIONS, DEFINED BELOW, HAVE ALREADY BEEN APPROVED BY WRITTEN
CONSENT OF JGS SUPERMARKET MANAGEMENT CORP., PECK & GROSSMAN, LLC, FREDRICK
SCHULMAN, LOIS SHAPIRO, DANIEL MYERS, WHO TOGETHER OWN A MAJORITY (APPROXIMATELY
55%) OF THE COMPANY'S OUTSTANDING SHARES OF COMMON STOCK. A VOTE OF THE
REMAINING SHAREHOLDERS IS NOT NECESSARY.
GENERAL
This Information Statement is first being furnished on or about the
date first set forth above to holders (of record as of the close of business on
November __, 2004) of the common stock, $.001 par value per share ("OLD COMMON
STOCK"), of Gourmet Group, Inc., a Nevada corporation ("WE" or the "COMPANY"),
in connection with the following (collectively, the "ACTIONS"):
1. Merging the Company into a new Delaware corporation ("NEWCO") which
we will form as our wholly-owned subsidiary. Immediately after such merger (the
"MERGER"), Newco will survive and the Company will no longer exist, our
shareholders will no longer hold shares of the Company and our shareholders will
own shares of Newco common stock ("NEW COMMON STOCK") in the same proportion in
which they held shares of the Old Common Stock. The Merger will have the
following effects: (a) we will become a Delaware corporation and will no longer
be a Nevada corporation; (b) our name will be changed from Gourmet Group, Inc.
to the name of Newco, which will be Drinks Americas Holdings, Ltd.; (c) for
every ten shares of Old Common Stock, our shareholders will receive one share of
New Common Stock as though we had completed a one-for-ten reverse split of our
shares; and (d) we will have, as provided in Newco's Certificate of
Incorporation, up to 1,000,000 shares of "blank check" preferred stock
authorized, which shares may be issued from time to time in one or more series
by the Board of Directors, with such powers, preferences and other rights as
determined from time to time by the Board of Directors.
2. Causing Newco, promptly after the Merger, to complete a share
exchange transaction (the "SHARE EXCHANGE") with the shareholders of Drinks
Americas Holdings, Ltd., Ltd. ("DRINKS AMERICAS"), a Delaware Corporation and
the members of Maxmillian Mixers, LLC ("MIXERS"), a Delaware limited liability
company. The Share Exchange will involve Newco's acquiring all of the
outstanding shares of capital stock of Drinks Americas and all of the membership
interests in Mixers and, in return, issuing to the shareholders of Drinks
Americas (and to two consultants) and to the members of Mixers such number of
shares of New Common Stock so that the shareholders of Drinks Americas, together
with such consultants, and the members of Mixers will collectively become the
holders of approximately 90.1% of the outstanding shares of New Common Stock.
Immediately after the Share Exchange, our current shareholders will collectively
own approximately 8.25% of the outstanding shares of New Common Stock in the
same proportion in which they held shares of the Old Common Stock.
Our Board of Directors (the "BOARD") has approved, and JGS
Supermarket Corp., Daniel N. Matheson, Fredrick Schulman, Louis Shapiro, Steven
H. Kerr and Steven G. Weismann, who together own 24,393,593 shares
(approximately 60.1%) of the 40,586,993 shares of Old Common Stock outstanding
as of the date of this Information Statement, have consented in writing to, the
Actions. Such approval and consent are sufficient under Section 92A.120 of the
Nevada General Corporation Law and our By-Laws to approve the Actions.
Accordingly, the Actions will not be submitted to our other shareholders for a
vote and this Information Statement is being furnished to shareholders solely to
provide them with certain information concerning the Actions in accordance with
the requirements of Nevada law and the Securities Exchange Act of 1934, as
amended, and the regulations promulgated thereunder, including particularly
Regulation 14C.
The Actions described in item 1, above, will be effective on
the date that Certificates of Merger with respect to such Actions are filed with
the Secretaries of State of the States of Delaware and Nevada . These filings
are expected to occur on or shortly after the 22nd day after the date of this
Information Statement. The Actions described in item 2, above, are expected to
be effective immediately after such filings are made or promptly thereafter.
The offices of the Company are located at 241 Fifth Avenue,
Suite 302, New York, New York 10016 and the Company's telephone number is (212)
686-1511. The principal offices of Drinks Americas are located at 372 Danbury
Road, Wilton, Connecticut 06897 and its telephone number is (203) 762-7000.
SUMMARY OF TRANSACTIONS
We are a "shell company" with no operations and assets
consisting only of cash, cash equivalents and amounts owed to us by Drinks
Americas which assets are substantially equal to our obligations under loans we
recently incurred so that the funds we borrowed could in turn be lent to Drinks
Americas. (Henceforth, "WE" will refer to the Company or its successors unless
otherwise indicated.) The Merger and the Share Exchange, which are described in
more detail under "Merger And Share Exchange" below, have the following terms:
- We will acquire 100% ownership of Drinks Americas, a
privately-held Delaware Corporation and Mixers, a
privately-held Delaware limited liability company.
- Our Old Common Stock will be replaced with New Common Stock
and additional shares of New Common Stock will be issued.
- Our shareholders will collectively end up holding
approximately 8.25% ownership of our outstanding shares.
- Two consultants will end up with approximately 3.66% ownership
of our outstanding shares.
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- The shareholders of Drinks Americas and its consultants and
Mixers will collectively end up holding approximately 90.1% of
our outstanding shares and will therefore become our
controlling shareholders.
- We will become a Delaware corporation and no longer be a
Nevada corporation.
- Our name will be changed to Drinks Americas Holdings, Ltd.
- Our outstanding shares will be reverse split one-for-ten.
- The total number of shares of common stock which we are
authorized to issue will be 100,000,000.
- We will also be authorized to issue up to 1,000,000 shares of
"blank check" preferred stock, which shares may be issued from
time to time in one or more series by the Board, with such
powers, preferences and other rights as determined from time
to time by the Board.
- We will have a total of approximately 49,222,484 shares of
common stock outstanding and those who were our shareholders
before the transactions will collectively hold approximately
4,058,699 of those shares.
- Our only business will be the business of Drinks Americas.
- Our financial statements will be the financial statements of
Maxmillian Partners, LLC ("MAXMILLIAN") and its affiliates.
Maxmillian owns approximately 99% of the Capital Stock of
Drinks Americas and Maxmillian together with the owner of the
remaining 1% of Drinks Americas' Capital Stock collectively
own approximately 77% of the membership interests in Mixers.
- The shareholders of Drinks Americas will select our new
management, new Board of Directors and new auditors.
MERGER AND SHARE EXCHANGE
The Merger and the Share Exchange are parts of the same
transaction. We will be completing the Merger as a condition to completing the
Share Exchange. The Merger will allow us to complete the Share Exchange as a
Delaware corporation and with a name designated by Drinks Americas, and will
provide us with a sufficient number of authorized shares of common stock for us
to complete the Share Exchange.
Newco will be a Delaware corporation with 100,000,000
authorized shares of common stock, 1,000,000 authorized shares of "blank check"
preferred stock ("PREFERRED STOCK") and no other authorized capital stock.
Attached hereto as Attachment A is the form of Certificate of Incorporation of
Newco which will be filed with the Secretary of State of the State of Delaware
to form Newco. The terms of our merger into Newco (which are set forth in the
Agreement and Plan of Merger, the form of which is attached hereto as Attachment
B, to be entered into by Newco and the Company) will provide that Newco will be
the surviving corporation and that all of the outstanding shares of our Old
Common Stock will be exchanged for shares of New Common Stock at a ratio of ten
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shares of Old Common Stock for one share of New Common Stock. This is
effectively a one-for-ten reverse split of the Old Common Stock in which the
40,586,993 total shares of Old Common Stock outstanding as of the date of this
Information Statement will be exchanged for approximately 4,058,699 shares of
New Common Stock. Under our current Nevada certificate of incorporation (which
authorizes 50,000,000 shares of common stock), given our 40,586,993 shares of
Old Common Stock outstanding, we do not have a sufficient number of authorized
shares of Old Common Stock available to be able to complete the Share Exchange.
The "reverse split", together with the authorization of 100,000,000 shares of
New Common Stock, results in our having a sufficient number of authorized shares
available to complete the Share Exchange. In addition, since Newco will be the
surviving entity in the Merger, we will have changed our name to the name of
Newco as a result of the Merger.
As soon as practicable after the Merger, we will complete the
Share Exchange. The Share Exchange will result in our acquiring all of the
outstanding shares of capital stock (or 200 shares) of Drinks Americas from its
two shareholders and all of the membership interests in Mixers. As part of the
Share Exchange, we will be issuing to Drinks Americas' shareholders, to two
advisors to Drinks Americas and to Mixers' members an aggregate of approximately
45,163,792 shares of New Common Stock. Of such 45,163,792 shares, Drinks
Americas' shareholders will receive, in their capacity as such, pro rata to
their Drinks Americas share ownership, an aggregate of approximately 42,963,792
shares (or 87.28%), Stanley Altschuler and Richard Cooper, advisors to Drinks
Americas, will receive, in the aggregate, 1,800,000 shares (or 3.66%) and
Mixers' members will receive an aggregate of 400,000 shares (.008%). Of the
approximately 49,222,485 shares of New Common Stock to be outstanding
immediately after the Share Exchange is completed, our current shareholders will
together hold approximately 8.25% (or approximately 4,058,699 shares). The two
Shareholders of Drinks Americas own approximately 77% of the membership
interests in Mixers and therefore, as members of Mixers, will receive shares of
New Common Stock in connection with our acquisition of their interests in
Mixers. Drinks Americas Shareholders will own approximately 87.91% of our
shares. Maxmillian as the largest shareholder of Drinks Americas (99%) and as
the member with the largest interest in Mixers (approximately 55% of the
membership interests), will receive approximately 43,185,792 shares of New
Common Stock (representing approximately 87.74% of the shares of New Common
Stock to be outstanding) and will become our largest shareholder. Except as
described in this paragraph, no other single shareholder will become a holder of
5% or more of the outstanding shares of New Common Stock following the Share
Exchange.
"REVERSE SPLIT"
We believe that the "reverse split" is necessary because,
without it, we will have over 492 million shares issued and outstanding after
giving effect to the Merger and the Share Exchange and would have to authorize
hundreds of millions of shares of common stock in our certificate of
incorporation. Having fewer shares outstanding and authorized will help us to
reduce franchise tax obligations. We also believe that having the smaller number
of shares outstanding will help us to develop a trading market for our shares
and potentially in the future and depending on the success of our business in
the future list our shares on Nasdaq or a national stock exchange given their
requirements for a minimum per share trading price.
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NO FRACTIONAL SHARES
We will not be issuing fractional shares when the Old Common
Stock is "reverse split" into, and exchanged for, shares of New Common Stock.
Any holder of a number of shares of Old Common Stock not evenly divisible by 10
will receive a full share of New Common Stock in lieu of a fractional share. In
other words, the number of shares of New Common Stock to be issued to our
shareholders will be rounded up to the nearest whole number. Given that the
value of any fractional share will likely be small, we believe that this method
is preferable to paying cash in lieu of issuing fractional shares. Also, paying
cash in lieu of fractional shares would have the effect of cashing out and
eliminating any holder of fewer than ten shares of Old Common Stock. Because we
will not be paying cash for fractional shares, our "reverse split" will not have
the effect of reducing the number of our shareholders.
PREFERRED STOCK
Newco's Certificate of Incorporation gives the Board the
authority to issue up to 1,000,000 shares of Preferred Stock. The effect of such
authorization of the Preferred Stock is summarized below and the full text of
Newco's Certificate of Incorporation is set forth as Attachment A to this
Information Statement.
Preferred Stock may be issuable from time to time, in one or
more series and in any manner permitted by law, as determined from time to time
by the Board. The Preferred Stock may have such voting powers, full or limited,
or no voting powers, and such designations, preferences and relative,
participating, optional, or other special rights and qualifications, limitations
or restrictions, as the Board determines.
Shares of the Preferred Stock could be issued that would have
rights with respect to voting, dividends and liquidation that would be adverse
to those of the New Common Stock. The Board could approve the issuance of
Preferred Stock to discourage attempts by others to obtain control of Newco by
merger, tender offer, proxy contest or otherwise by making such attempts more
costly to achieve.
We believe that it is desirable to have a sufficient number of
shares of Preferred Stock available, as the occasion may arise, for possible
financings and acquisition transactions and other proper corporate purposes.
Having a sufficient number of shares of Preferred Stock available for issuance
in the future would give us greater flexibility by allowing shares of Preferred
Stock to be issued without incurring the delay and expense of a special
stockholders' meeting. We are not conducting any negotiations and have no
present plans, agreements, or understandings, written or oral, regarding
acquisitions involving the issuance of Preferred Stock.
The shares of Preferred Stock generally would be available for
issuance without any requirement for further stockholder approval, unless
stockholder action is required by applicable law, our governing documents or by
the rules of the National Association of Securities Dealers, Inc. or any stock
trading medium on which our securities may then be quoted.
Although the Board will authorize the issuance of shares of
Preferred Stock only when it considers doing so to be in the best interests of
stockholders, the issuance of shares of Preferred Stock may, among other things,
have a dilutive effect on the earnings and equity per share of New Common Stock
and on the voting rights of holders of shares of New Common Stock. The
authorization of Preferred Stock also could be viewed as having anti-takeover
effects. Although we have no current plans to do so, shares of Preferred Stock
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could be issued in various transactions that would make a change in control of
the Company more difficult or dilute the stock ownership of a person seeking to
obtain control. We are not aware of any effort to accumulate shares of New
Common Stock or obtain control of the Company by a tender offer, proxy contest,
or otherwise, and the Company has no present intention to use the shares of
authorized Preferred Stock for anti-takeover purposes
INFORMATION ABOUT US
Information about us is set forth in the Annual Report on Form
10-KSB of Gourmet Group, Inc. for the year ended June 30, 2004, and our
Quarterly Report on Form 10-QSB for the period ended September 30, 2004, copies
of which are attached hereto as Attachment C. A copy of that annual report was
filed with the Securities and Exchange Commission and is incorporated herein by
reference.
DESCRIPTION OF SECURITIES
Our authorized capital stock consists of 50,000,000 shares of
Old Common Stock, par value $.001 per share, of which 40,586,993 shares are
issued and outstanding before the Merger and Share Exchange. After the Merger
and Share Exchange, we will have authorized capital stock consisting of (a)
100,000,000 shares of New Common Stock, par value $.001 per share, of which
approximately 49,222,485 shares will be issued and outstanding, and (b)
1,000,000 shares of Preferred Stock, par value $.001 per share, of which no
shares will be issued or outstanding. We have initiated a private placement to
accredited investors (the "PRIVATE PLACEMENT") of up to $1,500,000 of 10%
convertible promissory notes of which $887,500 have been issued as of September
30, 2004. Pursuant to the terms of this offering, all of the proceeds have been
lent to Drinks Americas. These notes are convertible into shares of Newco Common
Stock at $.75 per share. If we issue the maximum amount of promissory notes
offered in the Private Placement and all of these notes are subsequently
converted into New Common Stock, 2,000,000 shares of New Common Stock would be
issued to these investors, and such issuance will have the effect of diluting
the percentage share ownership of all of our existing shareholders. If the
maximum number of shares of New Common Stock which may be issued in the Private
Placement are issued, we would have up to 51,222,485 shares of New Common Stock
outstanding, of which our current shareholders will own approximately 7.92% and
Drinks Americas' Shareholders will own approximately 84.31%. With the exception
of these convertible promissory notes now outstanding and those that might be
issued in the private placement, we do not have or expect to have outstanding
any options, warrants or other securities convertible into shares of our capital
stock and will not have any such convertible securities outstanding upon
completion of the Merger and the Share Exchange.
With respect to both the Old Common Stock and the New Common
Stock: Holders of shares are entitled to one vote for each share on all matters
to be voted on by the stockholders. Holders of shares do not have cumulative
voting rights. Holders of shares are entitled to share ratably in dividends, if
any, as may be declared from time to time by the Board of Directors in its
discretion from funds legally available therefore. In the event of our
liquidation, dissolution or winding up, the holders of shares are entitled to
share pro rata all assets remaining after payment in full of all liabilities.
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All of the outstanding shares are, and the shares to be issued in connection
with the Merger and the Share Exchange will be, when issued and delivered, fully
paid and non-assessable. Holders of shares have no preemptive rights to purchase
shares of our capital stock. There are no conversion or redemption rights or
sinking fund provisions with respect to our shares.
DISSENTERS' RIGHTS
Our shareholders have a right to dissent as to the Merger and
Share Exchange and have the right to be paid the fair value of their shares.
However, given that we have only nominal assets and over 40 million shares
outstanding, our belief is that the fair value of each share is de minimis. If
you would, nevertheless, like to dissent, you must provide a written notice of
such dissent to us, at our New York address, within forty (40) days after the
mailing of this Information Statement. Our notice to you of your dissenter's
rights is attached as Attachment D, which attachment also includes a form that
you may use for demanding payment for your shares. Within sixty (60) days after
the mailing of this Information Statement, you must deliver to us the
certificate or certificates representing the shares with respect to which you
are dissenting or other evidence of ownership so that we may make notation
thereon that such demand has been made. Please refer to the Nevada General
Corporate Law, Sections 92A.480 to 92A.500 for procedures to be followed in the
event the Company and the dissenting shareholder cannot agree on the fair value
of the dissenting shares.
INFORMATION ABOUT DRINKS AMERICAS
Drink's Americas was organized under the laws of the State of
Delaware on September 24, 2002. Drinks Americas markets and distributes
alcoholic and non-alcoholic beverages often associated with icon celebrities.
Drinks Americas was founded by individuals with substantial experience and
expertise in this industry.
Drinks Americas' strategy is to take advantage of celebrity
and icon brands and the strategic relationships its management team has
established throughout their careers. Drinks Americas distributes its products
with the support of established distributors, all of which are already well
known to Drinks Americas' management team from prior business dealings with them
in the beverage industry. Drinks Americas' management's relationships with
manufacturers, distillers, development/research companies and bottling concerns
and retail customers provide the foundation through which Drinks Americas
expects to grow its business in the future. These relationships and the
contractual understandings between the parties will depend upon the services
performed. Drinks Americas expects that its strategy will minimize its need to
invest heavily in fixed assets.
Drinks Americas has fifteen full time employees, including
officers and managers, and one part time employee.
The major alcoholic products distributed by Drinks Americas
include Old Whiskey River Bourbon and Bourbon Cream, Y Sake, Aguila Tequila,
Cohete Rum Guarana and Xanadu/Normans wines. Old Whiskey River Bourbon is
marketed in association with Willie Nelson, a renowned country western
entertainer, and Y Sake in association with Roy Yamaguchi, a renowned Japanese
chef.
In December 2002, Drinks Americas purchased 25% interests in
Old Whiskey River Distilling Company, LLC and Y Sake, LLC, which own or license
the related trademarks and trade names associated with these products. Drinks
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Americas holds the exclusive worldwide distribution rights for each of these
products.
In December 2003, Drinks Americas expanded the Old Whiskey
River line and introduced Old Whiskey River Bourbon Cream. Old Whiskey River
Bourbon has been featured on Food Channel's Emeril Live as well as Celebrity
Food Finds and other television programs. This line of products is available
nationally at Texas Roadhouse Restaurant chains as well as other outlets with
specific Willie Nelson promotions.
Similarly Y Sake has benefited from the celebrity of Chef Roy
Yamaguchi, who has been featured on Food Network and also is associated with a
chain of more than 30 Roy's restaurants now owned by Outback Steakhouse where
the product is served.
Drinks Americas owns a 52% interest in the trademark and an
option to acquire an additional 23% interest, for Aguila Tequila, a premium 100%
Blue Agave Tequila, produced by a distillery in Mexico, which is marketed with
its icon label, the North American Eagle. With the exception of Mexico, Drinks
Americas has the exclusive worldwide distribution rights for this product.
Drinks Americas has developed and owns the trademark and
formula for Cohete Rum, a Cuban style rum produced in Panama. Drinks Americas
launched this product in September, 2004. Cohete Rum has been awarded silver
medals from the International Beverage Tasting Institute. Drinks Americas also
has the exclusive right to distribute Norman Wines in the continental United
States. The Normans Winery is the oldest in Australia, established in 1853.
Drinks Americas non-alcoholic product offerings include Swiss
Gourmet Tea, known as Swiss T and Paul Newman Sparkling Lemonade. Drinks
Americas owns the Swiss T trademark and is the exclusive worldwide distributor
of this product. Swiss T is imported from Switzerland and produced for Drinks
Americas under a production agreement with Rauch GMBH, one of the largest Juice
production companies in Europe. Swiss T is marketed as a premium product sold in
up-scale food stores like the Whole Foods chain, gourmet delicatessen and
specialty shops.
Paul Newman Sparkling Lemonade is a new product and was
developed by Paul Newman Foods in association with Drinks Americas. Drinks
Americas has the rights to market and distribute this product in connection with
a November New York City test launch for this new product. Drinks Americas has
also begun distribution of this product in Florida. Paul Newman Sparkling
Lemonades come in 16oz. glass bottles in lemonade, lemon lime, orange mango,
blackberry and raspberry kiwi flavors. Based upon on the market's reaction to
this product, Drinks Americas expects to distribute this product throughout the
United States.
Drinks Americas has incurred substantial operating losses and
negative cost flows from its inception. Management expects a reduction in
operating losses in 2005 as a result of increased sales due to increased demand
for its existing products, and the introduction of new products. Drinks Americas
ability to operate profitably will depend on various factors including market
acceptance of its products and its ability to secure the financing necessary to
expand its business, of which there can be no assurance.
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REGULATORY APPROVALS REQUIRED
There are no federal or state regulatory requirements that we
must comply with or approvals that we must obtain in connection with the Merger
and the Share Exchange.
SELECTED COMBINED FINANCIAL DATA OF MAXMILLIAN
The following table sets forth selected combined financial
data for Maxmillian Partners, LLC and Affiliates, for the periods and the dates
indicated. The combined statement of operations for the years ended April 30,
2004 and 2003 and the balance sheet data as of April 30, 2004 and April 30, 2003
set forth below have been audited by Bernstein & Pinchuk, independent certified
public accountants, whose report thereon indicated a qualification on these
financial statements. The selected financial data should be read in conjunction
with, and are qualified in their entirety by, the Combined Financial Statements
of Maxmillian and affiliates and related Notes and other financial information
included in Attachment E. Attachment F includes the consolidated balance sheet
as of September 30, 2004 and consolidated statements of operations, changes in
members deficit and cash flows for the five month periods ended September 30,
2004 and 2003; such statements becoming consolidated as the result of Maxmillian
recently acquiring a controlling interest in the affiliate, Maxmillian Mixers,
LLC.
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COMBINED STATEMENT OF OPERATIONS DATA
FOR THE YEARS ENDED APRIL 30:
(IN THOUSANDS)
MAXMILLIAN PARTNERS, LLC AND AFFILIATES
COMBINED STATEMENTS OF OPERATIONS
YEARS ENDED APRIL 30, 2004 AND 2003
2004 2003
---- ----
Net sales $ 1,354,453 $ 367,648
Cost of goods sold 1,125,332 349,305
Gross Profit 229,121 18,343
Selling, general and administrative expenses 3,190,849 2,707,015
Loss before other expenses (2,961,728) (2,688,672)
Other expenses
Loss from termination of business combination - 300,000
Interest expense 42,346 4,381
42,346 304,381
Net loss $ (3,004,074) $ (2,993,053)
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MAXMILLIAN PARTNERS, LLC AND AFFILIATES
COMBINED BALANCE SHEETS
AS OF APRIL 30, 2004 AND 2003
ASSETS 2004 2003
---- ----
CURRENT ASSETS
Cash $ 103,768 $ 93,904
Accounts receivable, net of allowance of $26,.000 in 2004
and $68,800 in 2003 114,415 187,730
Due from factor, net of allowance of $10,000 34,133 -
Inventories 856,257 239,333
Other current assets 16,153 2,254
Total Current Assets 1,124,726 523,221
Property, furniture and equipment - at cost, net of
accumulated depreciation and amortization of $44,808 in
2004 and $15,428 in 2003 98,783 128,164
Investment in Equity Investees 9,982 3,327
Intangibles 721,160 643,477
Other 25,494 24,994
$ 1,980,145 $ 1,323,183
LIABILITIES AND MEMBERS' DEFICIT
CURRENT LIABILITIES
Accounts payable $ 1,839,003 $ 921,591
Notes and loans payable. 829,383 397,271
Accrued expenses 1,520,894 379,382
Total current liabilities 4,189,280 1,698,244
Members' deficit (2,209,135) (375,061)
$ 1,980,145 $ 1,323,183
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
INTRODUCTION
The following discussion and analysis summarizes the
significant factors affecting (1) combined results of operations of Maxmillian
Partners, LLC and Affiliates for fiscal 2004 compared to Fiscal 2003 and (2)
financial liquidity and capital resources for fiscal 2004. This discussion and
analysis should be read in conjunction with the consolidated financial
statements and notes thereto included as Attachment E to this item. As used in
this section "we" refers to Maxmillian, Drinks and Mixers, collectively.
RESULTS OF OPERATIONS
Net Sales. Net sales were $1,354,453 in fiscal 2004, compared
to net sales of $367,648 in fiscal 2003. We began selling our products in
November 2002, so that fiscal 2003 net sales results do not reflect a full year.
The increase in net sales in fiscal 2004 compared to fiscal 2003 was also due to
(i) successful introduction of our existing products into new states and
improved pricing and sales promotions in existing markets ($611,805) and (ii)
the introduction of new products ($375,000).
Gross Profit. Gross profit was $229,121 in fiscal 2004 (16.9%
of net sales), compared to gross profit of $18,343 in fiscal 2003 (4.9% of net
sales). The significant increase was primarily due to the (i) successful
introduction of our existing products into new states and the introduction of
new products in 2004 ($95,436), (ii) the elimination in 2004 of significant
customer allowances and production costs associated with our start-up which we
incurred in 2003 ($52,346) and (iii) improvements in pricing and purchasing and
product mix models in 2004 ($62,996).
Selling, General and Administrative Expenses. Selling, general
and administrative expenses were $3,190,849 in fiscal 2004, an increase of 17.9%
from expenses of $2,707,015 in fiscal 2003. The increase was primarily due to
increases in (i) payroll and payroll related expenses associated with additional
personnel of $668,991, (ii) sales commissions and entertainment expenses of
$199,355 and (iii) additional warehousing expenses due to higher inventory
levels and various other operating expenses of $99,409 in fiscal 2004. These
increases were offset by decreases in marketing and product development expenses
in 2004 caused by the execution of more efficient spending plans compared to
fiscal 2003 of $235,757, and the elimination of various one-time legal expenses
of $248,164 incurred in fiscal 2003.
Other Expense. Other expenses were $42,346 in fiscal 2004, a
decrease of 86.1% from other expenses of $304,381 in fiscal 2003. The
significant decrease was due to a non-recurring loss of $300,000 incurred in
2003, representing a deposit we made in connection with a potential acquisition
which we abandoned in fiscal 2003 due to uncertainty regarding the impact of the
war in Iraq on the acquisition candidate's French wine business. We also
incurred increased interest expense in 2004 as compared to 2003 of $37,965 due
to increased borrowings.
IMPACT OF INFLATION
Inflation has not had a material effect on our results of operations.
12
FINANCIAL LIQUIDITY AND CAPITAL RESOURCES
GENERAL
We have experienced net losses and negative cash flows from
operations and investing activities in each of our two years since inception.
Through April 30, 2004 we had accumulated losses of $6,686,501 and had consumed
cash from operating and investing activities in our first two fiscal years of
$4,525,839. We financed our operations and investments from inception
principally through individual private placements of our membership units,
related party loans and advances under our factoring facility.
Subsequent to the close of our fiscal year end, we entered
into share exchange with Gourmet Group, Inc., which may provide for, among other
things, debt financing available through Gourmet Group in an aggregate amount
not expected to exceed $1,500,000. We borrowed $887,500 through September 30,
2004. We expect these loans to be converted into equity.
In addition in fiscal 2004 we entered into a factoring
agreement by which we assign a substantial amount of our accounts receivables to
a factor without recourse as to bad debts, but with recourse as to all customer
claims. The agreement enables us to receive cash advances from the factor of 70%
of the value of the customer invoice at date of invoicing. Further, in May 2004
we secured an unsecured bank credit facility for borrowings of up to $200,000,
guaranteed by one of our members.
We anticipate that these proceeds together with the
anticipated cash flow from what we expect to be significantly increased sales
and gross profits in fiscal 2005, and a new credit facility allowing for greater
borrowings which we hope to secure, should provide adequate capital to fund our
operations and investing activities in fiscal 2005. However in the event that we
are not able to achieve all or part of our plan, it will materially affect our
ability to attain profitable operations, generate positive cash flows from
operating and investing activities and materially expand the business in fiscal
2005.
During fiscal 2003 and 2004, we entered into a borrowing
agreement with one of the members of Maxmillian for an aggregate of $400,000,
with the entire principal required to be repaid by January 2004, together with
interest at 8% per annum. The repayment terms of this loan were subsequently
modified and the amounts borrowed were repayable based on one-third of all cash
distributions we receive under our factoring facility. As of November 15, 2004
and September 30, 2004, the outstanding principal balance owed on this loan was
$131,809 and $140,647, respectively. In addition that same member loaned the
Company $375,000 with interest currently at 10% per annum, with no specific
repayment terms. The entire amount of the loan remains outstanding.
In fiscal 2003 we acquired distribution rights and trademarks
to certain alcoholic brands, for $475,000 of which $225,000 was evidenced by our
promissory note. The Note's original maturity date of June 2003 was extended by
the parties and the Note was satisfied in full in November 2004.
OFF BALANCE SHEET ARRANGEMENTS
Not applicable.
13
CRITICAL ACCOUNTING POLICIES
Our significant accounting policies are more fully described
in Note 2 to the financial statements. 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, liabilities, revenues and expenses, and the related
disclosures of contingent assets and liabilities. Actual results could differ
from those estimates under different assumptions or conditions. We believe that
the following critical accounting policy is subject to estimates and judgements
used in the preparation of the financial statements:
Long Lived Assets. Long-lived assets, including intangible
assets, property, furniture and equipment are reviewed for impairment when
events or circumstances indicate that the carrying value may not be recoverable
based on certain judgements and estimates. These judgements and estimates
include the determination of an event indicating impairment; the future
undiscounted cash flows to be generated by the asset, including the estimated
life of the asset and likelihood of alternative courses of action; and risks
associated with those cash flows. An impairment charge is recorded equal to the
difference between the carrying amount of the asset and its fair value.
Useful lives of long-lived assets are based on management's
estimates of the periods that the assets will be productively utilized in the
revenue-generation process. Factors that affect the determination of lives
include prior experience with similar assets and product life expectations and
management's estimate of the period that the assets will generate revenues.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We do not hold instruments that are sensitive to changes in
interest rates, foreign currency exchange rates or commodity prices. Therefore,
we believe that we are not materially exposed to market risks resulting from
fluctuations from such rates or prices.
FORWARD LOOKING STATEMENTS
Some statements and information contained in this Information
Statement are not historical facts, but are forward-looking statements. They can
be identified by the use of forward-looking words such as "believes," "expects,"
"plans," "may," "will," "would," "could," "should," or "anticipates," or other
comparable words, or by discussions of strategy, plans or goals that involve
risks and uncertainties that could cause actual results to differ materially
from those currently anticipated. We warn you that these forward-looking
statements are only predictions, subject to risks and uncertainties. Actual
events or results can differ materially from those expressed or implied as a
result of a variety of factors, including those described in this document,
including market acceptance of Drinks Americas' products in the marketplace and
the Company's ability to secure sufficient financing to expand Drinks Americas'
business after Closing.
14
MANAGEMENT OF DRINKS AMERICAS
The directors and officers of Drinks Americas are as follows:
- --------------------- ---------- ------------------------------------------------------------
NAME AGE POSITIONS AND OFFICES
- --------------------- ---------- ------------------------------------------------------------
J. Patrick Kenny 48 Chairman of the Board of Directors, Chief Executive Officer
- --------------------- ---------- ------------------------------------------------------------
Bruce Klein 48 Vice Chairman of the Board of Directors
- --------------------- ---------- ------------------------------------------------------------
Don Hammond 50 President, Chief Operating Officer
- --------------------- ---------- ------------------------------------------------------------
Fabio Berkowicz 54 Chief Financial Officer
- --------------------- ---------- ------------------------------------------------------------
Marvin Traub 79 Member, Board of Directors
- --------------------- ---------- ------------------------------------------------------------
Thomas Schwalm 60 Member, Board of Directors
- --------------------- ---------- ------------------------------------------------------------
15
SHAREHOLDERS OF DRINKS AMERICAS
Listed below are persons who after the Share Exchange is completed will
beneficially hold 5% or more of our outstanding capital stock and officers and
directors of Drinks Americas who on completion of the Share Exchange will
beneficially hold any shares of our outstanding capital stock.
The share number next to each such person's name indicates the
approximate number of shares of New Common Stock which will be beneficially
owned by such person after the Share Exchange is closed and the percentage in
parenthesis next to each such share number indicates the approximate percentage
which each such share number would constitute out of the total number of shares
of New Common Stock expected to be outstanding upon completion of the Share
Exchange.
------------------------------------------------------------- -------------
J. Patrick Kenny 15,731,995 shares of New Common Stock (31.9%)
------------------------------------------------------------- -------------
Kenneth Close 11,202,630 shares of New Common Stock(1) (22.8%)
------------------------------------------------------------- -------------
Bruce Klein 10,691,015 shares of New Common Stock(2) (21.7%)
------------------------------------------------------------- -------------
Thomas Schwalm 1,900,690 shares of New Common Stock(3) (3.9%)
------------------------------------------------------------- -------------
Fabio Berkowicz 1,707,217 shares of New Common Stock (3.5%)
------------------------------------------------------------- -------------
Don Hammond 451,701 shares of New Common Stock (1.0%)
------------------------------------------------------------- -------------
Marvin Traub 153,414 shares of New Common Stock *(4)
------------------------------------------------------------- -------------
FINANCIAL STATEMENTS OF DRINKS AMERICAS
The Combined Financial Statements of Maxmillian Parties, LLC and
Affiliates for the fiscal years ended April 30, 2004 and April 30, 2003,
including the Report of Independent Auditor, and the consolidated balance sheet
as of September 30, 2004 and the consolidated statements of operations, changes
in members deficit and cash flows for the five month periods ended September 30,
2004 and 2003, are attached to this Information Statement as Attachments E and
F, respectively, and are a part of this Information Statement.
- --------
(1) Includes shares owned by Nexcomm International Beverage, LLC, of which Mr.
Close is the manager.
(2) Includes shares owned by Peter Christian and Associates, LLC, of which Mr.
Klein is the manager.
(3) Includes shares owned by Greenwich Beverage Group, LLC, of which Mr.
Schwalm is the manager.
(4) Less than 1.0%.
16
INCORPORATION BY REFERENCE
A copy of the Annual Report on Form 10-KSB of Gourmet Group, Inc. for
the year ended June 30, 2004, previously filed with the Securities and Exchange
Commission, including the financial statements and related notes thereto and the
report of independent auditor, is attached to this Information Statement as
Attachment C. Such Annual Report is incorporated herein by reference. The
Combined Financial Statements of Maxmillian Parties, LLC and Affiliates for the
years ended April 30, 2004 and 2003, including the Report of Independent
Auditor, and the consolidated balance sheet as of September 30, 2004 and the
consolidated statements of operations, changes in members deficit and cash flows
for the five month periods ended September 30, 2004 and 2003, are attached to
this Information Statement as Attachments E and F, respectively and are
incorporated herein by reference.
By order of the board of directors,
Frederick Schulman
December __, 2004 President
17
ATTACHMENT A
FORM OF
CERTIFICATE OF INCORPORATION OF
DRINKS AMERICAS HOLDINGS, LTD.
CERTIFICATE OF INCORPORATION
OF
DRINKS AMERICAS HOLDINGS, LTD.
The undersigned, for the purposes of forming a corporation under the
laws of the State of Delaware, does make, file and record this Certificate, and
does certify that:
FIRST: The name of this corporation is Drinks Americas Holdings, Ltd.
SECOND: Its Registered Office in the State of Delaware is to be located
at 615 South Dupont Highway, Dover, 19901, County of Kent. The Registered Agent
in charge thereof is National Corporate Research, Ltd.
THIRD: The purpose of the corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of Delaware.
FOURTH: The total number of shares of all classes of stock which the
corporation shall have authority to issue is One Hundred and One Million
(101,000,000) which are divided into One Million (1,000,000) shares of Preferred
Stock, par value $.001 per share, and One Hundred Million (100,000,000) shares
of Common Stock, par value $.001 per share.
The shares of Preferred Stock may be issued from time to time in one or
more series, in any manner permitted by law, as determined from time to time by
the Board of Directors, and stated in the resolution or resolutions providing
for the issuance of such shares adopted by the Board of Directors pursuant to
authority hereby vested in it. Without limiting the generality of the foregoing,
shares in such series shall have such voting powers, full or limited, or no
voting powers, and shall have such designations, preferences, and relative,
participating, optional, or other special rights, and qualifications,
limitations, or restrictions thereof, permitted by law, as shall be stated in
the resolution or resolutions providing for the issuance of such shares adopted
by the Board of Directors pursuant to authority hereby vested in it. The number
of shares of any such series so set forth in such resolution or resolutions may
be increased (but not above the total number of authorized shares of Preferred
Stock) or decreased (but not below the number of shares thereof then
outstanding) by further resolution or resolutions adopted by the Board of
Directors pursuant to authority hereby vested in it.
FIFTH: The name and mailing address of the incorporator are as follows:
NAME MAILING ADDRESS
---- ---------------
Joseph L. Cannella Fischbein o Badillo o Wagner o Harding
909 Third Avenue
New York, NY 10022
SIXTH: The personal liability of all of the directors of the
corporation is hereby eliminated to the fullest extent allowed as provided by
the Delaware General Corporation Law, as the same may be supplemented and
amended.
SEVENTH: The corporation shall, to the fullest extent legally
permissible under the provisions of the Delaware General Corporation Law, as the
same may be amended and supplemented, indemnify and hold harmless any and all
persons whom it shall have power to indemnify under said provisions from and
against any and all liabilities (including expenses) imposed upon or reasonably
incurred by him in connection with any action, suit or other proceeding in which
he may be involved or with which he may be threatened, or other matters referred
to in or covered by said provisions both as to action in his official capacity
and as to action in another capacity while holding such office, and shall
continue as to a person who has ceased to be a director or officer of the
corporation. Such indemnification provided shall not be deemed exclusive of any
other rights to which those indemnified may be entitled under any Bylaw,
Agreement or Resolution adopted by the shareholders entitled to vote thereon
after notice.
EIGHTH: The Board of Directors of the corporation is expressly
authorized to make, alter or repeal the By-laws of the corporation
Dated on this ______ day of ______, 2004.
-----------------------
Incorporator
2
ATTACHMENT B
FORM OF
AGREEMENT AND PLAN OF MERGER
BETWEEN DRINKS AMERICAS HOLDINGS, LTD. AND
GOURMET GROUP, INC.
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated this _____ day of _________, 2004
(the "Agreement"), pursuant to Sections 251(f) and 252 of the General
Corporation Law of the State of Delaware and Section 92A.100 of the Nevada
General Corporate Law, between DRINKS AMERICAS HOLDINGS, LTD., a Delaware
corporation (the "Drinks Americas"), with a principal office at 372 Danbury
Road, Wilton, Connecticut 06897 and GOURMET GROUP, INC., a Nevada corporation
(the "Gourmet") with a principal office at 241 Fifth Avenue, Suite 302, New
York, New York 10016.
WITNESSETH THAT:
WHEREAS, Gourmet caused Drinks Americas to be formed in the State of
Delaware in order that Gourmet, through merger into Drinks Americas, could
change Gourmet's domicile to Delaware and effect a reverse split of its
outstanding shares of common stock, among other reasons; and
WHEREAS, Drinks Americas has not issued any shares of its capital stock
and has no shareholders and its Sole Director desires that Gourmet be merged
into Drinks Americas; and
WHEREAS, Drinks Americas, subject to the laws of the state of Delaware,
and Gourmet, subject to the laws of the state of Nevada, are the constituent
parties to this Agreement and desire to merge into a single corporation.
NOW, THEREFORE, Drinks Americas and Gourmet, in consideration of the
premises and the mutual covenants, agreements and provision contained herein, do
hereby prescribe the terms and condition of said merger and plan of carrying the
same into effect, as follows:
FIRST: Gourmet is hereby merged into Drinks Americas, with Drinks
Americas being the surviving entity (the "Surviving Corporation").
SECOND: There are no shares of stock of Drinks Americas heretofore
issued and outstanding and Drinks Americas does not have any shareholders prior
to this merger. There are 40,586,993 shares of Common Stock of Gourmet, and no
other shares of capital stock of Gourmet, currently outstanding. Each
outstanding share of capital stock of each constituent corporation is entitled
to one vote. Upon filing of a Certificate of Merger with respect to the merger
with the Secretary of State of Delaware and the Secretary of State of Nevada,
(i) each ten (10) outstanding shares of Common Stock of Gourmet, $.001 par value
per share, shall automatically be converted into one (1) share of Common Stock,
$.001 par value per share, of Drinks Americas and (ii) after such coversion, if
any shareholder of Gourmet holds a number of shares of Gourmet Common Stock not
evenly divisible by ten (10), such remaining shares held by each holder will
automatically be converted into one (1) full share of Drinks Americas Common
Stock rather than into a fractional share of Drinks Americas Common Stock.
THIRD: The terms and conditions of the merger are as follows:
a) The Certificate of Incorporation of Drinks Americas, as it exists
immediately prior to this merger, shall be the Certificate of Incorporation of
the Surviving Corporation;
b) The By-Laws of Drinks Americas as they exist on the effective date
of this merger shall be and remain the By-Laws of the Surviving Corporation,
until the same shall be altered, amended or repealed as therein provided;
c) The directors and officers of Drinks Americas shall continue in
office as the directors and officers of the Surviving Corporation, until the
next annual meeting of stockholders and/or until their successors shall have
been elected and qualified;
d) This merger shall become effective upon filing of the Certificates
of Merger, in the forms of Exhibit A and Exhibit B hereto, respectively, with
the Secretary of State of Delaware and the Secretary of State of Nevada,
respectively; and
e) Upon the effectiveness of the merger as provided herein, all of the
property, rights, privileges, franchises, patents, trademarks, licenses,
registrations and other assets of every kind and description of Gourmet shall be
transferred to, vested in, and devolve upon the Surviving Corporation.
IN WITNESS WHEREOF, the parties to this Agreement, pursuant to the approval and
authority duly given by resolutions adopted by the Sole Director of Drinks
Americas (pursuant to Section 251(f) of the Delaware General Corporation Law)
and the Board of Directors and the Shareholders of Gourmet, have caused this
Agreement and Plan of Merger to be executed by the President of Drinks Americas
and the President of Gourmet, as the respective act, deed and agreement of each
of the parties to this Agreement, on the date first set forth above.
DRINKS AMERICAS HOLDINGS, LTD. GOURMET GROUP, INC.
By: ____________________________ By: ________________________________
Name: Name:
Title: Title:
2
ATTACHMENT C
GOURMET GROUP, INC.
ANNUAL REPORT ON FORM 10-KSB
For the year ended June 30, 2004
QUARTERLY REPORTS ON FORM 10-QSB
For the period ended September 30, 2004
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended June 30, 2004
[_] Transition Report under Section 13 of 15(d) of the Securities Exchange
Act of 1934
For the transition period from ___________ to ___________
Commission file number 33-55254-10
GOURMET GROUP, INC.
(Name of small business issuer in its charter)
Nevada 87-0438825
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
241 Fifth Avenue, Suite 302, New York, NY 10016
(Address of principal executive offices) (Zip code)
Issuer's telephone number, including area code: (212) 686-1511
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act: None
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
There were no revenues for the issuer's fiscal year ended June 30, 2004.
State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was sold, as of a specified date within the last 60 days. On September 10, 2004:
$0 based on the close of the Company's common stock on September 10, 2004 at
$.00 per share.
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date. Gourmet Group, Inc. had
40,586,993 shares of common stock outstanding as of September 10, 2004.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
OVERVIEW
Gourmet Group, Inc. ("Gourmet Group" ) is a dormant holding company holding with
a dormant subsidiary, World Seair Corporation (together, the Company). In May,
2002, Gourmet Group sold its operating subsidiary, Our Food Products Group, Inc,
d/b/a Jardine Foods ("Jardine Foods"), a specialty food manufacturer and
marketer. The Company currently has no operations, and has been working to
acquire an operating business through purchase or merger.
HISTORY AND PROSPECTS
Gourmet Group was incorporated in the state of Nevada on July 9, 1986 under the
original name of Vicuna, Inc (Vicuna). Vicuna was organized to raise capital and
then seek out, investigate and acquire any suitable asset, property or other
business potential. In connection with an Agreement and Plan of Reorganization
dated May 22, 1998, Vicuna acquired World Seair Corporation, a private Florida
corporation incorporated in June 1997. As a part of the acquisition of World
Seair Corporation, Vicuna amended its Articles of Incorporation to provide for a
name change to Seair Group, Inc. (Seair) on May 26, 1998.
On September 28, 2000, Seair entered into an Agreement and Plan of Share
Exchange with Jardine Foods, a privately-held Texas corporation. Pursuant to the
agreement, Seair acquired 7,984,194 shares of Jardine Foods Class B Common
Stock, which constituted all of the outstanding capital stock of Jardine Foods,
in exchange for issuing a total of 25,089,723 restricted shares of Seair's
common stock, $0.001 par value. As a part of the acquisition of Jardine Foods,
Seair amended its Articles of Incorporation to provide for a name change to
Gourmet Group in September 2000.
Jardine Foods was formed on May 18, 1998, for the purpose of acquiring the
assets of Amigos First Partners, LP (Amigos), which was the company that had
previously operated the business described in the Overview above. On October 13,
1998, Jardine Foods acquired the assets and assumed substantially all of the
liabilities of Best of the West, Inc., and Simple Times, Inc. (collectively
referred to as Best of the West). Jardine Foods accounted for the acquisitions
of Amigos and Best of the West under the purchase method of accounting, and
recorded a combined purchase price of approximately $6.3 million.
On September 28, 2000, all of the outstanding stock of Jardine Foods was
acquired by Gourmet Group, in exchange for 3.142424 shares of Gourmet Group
common stock for each share of Jardine Foods common stock. Immediately prior to
this acquisition, each outstanding share of Jardine Foods preferred stock was
automatically converted to approximately 1.45 shares of Jardine Foods common
stock. In addition, outstanding options to purchase common stock of Jardine
Foods were exchanged for options to purchase Gourmet Group common stock based on
the exchange ratio discussed above. The acquisition was accounted for as a
recapitalization of Jardine Foods for
2
financial reporting purposes, and, therefore, Jardine Foods was considered the
predecessor company.
Jardine Foods secured a $2 million line of credit and two notes payable
(together, the "First Lien") with a commercial lender, and a $1.75 million
subordinated note payable to a finance company (the " Finance Company"). The
First Lien was secured by all tangible and intangible assets of Jardine Foods.
The Finance Company had (i) a subordinated lien on Jardine Foods' assets, and
(ii) a collateral pledge of 7,984,194 shares of common stock of Jardine Foods
(the "Stock") owned by Gourmet Group, constituting all of the issued and
outstanding stock of Jardine Foods. The First Lien and the subordinated note
required the maintenance of certain financial ratios and other financial
covenants. The Company was not in compliance with certain of the financial
ratios as of March 31, 2002, and was not able to obtain waivers from the
lenders. The Company received letters of acceleration from the commercial lender
holding the First Lien as well as from the Finance Company, declaring the First
Lien and the subordinated note to be immediately due and payable.
Arising out of the negotiations and efforts to resolve the debt acceleration, on
April 12, 2002, a nominee of the Finance Company entered into an option
agreement (the "Option") to purchase the Stock (or assets) of Jardine Foods from
Gourmet Group.
On May 28, 2002, the Finance Company exercised the Option to purchase the Stock
for agreed considerations. Any remaining disputes between the Company and the
Finance Company were settled on October 15, 2002 after litigation and
arbitration. The specific terms and conditions of the settlement agreement
between the parties are the subject of a mutual confidentiality agreement.
SUBSEQUENT EVENTS
Since selling Jardine Foods and settling with the Finance Company, the Company
has pursued the acquisition (or other combination) of various operating
businesses. On June 9, 2004, the Company executed a definitive agreement for
share exchange with the shareholders of Drinks Americas, Inc. for an exchange of
shares that would result in Drinks Americas, Inc. becoming a wholly owned
subsidiary of Gourmet Group. Pursuant to the definite agreement of share
exchange, the shareholders of Drinks Americas will, at closing, acquire
eighty-eight (88%) per cent of the then outstanding shares of Gourmet Group in
return for their shares of Drinks Americas. Following the share exchange and
related transactions, the current shareholders of Gourmet Group will own
approximately eight per cent (8%) of the resultant company. The definitive
agreement has various conditions to closing and also obligates Gourmet Group to
amend its Article of Incorporation to (i) change the name of Gourmet Group to
"Drinks Americas, Inc."; (ii) change the state of organization from Nevada to
Delaware; (iii) effect a 10 for 1 reverse split of the common stock of Gourmet
Group such that for every ten (10) shares of Gourmet Group owned by current
shareholders, they will remain with one (1) share; and (iv) increasing the
authorized number of shares to 100 million from 50 million.
Drinks Americas, Inc., based in Wilton, Connecticut, was founded in 2002 by an
experienced team of beverage, entertainment, retail and consumer product
industry professionals, led by J. Patrick Kenny, a former executive at Joseph E.
Seagram & Sons. Drinks Americas specializes in the marketing and distribution of
unique, premium alcoholic and nonalcoholic beverages associated with icon
entertainers, sports figures, celebrities, and destinations.
Arising out of the transaction described above, on June 21, 2004, the Company
initiated a private placement, to accredited investors only, of 10% convertible
debentures in an aggregate amount of up to $1.5 million. As of June 30, 2004,
$150,000 has been raised and as of September 27, 2004 $762,500 has been raised.
Pursuant to the terms of the offering, all proceeds of the offering have been
lent to Drinks, pursuant to a borrowing arrangement with the issuance of
promissory notes payable to the Company bearing interest at 10% per annum. The
principal amount of each note is payable in eight equal quarterly installments,
together with accrued interest, commencing one year from each note's issuance
date. Accrued interest on each promissory note is payable in full, one year from
the note's issuance date. As of balance sheet date, the Company has lent Drinks
$45,000 and subsequent to the balance sheet date additional amounts were lent to
a total of $788,192.
The convertible debentures provide that, following an actual closing of the
share exchange described above, (i) investors have the right to convert their
debentures to the Company's common stock within (90) days following the
commencement of public trading of the Company's stock, at a price of $0.75 per
share; and (ii) following the commencement of public trading, in the event the
Company's stock closes at a price of $1.00 or more for ten (10) consecutive
trading days, the Company has the right to force the conversion of any remaining
debentures into common stock of the Company at a price of $0.75.
In addition to the convertible debentures, the Company, on July 9, 2004,
executed a promissory note with Fredrick Schulman, as agent, as lender, bearing
interest at 10% per annum (payable quarterly), and with principal, in whole or
in part, payable upon demand, in the maximum principal amount of $200,000. Such
note allows the Company to draw down up to the maximum amount for a one hundred
twenty (120) day period, solely for the purpose of lending any such sums to
Drinks Americas, Inc. for its working capital needs.
CURRENT EMPLOYEES
The Company currently has no full-time employees, but the officers and directors
continue to expend time and effort to identify, negotiate, and pursue the
acquisition of, or merger with, an operating business.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company currently owns no property.
ITEM 3. LEGAL PROCEEDINGS.
There are no material existing or pending legal proceedings to which the Company
is a party.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
3
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's common stock does not generally trade but is quoted under the
trading symbol "GOUG." The following table sets forth, for the periods
indicated, the range of the high and low bid quotations (as reported by NASD).
The bid quotations set forth below reflect inter-dealer prices, without retail
mark-up, mark-down or commission and may not reflect actual transactions:
Period Low High
- ------- ---- ------
Fiscal Year Ended June 30, 2003
- --------------------------------
January 1, 2004 through March 31, 2004 $0.00 $0.00
Apri1, 1, 2004 June 30, 2004 $0.00 $0.00
July 1, 2004 through September 10, 2004 $0.00 $0.00
As of September 10, 2004, there are approximately 490 holders of record of the
Company's common stock for a total of 40,586,993 shares of common stock
outstanding.
We have never declared or paid cash dividends on our common stock. We intend to
retain any future earnings for use in the operation of our business and do not
anticipate paying any cash dividends on our common stock in the foreseeable
future.
4
RECENT SALES OF UNREGISTERED SECURITIES
For the fourth quarter period ended June 30, 2004, the Company's Board of
Directors resolved to issue the following shares:
- - 1,884,000 to Fredrick Schulman pursuant to his option to purchase such shares
at market value.
We believe that the transaction listed above was exempt from the registration
requirements of the Securities Act of 1933 by virtue of Section 4(2) thereof or
Regulation D promulgated thereunder. All recipients had adequate access, through
their relationships with us, to information about us.
THE APPLICATION OF THE "PENNY STOCK REGULATION" COULD HARM THE MARKET PRICE OF
OUR COMMON STOCK
Our securities may be deemed a penny stock. Penny stocks generally are equity
securities with a price of less than $5.00 per share other than securities
registered on certain national securities exchanges or quoted on the NASDAQ
Stock Market, provided that current price and volume information with respect to
transactions in such securities is provided by the exchange or system. Our
securities may be subject to "penny stock rules" that impose additional sales
practice requirements on broker-dealers who sell such securities to persons
other than established customers and accredited investors (generally those with
assets in excess of $1,000,000 or annual income exceeding $200,000 or $300,000
together with their spouse). For transactions covered by these rules, the
broker-dealer must make a special suitability determination for the purchase of
such securities and have received the purchaser's written consent to the
transaction prior to the purchase. Additionally, for any transaction involving a
penny stock, unless exempt, the "penny stock rules" require the delivery, prior
to the transaction, of a disclosure schedule prescribed by the Commission
relating to the penny stock market. The broker-dealer also must disclose the
commissions payable to both the broker-dealer and the registered representative
and current quotations for the securities. Finally, monthly statements must be
sent disclosing recent price information on the limited market in penny stocks.
5
Consequently, the "penny stock rules" may restrict the ability of broker-dealers
to sell our securities and may have the effect of reducing the level of trading
activity of our common stock in the secondary market. The foregoing required
penny stock restrictions will not apply to our securities if such securities
maintain a market price of $5.00 or greater. We can give no assurance that the
price of our securities will reach or maintain such a level.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
The following discussion of our financial condition and results of operations
should be read together with the consolidated financial statements and the
related notes included elsewhere in this Form 10-KSB and which are deemed to be
incorporated into this section. This discussion contains forward-looking
statements that involve risks and uncertainties.
Certain statements contained in this document that are not historical facts are
"forward looking statements," as that term is defined in Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934,
that involve a number of risks and uncertainties. Such forward-looking
statements may concern potential acquisitions and joint ventures, capital
expenditures, economic climate, strategic relationships with third parties,
liquidity and the Company's strategy. Such forward-looking statements are
generally accompanied by words such as "plan," "estimate," "expect," "believe,"
"should," "would," "could," "anticipate" or other words that convey uncertainty
of future events or outcomes. Such forward-looking statements are based upon
management's current plans, expectations, estimates and assumptions and are
subject to a number of risks and uncertainties that could significantly affect
current plans, anticipated actions, the timing of such actions and the Company's
business, financial position and results of operations. As a consequence, actual
results may differ materially from expectations, estimates or assumptions
expressed in or implied by any forward-looking statements made by or on behalf
of the Company.
OVERVIEW
The Company is a dormant holding company and is working to acquire an operating
business through purchase or merger.
NEW ACCOUNTING PRONOUNCEMENTS
In June 2002, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 146, " Accounting for Costs Associated
with Exit or Disposal Activities" (FAS 146). FAS 146, which will be effective
for exit or disposal activities initiated after December 31, 2002, is not
expected to have a material impact on the company's results of operation,
financial position or cash flows.
In December 2002, the FASB issued Statement of Financial Accounting Standards
No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure"
(FAS 148), which amends FAS 123, "Accounting for Stock-Based Compensation",
transition requirements when voluntarily changing to the fair value based method
of accounting for stock-based compensation and also amends FAS 123 disclosure
requirements. FAS 148 is not expected to have a material impact on the company's
results of operations, financial position or cash flow.
RESULTS OF OPERATIONS - YEAR ENDED JUNE 30, 2004
The Company did not have any income for the year ended June 30, 2004. Since
inception, the Company has not generated income from operations or net income,
nor has it generated cash from operations. As such, the Company's operations
have been funded primarily by equity and debt financings. Management believes
that the Company will continue to be dependent on equity financings and its
ability to borrow under debt agreements.
6
ITEM 7. CONSOLIDATED FINANCIAL STATEMENTS.
The financial information required by this item is set forth beginning on page
F-1 following the signature page.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES.
None
7
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT.
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information regarding the directors and executive
officers of Gourmet Group, Inc. as of September 10, 2004. A description of their
respective backgrounds follows below.
Name Age Position
- ----- --- --------
Fredrick Schulman 52 Chairman, Chief Executive Officer, and
President
Jeffrey Moore 34 Director, Vice President, Chief
Financial Officer and Secretary
All of the officers identified above serve at the discretion of the Board of
Directors of Gourmet Group, Inc.
Fredrick Schulman. Mr. Schulman, 52, is Chairman, Chief Executive Officer, and
President of Gourmet Group, Inc. and , from September 1999 until April 2002 was
Jardine Foods President, Chairman, and Chief Executive Officer. Mr. Schulman is
currently President of East Coast Venture Capital, a Specialized Small Business
Company. Mr. Schulman was previously President of Morgan Kent Group, Inc., a New
York based merchant bank, which was once the majority stockholder in Gourmet
Group. Prior to joining Morgan Kent Group, Inc., Mr. Schulman was the Director
of Investment Banking at RAS Securities Corp, a full service, New York based,
securities broker/dealer investment banking firm. Mr. Schulman received his B.A
from Clark University in 1974 and his J.D. from Boston College School of Law in
1977. A member of the New York Bar, Mr. Schulman practiced corporate, commercial
and real estate law on a full time basis from 1977 to 1983, after which he
formed his own investment banking firm specializing in real estate equity and
debt finance, and leveraged buy-outs.
Jeffrey Moore. Jeffrey Moore, 34, formerly served on the Board of Directors of
Gourmet Group, Inc. from September 1999 until April 2002. Mr. Moore currently
serves as Sales Representative for group insurance lines with Guardian Life
Insurance Company of America, based in Austin, Texas. From November 2002 until
April 2004, Mr. Moore served as Vice President of Business Development with
First American Title in Austin, Texas. Prior to this position, Mr. Moore was a
Director of Development with Boundless Corporation from January 1997 until
February 2002. Mr. Moore remained a consultant to Boundless Corporation until
March 2003. During his tenure with Boundless, Mr. Moore served as President of
Merinta, Inc., a Boundless subsidiary, from January 2000 until February 2002.
Mr. Moore has served as a Director of CD3 Storage Systems, Inc. since 1999. Mr.
Moore received a B.A in Finance from Baylor University in 1993.
8
DIRECTOR COMPENSATION
We have no established compensation arrangements with our directors, but
directors may be reimbursed for their reasonable expenses incurred in connection
with the attendance at board and committee meetings. Directors are eligible to
receive options to purchase common stock under our option plans.
ITEM 10. EXECUTIVE COMPENSATION.
The following table sets forth information for the fiscal year ended June 30,
2003, concerning the compensation paid and awarded to our Chief Executive
Officer and all other executive officers who earned over $100,000 (named
executive officers) during the 2003 fiscal year.
Summary Compensation Table
Annual Compensation Long Term Compensation Awards
------------------- -----------------------------
Other Securities
Name and Fiscal Annual Underlying All Other
Principal Position Year Salary Bonus Compensation Options Compensation
- ------------------- ---- ------ ----- ------------ ------- -----------
Fredrick Schulman, 2004 $ 0 -- -- -- --
Chief Executive Officer
and Chairman
9
OPTION GRANTS IN 2004
No options were granted to the named executive officers during the fiscal year
ending June 30, 2004.
YEAR-END OPTION VALUES
The following table provides information about stock options held as of June 30,
2004 by our currently named executive officers.
FISCAL YEAR-END OPTION VALUES
Number of Value of
Securities Unexercised
Underlying In-the-Money
Unexercised Options at Fiscal
Shares Value Options at Fiscal Year End
Acquired on Realized Year End Exercisable/ Exercisable/
Name Exercise ($) Unexercisable Unexercisable
- ----- -------- --- ------------- -------------
Fredrick Schulman 1,884,000 188.40 0 0
0 0
(*) In consideration for services rendered to the Company, in 2003, the Board of
Directors of the Company resolved to reduce the exercise of the 1,884,000
options to an exercise price of $0.0001 per share.
The last trading price of Gourmet Group's common stock on September 10, 2004 was
$0.00.
10
STOCK OPTION PLAN
General. We adopted our 2000 Incentive Plan on September 1, 2000. The plan
authorizes the issuance of up to 5,000,000 shares of our common stock through
the grant of stock awards and stock options. If options granted under the plan
expire or are terminated for any reason without being exercised, the shares of
common stock underlying such grant will again be available for purposes of the
plan.
For the fiscal year ended June 30, 2004 and subsequently to the date of this
filing, we have not issued any options or shares of common stock pursuant to the
2000 Incentive Plan.
EMPLOYMENT AGREEMENTS
None.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information regarding ownership of
Gourmet Group, Inc.'s common stock as of September 10, 2004 by:
(i) each person known to us to own beneficially more than 5% of Gourmet Group
outstanding common stock;
(ii) each director of Gourmet Group;
(iii) each executive officer named in the summary compensation table; and
(iv) all directors and executive officers of Gourmet Group as a group.
Share ownership is based on 40,586,993 shares of common stock outstanding on
September 10, 2004. Unless otherwise noted, the address for each stockholder is
the address of the Company.
Percent of Shares
Name and Address of Beneficial Owner Number of Shares Beneficially Owned
- ------------------------------------- ---------------- ------------------
JGS Supermarket Management Corp. 6,000,000 14.8%
Daniel N. Matheson 2,356,818 5.8%
Fredrick Schulman 8,334,800 20.5%
Lois Shapiro(1) 2,199,697 5.4%
Steven H. Kerr 3,023,520 7.5%
Jeffrey Moore 0 0
Steven G. Weismann 2,478,758 6.1%
Directors and Executive Officers of Gourmet 10,534,497 25.95%
Group as a Group
11
(1) Lois Shapiro is the wife of Fredrick Schulman.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
-None-
12
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following exhibits are filed as part of this report:
Exhibit No.* Description of Exhibit
- ------------ ----------------------
3.1 [1] Restated Articles of Incorporation of Gourmet Group,
Inc.
3.2 [2] By-laws of Gourmet Group, Inc.
10.1 [3] Agreement and Plan of Share Exchange, dated as of
September 28, 2000, among Gourmet Group, Inc., Our Food
Products Group, Inc. and the shareholders of Our Food
Products Group, Inc.
10.2 [1] Gourmet Group, Inc. 2000 Incentive Plan.
10.3 [1] Credit and Security Agreement by and between Our Food
Products Group, Inc. and Wells Fargo Business Credit,
Inc., dated as of May 31, 2000.
10.4 [1] Amendment, dated September 28, 2000, to Credit and
Security Agreement, with Gourmet Group, Inc. as an
additional party.
10.5 [1] Deed of Trust, Security Agreement and Financing
Agreement, dated as of May 31, 2000, given by Our Food
Products Group, Inc. unto a trustee for Wells Fargo
Business Credit, Inc.
13
Exhibit No.* Description of Exhibit
- ------------ ----------------------
10.6 [1] Guaranty, dated as of September 28, 2000, made by
Gourmet Group, Inc. for Wells Fargo Business Credit,
Inc.
10.7 [1] Keep Well Agreement, dated as of May 31, 2000, among Our
Food Products Group, Inc., Morgan Kent Group, Inc. and
Wells Fargo Business Credit, Inc.
10.8 [1] Amendment to Keep Well Agreement, dated as of September
28, 2000.
10.9 [1] Pledge Agreement, dated September 28, 2000, between
Gourmet Group, Inc. and KBK Financial, Inc.
11 Statement re computation of per share earnings (See
Financial Statements).
16 [1] Letter of Meeks, Dorman & Company, P.A. to the
Securities and Exchange Commission pursuant to the
requirements of Item 304(a)(3) of Regulation S-K.
21.1 List of Subsidiaries of Gourmet Group, Inc.
31 Section 302 Certification dated September 22, 2003.
32 Section 906 Certification dated September 22, 2003.
* Number inside brackets indicate documents from which exhibits have been
incorporated by reference.
[1] Incorporated by reference to the Registrant's Current Report on Form 8-K
dated September 28, 2000 and filed with the Commission on October 13, 2000.
[2] Incorporated by reference to Vincuna, Inc.'s Registration Statement on Form
S-1 (No. 33-55254-10) which became effective on June 30, 1993 and which was
filed jointly with other companies with the consent of the Securities and
Exchange Commission.
[3] Incorporated by reference to Exhibit 10.1 to the Schedule 13D filed by
Morgan Kent Group et al. on October 10, 2000 relating to Gourmet Group common
stock.
(b) Reports on Form 8-K
None
14
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
GOURMET GROUP, INC.
Date: October 13, 2004 By: /s/ Fredrick Schulman
----------------------
Fredrick Schulman
Chairman and Chief
Executive Officer
In accordance with 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.
Signature Date
- ---------- ---------------
/s/ Fredrick Schulman October 13, 2004
- --------------------------------------
Fredrick Schulman
Chairman and Chief Executive Officer
/s/ Jeffrey Moore October 13, 2004
- --------------------------------------
Jeffrey Moore
Chief Financial Officer (Principal Financial
and Accounting Officer) and Director
15
GOURMET GROUP, INC. AND SUBSIDIARY
FINANCIAL STATEMENTS
WITH
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
JUNE 30, 2004 AND 2003
CONTENTS
PAGE
Report of Independent Public Accountants 1
Financial Statements
Consolidated Balance Sheets 2
Consolidated Statements of Operations 3
Stockholders' Deficiency 4
Cash Flows 5
Notes to Consolidated Financial Statements 6 - 8
To the Board of Directors and
Stockholders of Gourmet Group, Inc.
We have audited the accompanying consolidated balance sheets of Gourmet
Group, Inc., (a Nevada corporation), and its subsidiary as of June 30, 2004
and 2003, and the related consolidated statements of operations,
stockholders' equity and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the consolidated 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 that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Gourmet
Group, Inc., and its subsidiary as of June 30, 2004 and 2003, and the
results of their operations and their cash flows for the years then ended,
in conformity with accounting principles generally accepted in the United
States of America.
Bernstein &Pinchuk LLP
New York, New York
September 27, 2004
GOURMET GROUP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
June 30,
2004 2003
ASSETS
Current Assets
Cash $ 110,158 $ 404
Other current assets 40,250 -
-------------- --------------
Total current assets 150,408 404
-------------- --------------
$ 150,408 $ 404
============== ==============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
LIABILITIES
Current Liabilities
Income taxes payable $ 455 $ 910
Other current liabilities 40,800 5,279
-------------- --------------
Total current liabilities 41,255 6,189
-------------- --------------
10% Convertible debentures payable 150,000 -
-------------- --------------
STOCKHOLDERS' DEFICIENCY
Common Stock, $0.001 par value; 50,000,000 shares authorized;
issued and outstanding, 40,586,993 shares in 2004 and
33,202,993 shares in 2003 40,586 33,203
Par value discount (4,845) -
Additional paid-in capital 3,515,194 3,497,194
Accumulated deficit (3,591,782) (3,536,182)
-------------- --------------
(40,847) (5,785)
-------------- --------------
$ 150,408 $ 404
============== ==============
See the accompanying notes to the financial statements.
Page 2
GOURMET GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended June 30,
2004 2003
General and administrative expenses $ 55,145 $ 5,337
------------ ------------
Loss before income tax expense (55,145) (5,337)
Income tax expense 455 910
------------ ------------
NET LOSS $ (55,600) $ (6,247)
============ ============
Net loss per share - basic and diluted $ - $ -
See the accompanying notes to the financial statements.
Page 3
GOURMET GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY
Years ended June 30, 2004 and 2003
Common stock Additional Total
------------------------ paid-in Par Value Accumulated stockholders'
Shares Amount capital Discount deficit equity
----------- ----------- ----------- ----------- ---------- -----------
Balance at June 30, 2002 28,582,384 $ 28,582 $ 3,501,353 $ -- $(3,529,935) $ --
Stock issued as
compensation to
officers and directors 3,600,000 3,600 (3,240) -- -- 360
Stock issued as
additional compensation
to two directors 1,020,609 1,021 (919) -- -- 102
Net loss - year
ended June 30, 2003 -- -- -- -- (6,247) (6,247)
----------- ----------- ----------- ----------- ----------- -----------
Balance at June 30, 2003 33,202,993 33,203 3,497,194 -- (3,536,182) (5,785)
Stock issued for cash 3,884,000 3,884 18,000 (1,696) 20,188
Stock issued for fees 3,500,000 3,499 (3,149) -- 350
Net loss -- -- -- (55,600) (55,600)
----------- ----------- ----------- ----------- ---------- - -----------
Balance at June 30, 2004 40,586,993 $ 40,586 $ 3,515,194 $ (4,845) $(3,591,782) $ (40,847)
=========== =========== =========== =========== =========== ===========
See the accompanying notes to the financial statements
Page 4
GOURMET GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended June 30,
2004 2003
Cash flows from operating activities
Net Loss $ (55,600) $ (6,247)
--------- ---------
Adjustments to reconcile net
income to net cash provided
by operating activities:
Decrease in accounts receivable -- 48,000
Increase in other current assets (40,250) --
Increase (decrease) in accrued liabilities 35,521 (42,721)
(Decrease) increase in income taxes payable (455) 910
--------- ---------
Total adjustments (5,184) 6,189
--------- ---------
Net cash used in operating activities (60,784) (58)
--------- ---------
Cash flow from financing activities:
Proceeds from issuance of common stock 20,538 462
Proceeds from issuance of long-term debt 150,000 --
--------- ---------
Net cash provided by financing activities 170,538 462
--------- ---------
Net increase in cash and equivalents 109,754 404
Cash and equivalents, beginning of year 404 --
--------- ---------
Cash and equivalents, end of year $ 110,158 $ 404
========= =========
There were no payments made for interest or taxes.
See the accompanying notes to the financial statements
Page 5
GOURMET GROUP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2004 and 2003
1. Nature of Business and Organization
Gourmet Group, Inc. (the "Company"), formerly known as Seair Group, Inc., a
Nevada corporation, and its wholly owned subsidiary, World Seair Corporation is
a dormant corporation with no operations. During the years ended June 30, 2004
and 2003, the Company was dormant.
2. Summary of Significant Accounting Policies
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 the 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.
Principles of Consolidation
The financial statements are presented on a consolidated basis and include the
accounts of Gourmet Group, Inc., and World Seair Corporation. All significant
intercompany balances and transactions have been eliminated in consolidation.
Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." Deferred taxes are determined based on the
difference between the financial statement and tax basis of assets and
liabilities using enacted tax rates in effect in the years in which the
differences are expected to reverse. Valuation allowances are provided if, based
upon the weight of available evidence, it is more likely than not that some or
all of the deferred tax assets will not be realized.
Loss Per Share
Loss per share has been calculated in accordance with the provisions of SFAS No.
128, "Earnings Per Share." The basic loss per share is computed by dividing net
loss by the weighted average number of common shares outstanding during the
year. Due to the Company's net loss, diluted loss per share is the same as basic
since the effect of considering outstanding common share equivalents would be
antidilutive.
Page 6
3. Other Current Assets
Other current assets represents advances made to Drinks Americas, Inc. ("Drinks)
pursuant to a definitive agreement with Drinks. (See Note 4)
4. 10% Convertible Debentures Payable
Arising out of the transaction described in Note 8, on June 21, 2004, the
Company initiated a private placement to accredited investors only, of 10%
convertible debentures in an aggregate amount of up to $1.5 million. As of June
30, 2004, $150,000 has been raised and as of September 27, 2004 $762,500 has
been raised. Pursuant to the terms of the offering, all proceeds of the offering
have been lent to Drinks, as per a borrowing arrangement with the issuance of
promissory notes payable to the Company bearing interest at 10% per annum. The
principal amount of the notes shall each be payable in eight equal quarterly
installments, together with accrued interest, commencing one year from each
note's issuance date. Accrued interest on each promissory note will be payable
in full, one year from the note's issuance date. As of balance sheet date, the
Company has lent Drinks $45,000 and subsequent to balance sheet date additional
amounts to a total of $788,192.
The convertible debentures provide that, following an actual closing of the
share exchange described above, (i) investors have the right to convert their
debentures to the Company's common stock within 90 days following the
commencement of public trading of the Company's stock, at a price of $0.75 per
share; and (ii) following the commencement of public trading, in the event the
Company's stock closes at a price of $1.00 or more for 10 consecutive trading
days, the Company has the right to force the conversion of any remaining
debentures into common stock of the Company at a price of $0.75.
In addition to the convertible debentures, the Company, on July 9, 2004,
executed a promissory note with a Fredrick Schulman, as agent, as lender,
bearing interest at 10% per annum payable quarterly, and with principal, in
whole or in part, payable upon demand, in the maximum principal amount of
$200,000. Such note allows the Company to draw down up to the maximum amount for
a 120 day period, solely for the purpose of lending any such sums to Drinks
Americas, Inc. for its working capital needs.
5. Common Stock
The Company has 50,000,000 authorized shares of common stock. Each share of
common stock is entitled to one vote. The holders of common stock are also
entitled to receive dividends whenever funds are legally available and when
declared by the Board of Directors, subject to the prior rights of holders of
all classes of stock outstanding.
Page 7
6. Disposal of Subsidiary
On May 28, 2002, the Company sold its only operating subsidiary. There were
remaining disputes between the Company and the buyer, which were settled on
October 15, 2002 by a Compromise and Settlement Agreement, settling a certain
matter entitled KBK Financial, Inc. d/b/a KBK Mezzanine Partners and Star Brands
v. Gourmet Group, Inc. in Texas District Court, Tarrant County. The specific
terms and conditions of the Compromise and Settlement Agreement are the subject
of a Mutual Confidentiality Agreement. The Company was released from any further
obligations concerning the subsidiary sold.
7. Income Taxes
At June 30, 2004, the Company has Federal NOL carryforwards of approximately
$7,500,000 available to reduce future taxable income, which begin to expire in
2019. However, under the provisions of the Internal Revenue Code, due to certain
changes in the Company's ownership, substantially all of theses carryforward
losses are no longer available.
8. Commitments, Contingencies and Subsequent Events
On June 9, 2004, the Company executed a definitive agreement for share exchange
with shareholders of Drinks for an exchange of shares that would result in
Drinks becoming a whole owned subsidiary of the Company. Pursuant to a definite
agreement of share exchange, the shareholders of Drinks will, at closing,
acquire 88% of the then outstanding shares of the Company in return for their
shares of Drinks. Following the share exchange and related transactions, the
current shareholders of the Company will end up owning only approximately 8% of
the Company. The definitive agreement has various conditions to closing and also
obligates the Company to amend its Articles of Incorporation to (i) change the
name of the Company to that of Drinks Americas, Inc., (ii) change the state of
organization from Nevada to Delaware, (iii) effect a 10 for 1 reverse split of
the common stock of the Company so that every ten shares owned by the present
shareholders will be converted to one share, and (iv) increase the authorized
number of shares from 50 million to 100 million.
Drinks Americas, Inc., based in Wilton, Connecticut, was founded in 2002 by an
experienced team of beverage, entertainment, retail and consumer product
industry professionals, led by J. Patrick Kenny, a former executive at Joseph E.
Seagram & Sons. Drinks specializes in the marketing and distribution of unique,
premium alcoholic and nonalcoholic beverages associated with icon entertainers,
sports figures and other celebrities and destinations.
Page 8
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended September 30, 2004
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 33-55254-10
GOURMET GROUP, INC.
Nevada 87-0438825
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
241 Fifth Avenue, Suite 302, New York, NY 10016
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (212) 686-1511
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
The number of outstanding shares of the Registrant's common stock, $0.001 par
value, as of September 30, 2004, is 40,586,993.
PART 1
Item 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
GOURMET GROUP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
GOURMET GROUP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
September 30, June 30,
2004 2004
(Unaudited)
ASSETS
Current Assets
Cash $ 3,206 $ 110,158
Other receivables 13,399 -
Due from Drinks Americas, Inc. 897,994 40,250
-------------- --------------
Total current assets 914,599 150,408
-------------- --------------
$ 914,599 $ 150,408
============== ==============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
LIABILITIES
Current Liabilities
Income taxes payable $ 455 $ 455
Accrued expenses 54,199 40,800
Loans payable stockholder 18,679 -
-------------- --------------
Total current liabilities 73,333 41,255
-------------- --------------
10% Convertible debentures payable 887,500 150,000
-------------- --------------
STOCKHOLDERS' DEFICIENCY
Common Stock, $0.001 par value; 50,000,000 shares authorized;
issued and outstanding, 40,586,993 shares 40,586 40,586
Par value discount (4,845) (4,845)
Additional paid-in capital 3,515,194 3,515,194
Accumulated deficit (3,597,169) (3,591,782)
-------------- --------------
(46,234) (40,847)
-------------- --------------
$ 914,599 $ 150,408
============== ==============
See the accompanying notes to the financial statements.
Page 2
GOURMET GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended September 30, 2004 and 2003
2004 2003
(Unaudited) (Unaudited)
General and administrative expenses 5,387 8,811
------------ ------------
Other income (expense)
Interest income 13,399 -
Interest expense (13,399) -
------------ ------------
- -
------------ ------------
Loss before income tax expense (5,387) (8,811)
NET LOSS $ (5,387) $ (8,811)
============ ============
Net loss per share - basic and diluted $ - $ -
See the accompanying notes to the financial statements.
Page 3
GOURMET GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended September 30, 2004 and 2003
2004 2003
(Unaudited) (Unaudited)
Cash flows from operating activities
Net Loss $ (5,387) $ (8,811)
-------------- --------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Changes in operating assets and liabilities
Due from Drinks Americas, Inc. (857,744) -
Loan payable stockholder 18,679 -
Other receivables (13,399) -
Accrued expenses 13,399 (279)
Income taxes payable - (910)
-------------- --------------
Net cash used in operating activities (844,452) (10,000)
-------------- --------------
Cash flow from financing activities:
Proceeds from issuance of common stock - 10,000
Proceeds from issuance of long-term debt 737,500 -
-------------- --------------
Net cash provided by financing activities 737,500 10,000
-------------- --------------
Net increase in cash and equivalents (106,952) -
Cash and equivalents, beginning of year 110,158 404
-------------- --------------
Cash and equivalents, end of year $ 3,206 $ 404
============== ==============
There were no payments made for interest or taxes.
See the accompanying notes to the financial statements
Page 5
DRINKS AMERICAS, INC AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 2004
ASSETS
Current Assets:
Cash 40,815
Accounts receivable, net of allowance of $50,000 83,194
Due from factor, net of allowance of $20,000 51,070
Inventories 784,513
Other current assets 238,972
------------------
Total current assets 1,198,565
Property and Equipment, at cost less accumulated
depreciation and amortization of $47,808 97,319
Investment in Equity Investees 9,982
Intangibles 734,757
Other 29,659
------------------
2,070,281
==================
LIABILITIES AND DEFICIENCY IN SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable 1,700,800
Notes and loans payable 1,081,916
Accrued expenses 2,272,865
------------------
Total current liabilities 5,055,581
10% Convertible debentures payable 887,500
------------------
Total liabilities 5,943,081
------------------
Deficiency in Shareholders' Equity
Common stock $.01 par value; authorized, issued
and outstanding 227 shares 2
Par value discount (46,234)
Additional paid-in capital 4,477,364
Accumulated deficit (8,303,932)
------------------
(3,872,800)
------------------
2,070,281
==================
DRINKS AMERICAS, INC. AND SUBSIDIARIES
PROFORMA CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2004
Net sales 557,321
Cost of products sold 456,218
-----------------
Gross profit 101,103
Selling and marketing expenses 312,061
General and administrative expenses 765,480
-----------------
Total expenses 1,077,541
-----------------
Operating loss (976,438)
-----------------
Other expenses:
Depreciation and amortization 6,600
Interest expense 14,130
-----------------
20,730
-----------------
Net loss (997,168)
=================
See notes to combined financial statements
DRINKS AMERICAS, INC
COMBINING PRO FORMA BALANCE SHEETS
AS OF SEPTEMBER 30, 2004
MAXMILLIAN ADJUST MAX DRINKS
.. PARTNERS, FOR PARTNERS AMERICAS
LLC CLOSING ADJUSTED INC.
ASSETS
CURRENT ASSETS
Cash and cash equivalents (445) 445 0 37,384
Accounts receivable (less allowances of 50,000) - 83,194
Due from factor (less allowances of 12,000) - 51,070
Inventories - 784,402
Other current assets 14,588 (14,588) 0 171,657
Intercompany drinks 624,445 (624,445) -
Intercompany mixers 102,778 (102,778) -
TOTAL CURRENT ASSETS 741,366 (741,366) 0 1,127,706
-
PROPERTY AND EQUIPMENT, at cost 62,604 (62,604) - 38,683
LESS ACCUMULATED DEPRECIATION (19,074) 19,074 - (11,198)
-
PROPERTY AND EQUIPMENT, net 43,530 (43,530) - 27,485
-
INVESTMENT IN DRINKS 1,000,000 (1,000,000) -
INVESTMENT IN MIXERS (73,711) 73,711 -
-
INVESTMENTS IN EQUITY METHOD INVESTEES - 9,982
INTANGIBLES 176,966 (176,966) 0 557,790
OTHER 29,159 (29,159) 0 500
-
1,917,311 (1,917,310) 1 1,723,464
LIABILITIES
CURRENT LIABILITIES
Accounts payable 64,085 (64,085) 0 1,582,168
Due to sellers of investments and distribution rights - 38,585
Loans payable 465,421 (465,421) (0) 1,382,833
Accrued expenses 35,978 (35,978) (0) 2,187,687
Intercompany max (23,309)
Intercompany payables drinks/max - 624,445
TOTAL CURRENT LIABILITIES 565,484 (565,484) 0 5,792,409
-
10%convertible debentures payable -
-
MEMBERS' DEFICIT -
Common stock - 1,150,000
Par value discount -
Additional paid in capital -
Members' contributions 4,122,166 4,122,166
-
Accumulated deficit (2,770,340) (1,351,826) (4,122,166) (5,218,945)
-
TOTAL DEFICIT 1,351,826 (1,351,826) 0 (4,068,945)
-
-
1,917,310 (1,917,310) 0 1,723,464
DRINKS AMERICAS, INC
COMBINING PRO FORMA BALANCE SHEETS
AS OF SEPTEMBER 30, 2004
ADJUST DRINKS MAXMILLIAN ADJUST
.. FOR AMERICAS MIXERS, FOR
CLOSING ADJUSTED LLC CLOSE
ASSETS
CURRENT ASSETS
Cash and cash equivalents (445) 36,939 670
Accounts receivable (less allowances of 50,000) 83,194
Due from factor (less allowances of 12,000) 51,070
Inventories 784,402 111
Other current assets 14,588 186,245 52,727
Intercompany drinks -
Intercompany mixers -
TOTAL CURRENT ASSETS 14,143 1,141,850 53,509
-
PROPERTY AND EQUIPMENT, at cost 62,604 101,287 43,840
LESS ACCUMULATED DEPRECIATION (19,074) (30,272) (17,536)
-
PROPERTY AND EQUIPMENT, net 43,530 71,015 26,304
-
INVESTMENT IN DRINKS -
INVESTMENT IN MIXERS -
-
INVESTMENTS IN EQUITY METHOD INVESTEES 9,982
INTANGIBLES 176,966 734,757
OTHER 29,159 29,659
-
263,799 1,987,262 79,813
LIABILITIES
CURRENT LIABILITIES
Accounts payable 64,085 1,646,253 45,375 9,173
Due to sellers of investments and distribution rights 38,585
Loans payable 465,421 1,848,254 74,392
Accrued expenses 35,978 2,223,664 7,945
Intercompany max (23,309) 32,482 (9,173)
Intercompany payables drinks/max (624,445) - 93,605 (93,605)
TOTAL CURRENT LIABILITIES (58,961) 5,733,448 253,799 (93,605)
-
10%convertible debentures payable -
-
MEMBERS' DEFICIT -
Common stock 1,150,000
Par value discount -
Additional paid in capital -
Members' contributions - 462,320
-
Accumulated deficit 322,760 (4,896,185) (636,306) 93,605
-
TOTAL DEFICIT 322,760 (3,746,185) (173,986) 93,605
-
-
263,799 1,987,263 79,813 -
DRINKS AMERICAS, INC
COMBINING PRO FORMA BALANCE SHEETS
AS OF SEPTEMBER 30, 2004
ADJUSTED DRINKS GOURMET PROFORMA
.. MAX MAX GROUP CONSOLID.
MIXERS CONSOL
ASSETS
CURRENT ASSETS
Cash and cash equivalents 670 37,609 3,206 40,815
Accounts receivable (less allowances of 50,000) - 83,194 83,194
Due from factor (less allowances of 12,000) - 51,070 51,070
Inventories 111 784,513 784,513
Other current assets 52,727 238,972 238,972
Intercompany drinks - - -
Intercompany mixers - - -
TOTAL CURRENT ASSETS 53,509 1,195,359 3,206 1,198,565
-
PROPERTY AND EQUIPMENT, at cost 43,840 145,127 145,127
LESS ACCUMULATED DEPRECIATION (17,536) (47,808) (47,808)
-
PROPERTY AND EQUIPMENT, net 26,304 97,319 - 97,319
-
INVESTMENT IN DRINKS -
INVESTMENT IN MIXERS -
-
INVESTMENTS IN EQUITY METHOD INVESTEES - 9,982 9,982
INTANGIBLES - 734,757 734,757
OTHER - 29,659 29,659
-
79,813 2,067,075 3,206 2,070,281
LIABILITIES
CURRENT LIABILITIES
Accounts payable 54,548 1,700,801 1,700,801
Due to sellers of investments and distribution rights - 38,585 38,585
Loans payable 74,392 1,922,646 (879,315) 1,043,331
Accrued expenses 7,945 2,231,610 41,255 2,272,865
Intercompany max 23,309 - -
Intercompany payables drinks/max 0 0 0
TOTAL CURRENT LIABILITIES 160,194 5,893,642 (838,060) 5,055,582
-
10%convertible debentures payable - 887,500 887,500
-
MEMBERS' DEFICIT -
Common stock - 1,612,320 40,586 1,612,320
Par value discount - (4,845) (46,234)
Additional paid in capital - 3,515,194
Members' contributions 462,320
-
Accumulated deficit (542,701) (5,438,886) (3,597,169) (5,438,886)
-
TOTAL DEFICIT (80,381) (3,826,566) (46,234) (3,872,800)
79,813 2,067,076 3,206 2,070,282
MAXMILLIAN PARTNERS, LLC AND SUBSIDIARIES
COMBINING STATEMENT OF OPERATIONS
FIVE MONTHS ENDED SEPTEMBER 30, 2004
MAXMILLIAN DRINKS MAXMILLIAN
PARTNERS, AMERICAS MIXERS,
LLC INC. LLC ELIMINATION
REVENUES
GROSS SALES 1,006,720
RETURNS & ALLOWANCES (89,133)
TOTAL - 917,588 - -
COST OF SALES 773,049
GROSS PROFIT - 144,539 - -
SELLING AND MARKETING 454,983
BRAND CONTRIBUTION - (310,445) - -
CORPORATE OVERHEAD 13,281 808,927 4,475
EXECUTIVE COMP, CONSULT, MKT 434,550
EBITDA (13,281) (1,553,921) (4,475) -
OTHER ITEMS
LOSS IN EQUITY INVESTMENT -
MINORITY INTEREST
INTEREST 11,522 14,110
DEPRECIATION & AMORTIZATION 11,000
LOSS ON BUSINESS EXPANSION
11,522 25,110 - -
NET LOSS (24,803) (1,579,031) (4,475)
DEFICIT AT BEGINNING (2,745,537) (3,639,914) (631,831) (330,781)
DEFICIT AT END (2,770,340) (5,218,945) (636,306) (330,781)
MAXMILLIAN PARTNERS, LLC AND SUBSIDIARIES
COMBINING STATEMENT OF OPERATIONS
FIVE MONTHS ENDED SEPTEMBER 30, 2004
MAXMILLIAN 2 months 3 months
PARTNERS, ended ended
LLC 30-Jun-04 30-Sep-04
& SUBSIDIARIES
REVENUES
GROSS SALES 1,006,720 408,691 598,029
RETURNS & ALLOWANCES (89,133) (48,425) (40,708)
TOTAL 917,588 360,267 557,321
COST OF SALES 773,049 316,831 456,218
GROSS PROFIT 144,539 43,435 101,103
SELLING AND MARKETING 454,983 142,922 312,061
BRAND CONTRIBUTION (310,445) (99,487) (210,958)
CORPORATE OVERHEAD 826,683 372,075 454,608 5,387 3,735
EXECUTIVE COMP, CONSULT, MKT 434,550 132,800 301,750
EBITDA (1,571,678) (604,361) (967,316) (5,387) (3,735)
OTHER ITEMS
LOSS IN EQUITY INVESTMENT -
MINORITY INTEREST -
INTEREST 25,632 11,502 14,130
DEPRECIATION & AMORTIZATION 11,000 4,400 6,600
LOSS ON BUSINESS EXPANSION -
36,632 15,902 20,730
NET LOSS (1,608,309) (620,263) (988,046) (5,387) (3,735) (997,168)
DEFICIT AT BEGINNING (6,686,501) (6,686,501) (7,306,764)
DEFICIT AT END (8,294,810) (7,306,764) (8,294,810) (5,387) (8,303,932)
GOURMET GROUP, INC. AND SUBSIDIARY
Notes to Financial Statement
1. Nature of Business and Organization
Gourmet Group, Inc., formerly known as Seair Group, Inc. (Seair), a Nevada
corporation, and its wholly owned subsidiary, World Seair Corporation (a dormant
corporation with no operations) are collectively referred to as the Company. The
Company is presently dormant.
2. Summary of Significant Account Policies
Basis of Presentation
The accompanying financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America. The
accompanying consolidated, unaudited financial statements as at and for the
three months ended September 30, 2004 include the accounts of the Company and
its wholly-owned subsidiary. All intercompany transactions have been eliminated
in consolidation. The accompanying unaudited financial statements as at and for
the three months ended September 30, 2004 include the accounts of the Company.
In the opinion of management, the unaudited financial statements contain all
adjustments (consisting only of normal recurring accruals) necessary to present
fairly the consolidated financial position of the Company as of September 30,
2004 and the consolidated results of operations and cash flows for the three
months ended September 30, 2004 and the result of operations and cash flows for
the three months ended September 30, 2004, The results of consolidated
operations for the three months ended September 30, 2004 and the result
of operations for the three months ended September 30, 2003 are not necessarily
indicative of results to be expected for the full year. The June 30, 2004
balance sheet was derived from the audited financial statements included in the
Company's report on Form 10-KSB for the year ended June 30, 2004 and should be
read in conjunction therewith.
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 the 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.
Principles of Consolidation
The financial statements are presented on a consolidated basis and include the
accounts of Gourmet Group, Inc., and World Seair Corporation. All significant
intercompany balances and transactions have been eliminated in consolidation.
Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." Deferred taxes are determined based on the
difference between the financial statement and tax basis of assets and
liabilities using enacted tax rates in effect in the years in which the
differences are expected to reverse. Valuation allowances are provided if, based
upon the weight of available evidence, it is more likely than not that some or
all of the deferred tax assets will not be realized.
Loss Per Share
Loss per share has been calculated in accordance with the provisions of SPAS No-
128, "Earnings Per Share." The basic loss per share is computed by dividing net
loss by the weighted average number of common shares outstanding during the
year. Due to the Company's net loss, diluted loss per share is the same as basic
since the effect of considering outstanding common share equivalents would be
antidilutive.
Other Current Assets
Other current assets represents advances made to Drinks Americas, Inc. ("Drinks)
pursuant to a definitive agreement with Drinks.
10% Convertible Debentures Payable
Arising out of the transaction described below under "Commitments, Contingencies
and Subsequent Events", on June 21, 2004, the Company initiated a private
placement to accredited investors only, of 10% convertible debentures in an
aggregate amount of up to $1.5 million. As of June 30, 2004, $150,000 has been
raised and as of September 27, 2004 $762,500 has been raised. Pursuant to the
terms of the offering, all proceeds of the offering have been lent to Drinks, as
per a borrowing arrangement with the issuance of promissory notes payable to the
Company bearing interest at 10% per annum. The principal amount of the notes
shall each be payable in eight equal quarterly installments, together with
accrued interest, commencing one year from each note's issuance date. Accrued
interest on each promissory note will be payable in full, one year from the
note's issuance date. As of balance sheet date, the Company has lent Drinks
$45,000 and subsequent to balance sheet date additional amounts to a total of
$788,192.
The convertible debentures provide that, following an actual closing of the
share exchange described above, (i) investors have the right to convert their
debentures to the Company's common stock within 90 days following the
commencement of public trading of the Company's stock, at a price of $0.75 per
share; and (ii) following the commencement of public trading, in the event the
Company's stock closes at a price of $1.00 or more for 10 consecutive trading
days, the Company has the right to force the conversion of any remaining
debentures into common stock of the Company at a price of $0.75.
In addition to the convertible debentures, the Company, on July 9, 2004,
executed a promissory note with a Fredrick Schulman, as agent, as lender,
bearing interest at 10% per annum payable quarterly, and with principal, in
whole or in part, payable upon demand, in the maximum principal amount of
$250,000. Such note allows the Company to draw down up to the maximum amount for
a 120 day period, solely for the purpose of lending any such sums to Drinks
Americas, Inc. for its working capital needs.
Recently Issued Accounting Pronouncements
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin No. 101 (SAB 101), "Revenue Recognition in Financial
Statements," as amended, which was effective no later than the quarter ended
June 2001. SAB 101 clarifies the SEC's views regarding recognition of revenue.
The adoption of SAB 101 did not have a significant impact on the Company's
financial position or results of operations.
3. Common Stock
The Company has 50,000,000 authorized shares of common stock. Each share of
common stock is entitled to one vote. The holders of common stock are also
entitled to receive dividends whenever funds are legally available and when
declared by the Board of Directors, subject to the prior rights of holders of
all classes of stock outstanding.
4. Income Taxes
At June 30, 2004, the Company has Federal NOL carryforwards of approximately
$7,500,000 available to reduce future taxable income, which begin to expire in
2019.
Under the provisions of the Internal Revenue Code, certain substantial changes
in the Company's ownership may result in a limitation on the amount of net
operating loss carry forwards, which can be used in future years.
Commitments, Contingencies and Subsequent Events
On June 9, 2004, the Company executed a definitive agreement for share exchange
with shareholders of Drinks for an exchange of shares that would result in
Drinks becoming a whole owned subsidiary of the Company. Pursuant to a definite
agreement of share exchange, the shareholders of Drinks will, at closing,
acquire 88% of the then outstanding shares of the Company in return for their
shares of Drinks. Following the share exchange and related transactions, the
current shareholders of the Company will end up owning only approximately 8% of
the Company. The definitive agreement has various conditions to closing and also
obligates the Company to amend its Articles of Incorporation to (i) change the
name of the Company to that of Drinks Americas, Inc., (ii) change the state of
organization from Nevada to Delaware, (iii) effect a 10 for 1 reverse split of
the common stock of the Company so that every ten shares owned by the present
shareholders will be converted to one share, and (iv) increase the authorized
number of shares from 50 million to 100 million.
Drinks Americas, Inc., based in Wilton, Connecticut, was founded in 2002 by an
experienced team of beverage, entertainment, retail and consumer product
industry professionals, led by J. Patrick Kenny, a former executive at Joseph E.
Seagram & Sons. Drinks specializes in the marketing and distribution of unique,
premium alcoholic and nonalcoholic beverages associated with icon entertainers,
sports figures and other celebrities and destinations.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis of the financial condition and results of
operations should be read in conjunction with the Company`s condensed
consolidated financial statements and related notes thereto included elsewhere
in this quarterly report.
OVERVIEW
The Company is a dormant holding company and is working to acquire an operating
business through purchase or merger. As described under "Commitments,
Contingencies and Subsequent Events", the Company is proceeding to attempt a
share exchange with Drinks Americas, Inc. Pro-forma financial information on
Drinks is included herein in anticipation of the combination of the Company and
Drinks.
NEW ACCOUNTING PRONOUNCEMENTS
In June 2002, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 146, "Accounting for Costs Associated with
Exit or Disposal Activities" (FAS 146). FAS 146, which will be effective for
exit or disposal activities initiated after December 31, 2002, is not expected
to have a material impact on the company results of operation, financial
position or cash flows.
In December 2002, the FASB issued Statement of Financial Accounting Standards
No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure"
(FAS 148), which amends FAS 123, "Accounting for Stock-Based Compensation",
transition requirements when voluntarily changing to the fair value based method
of accounting for stock-based compensation and also amends FAS 123 disclosure
requirements. FAS 148 is not expected to have a material impact on the company`s
results of operations, financial position or cash flow.
RESULTS OF OPERATIONS - PERIOD ENDED SEPTEMBER 30, 2004
The Company did not have any income for the period ended September 30, 2004.
Since inception, the Company has not generated income from operations or net
income, nor has it generated cash from operations. As such, the Company`s
operations have been funded primarily by equity and debt financings. Management
believes that the Company will continue to be dependent on equity financings.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this document that are not historical facts are
"forward-looking statements," as that term is defined in Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934,
that involve a number of risks and uncertainties. Such forward-looking
statements may concern growth and future operating results, potential
acquisitions and joint ventures, new manufacturing facilities, capital
expenditures, economic climate, new products and products enhancements, the
demand for products, competitive factors, research and development activities
and expenditures, strategic relationships with third parties, liquidity and the
Company`s strategy. Such forward-looking statements are generally accompanied by
words such as "plan," "estimate," "expect," "believe," "should," "would,"
"could," "anticipate" or other words that convey uncertainty of future events or
outcomes. Such forward looking statements are based upon management`s current
plans, expectations, estimates and assumptions are subject to a number of risks
and uncertainties that could significantly affect current plans, anticipated
actions, the timing of such actions and the Company`s business, financial
position and results of operations. As a consequence, actual results may differ
materially from expectations, estimates, or assumptions expressed in or implied
by any forward-looking statements made by or on behalf of the Company.
Item 3. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Within the 90 days prior to the filing date of this report, the Company carried
out an evaluation of the effectiveness of the design and operation of its
disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. This
evaluation was done under the supervision and with the participation of the
Company's President and Principal Financial Officer. Based upon that evaluation,
they concluded that the Company's disclosure controls and procedures are
effective in gathering, analyzing and disclosing information needed to satisfy
the Company's disclosure obligations under the Exchange Act.
CHANGES IN INTERNAL CONTROLS
There were no significant changes in the Company's internal controls or in other
factors that could significantly affect those controls since the most recent
evaluation of such controls.
PART II
Item 4. LEGAL PROCEEDINGS
The Company is not currently involved in any material legal proceedings.
Item 5. CHANGES IN SECURITIES
None
Item 6. DEFAULTS UPON SENIOR SECURITIES
None
Item 7. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Item 8. OTHER INFORMATION
None
Item 9. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits
31 Section 302 Certification dated May 12, 2004.
32 Section 906 Certification dated May 12, 2004.
(B) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Gourmet Group, Inc.
Date: November 15, 2004 By: /s/ Fredrick Schulman
-----------------------
Fredrick Schulman
President and Chief Executive Officer
(Principal Executive Officer)
ATTACHMENT D
GOURMET GROUP INC.
241 FIFTH AVENUE
SUITE 302
NEW YORK, NEW YORK 10016
Re: Dissenters' Notice
Dear Shareholder:
Gourmet Group Inc. hereby gives notice as provided in NRS ss.92A.430
that the proposed corporation action creating dissenters' rights, which is
described in the Information Statement to which this notice is attached will be
effectuated on or about _______, 2004 and further that:
1. A payment demand from each dissenting shareholder must be sent to
the corporate office at 241 Fifth Avenue, Suite 302, New York, New
York 10016, and certificates for shares must be deposited at such
address, by ______, 2006.
2. There shall be no transfers of uncertified shares after the payment
demand is received.
3. A Form which may be used to demand payment in connection with
Dissenters' Rights is attached hereto.
Gourmet Group Inc.
By:
---------------------------
Frederick Schulman
President
Gourmet Group Inc.
241 Fifth Avenue
Suite 302
New York, New York 10016
Attention: President
Re: Dissenters' Rights
Dear Sir:
I on my own behalf or on behalf of ___________________ who is the
beneficial owner of the shares referred to in this demand, hereby demand payment
with respect to _____ (number) shares of Gourmet Group Inc. Common Stock and
certify that I have beneficially owned such shares since _____________.
---------------------
Sign Name
---------------------
Print Name
ATTACHMENT E
MAXMILLIAN PARTNERS, LLC AND AFFILIATES
FINANCIAL STATEMENTS
WITH
INDEPENDENT AUDITORS' REPORT
FOR THE YEARS ENDED
APRIL 30, 2004 AND 2003
TABLE OF CONTENTS
Page
Independent Auditors' Report 1
Combined Balance Sheets 2
Combined Statements of
Operations 3
Changes in Members' Deficit 4
Cash Flows 5
Notes to Combined Financial Statements 6 - 14
INDEPENDENT AUDITORS' REPORT
To the Members of
Maxmillian Partners, LLC and Maxmillian Mixers, LLC
Wilton, Connecticut
We have audited the accompanying combined balance sheets of Maxmillian Partners,
LLC (including the accounts of Drinks Americas, Inc. its 99 percent owned
subsidiary) and Maxmillian Mixers, LLC as of April 30, 2004 and 2003 and the
related combined statements of operations, members' deficit and cash flows for
the years then ended. These financial statements are the responsibility of the
Companies' management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan to perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. 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 that our
audit provides a reasonable basis for our opinion.
As disclosed in the financial statements, during the years ended April 30, 2004
and 2003, the Companies used over $3,500,000 in cash in conducting operations,
incurred over $5,900,000 in operating losses and at April 30, 2004, their
current liabilities exceeded current assets by over $3,000,000 and total assets
by over $2,200,000. Continuation of the businesses as going concerns will be
dependent on obtaining additional capital or financing as disclosed in Note 14,
and increasing future revenues. These financial statements have been prepared on
the basis of a going concern and do not include those adjustments of assets and
liabilities and those additional disclosures which would be necessary in the
event that they cannot continue to operate as going concerns.
In our opinion, except as noted in the preceding paragraph, the financial
statements referred to above present fairly, in all material respects, the
combined financial position of Maxmillian Partners, LLC and Maxmillian Mixers,
LLC at April 30, 2004 and 2003 and the combined results of their operations and
cash flows for the years then ended, in conformity with accounting principles
generally accepted in the United States of America.
Bernstein & Pinchuk LLP
New York, New York
September 2, 2004
MAXMILLIAN PARTNERS, LLC AND AFFILIATES
Combined Balance Sheets
As of April 30, 2004 and 2003
ASSETS 2004 2003
----------- -----------
CURRENT ASSETS
Cash $ 103,768 $ 93,904
Accounts receivable, net of allowance of $26,000 in 2004
and $68,800 in 2003 114,415 187,730
Due from factor, net of allowance of $10,000 34,133 --
Inventories 856,257 239,333
Other current assets 16,153 2,254
----------- -----------
Total current assets 1,124,726 523,221
Property, furniture and equipment - at cost, net of accumulated
depreciation and amortization of $44,808 in 2004 and $15,428 in 2003 98,783 128,164
Investment in Equity Investees 9,982 3,327
Intangibles 721,160 643,477
Other 25,494 24,994
----------- -----------
$ 1,980,145 $ 1,323,183
=========== ===========
LIABILITIES AND MEMBERS' DEFICIT
CURRENT LIABILITIES
Accounts payable $ 1,839,003 $ 921,591
Notes and loans payable 829,383 397,271
Accrued expenses 1,520,894 379,382
----------- -----------
Total current liabilities 4,189,280 1,698,244
Members' deficit (2,209,135) (375,061)
----------- -----------
$ 1,980,145 $ 1,323,183
=========== ===========
SEE NOTES TO COMBINED FINANCIAL STATEMENTS
-2-
MAXMILLIAN PARTNERS, LLC AND AFFILIATES
Combined Statements of Operations
Years ended April 30, 2004 and 2003
2004 2003
----------- -----------
Net sales $ 1,354,453 $ 367,648
Cost of goods sold 1,125,332 349,305
----------- -----------
Gross profit 229,121 18,343
Selling, general and administrative expenses 3,190,849 2,707,015
----------- -----------
Loss before other expenses (2,961,728) (2,688,672)
Other expenses
Loss from termination of business combination -- 300,000
Interest expense 42,346 4,381
----------- -----------
42,346 304,381
----------- -----------
Net loss $(3,004,074) $(2,993,053)
=========== ===========
SEE NOTES TO COMBINED FINANCIAL STATEMENTS
-3-
MAXMILLIAN PARTNERS, LLC AND AFFILIATES
Combined Statements of Changes in Members' Deficit
Years ended April 30, 2004 and 2003
Member's Minority
Capital Interests Accumulated
Units Invested Investments Deficit Total
------ ----------- ----------- ----------- -----------
Balance May 1, 2002 173 $ 950,000 $ -- $ (689,374) $ 260,626
Issuance of units for cash 27 2,166,666 -- -- 2,166,666
Issuance of units for services 2 500 -- -- 500
Minority interests investment -- 190,200 -- 190,200
Net loss for the year -- -- (2,993,053) (2,993,053)
--- ----------- ----------- ----------- -----------
Balance April 30, 2003 202 3,117,166 190,200 (3,682,427) (375,061)
Issuance of units for cash 38 1,005,000 -- -- 1,005,000
Minority interests investment -- 165,000 -- 165,000
Net loss for the year -- -- (3,004,074) (3,004,074)
--- ----------- ----------- ----------- -----------
Balance April 30, 2004 240 $ 4,122,166 $ 355,200 $(6,686,501) $(2,209,135)
=== =========== =========== =========== ===========
SEE NOTES TO COMBINED FINANCIAL STATEMENTS
-4-
MAXMILLIAN PARTNERS, LLC AND AFFILIATES
Combined Statements of Cash Flows
Years ended April 30, 2004 and 2003
2004 2003
----------- -----------
Cash Flows From Operating Activities
Net loss $(3,004,074) $(2,993,053)
Adjustments to reconcile net loss to net cash used in
operating activities
Depreciation and amortization 51,697 23,916
Allowance for uncollectible accounts 26,000 68,800
Partnership units issued for services -- 500
Changes in assets and liabilities:
Accounts receivable 47,315 (256,530)
Due from factor (34,133) --
Inventories (616,924) (239,333)
Other current assets (13,899) (2,154)
Accounts payable 917,413 908,758
Accrued expenses 1,141,512 379,382
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (1,485,093) (2,109,714)
----------- -----------
Cash Flows From Investing Activities
Acquisition of property and equipment -- (143,591)
Increase in investment in equity method investees (6,655) (3,327)
Acquisition of intangibles (100,000) (651,966)
Other (500) (24,993)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (107,155) (823,877)
----------- -----------
Cash Flows From Financing Activities
Proceeds from members' investments 1,170,000 2,356,865
Net increase in notes and loans payable 432,112 397,271
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,602,112 2,754,136
----------- -----------
NET INCREASE (DECREASE) IN CASH 9,864 (179,455)
Cash at beginning of year 93,904 273,359
Cash at end of year $ 103,768 $ 93,904
=========== ===========
Supplemental Disclosure of Cash Flow Information
Cash paid for interest $ 9,077 $ --
=========== ===========
SEE NOTES TO COMBINED FINANCIAL STATEMENTS
-5-
MAXMILLIAN PARTNERS, LLC AND AFFILIATES
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED APRIL 30, 2004 AND 2003
1. NATURE OF BUSINESS
Maxmillian Partners, LLC through its wholly-owned subsidiary and affiliate
(collectively "Companies") imports and distributes unique, premium alcoholic and
non-alcoholic beverages associated with icon entertainers, sports figures,
celebrities and destinations, to beverage wholesalers throughout the United
States.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Combination and Organization The accompanying combined
financial statements include the accounts of Maxmillian Partners, LLC
("Company"), a limited liability company organized under the laws of the
State of Delaware on January 1, 2002, its 99%-owned subsidiary, Drinks
Americas, Inc. ("Drinks") organized in Delaware on September 24, 2002,
Drinks' wholly owned inactive foreign subsidiaries (Bebedes de C.A. and
Cohete, S.A.) and Maxmillian Mixers, LLC, ("Mixers") a limited liability
company organized on April 11, 2002. The Company has a 20% ownership
interest in Mixers. The management of Mixers is the same as the management
of the Company and its subsidiary. All significant intercompany balances
and transactions have been eliminated in combination. Investments in
business enterprises in which the Companies do not have control, but have
the ability to exercise significant influence over operating and financial
policies (generally 20-50% ownership) are accounted for by the equity
method. In May 2004 the Companies changed their fiscal year end to April
30th.
The accompanying financial statements have been prepared on a basis that
assumes that the Companies will continue as going concerns. The Companies
have incurred substantial operating losses and negative cash flows from
operations since inception, and have working capital deficiencies of
$3,064,554 and $1,175,023 at April 30, 2004 and 2003 respectively. These
factors indicate the Companies may not be able to continue as going
concerns. Management expects a reduction in operating losses in fiscal
2005 as the result of increased demand for its existing products, and the
introduction of significant new products. Further, management is
anticipating significant additional cash flows in fiscal 2005 as a result
of an agreement and plan of share of exchange with Gourmet Group Inc, in
transactions more fully described in Note 14. There can be no assurance,
however, that management's plans and subsequent events will enable the
Companies to attain profitable operations or generate sufficient cash
flows from operations and financing activities necessary to continue as
going concerns.
Revenue Recognition
The Companies recognize revenues when their products are shipped, at which
time title passes to the customer.
Cash Concentration
The Companies from time to time maintain balances in depository accounts
in excess of FDIC insured limits. The Companies have not experienced any
credit losses nor anticipate any future losses in such accounts.
-6-
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Accounts Receivable
Accounts receivable are recorded at original invoice amount less an
allowance for uncollectible accounts that management believes will be
adequate to absorb estimated losses on existing balances. The Companies
estimate the allowance based on the collectibility of accounts receivable
and prior bad debt experience. Accounts receivable balances are written
off upon management's determination that such accounts are uncollectible.
Recoveries of accounts receivable previously written off are recorded when
received.
Inventories
Inventories are valued at the lower of cost (first-in, first-out) or
market.
Property, Furniture and Equipment
Property (leasehold improvements), furniture and equipment are stated at
cost. Depreciation is provided on the straight-line method over the
estimated useful lives of furniture and equipment, and amortization of
improvements is provided on the straight-line method over the term of the
related lease.
Impairment of Long-lived Assets
In accordance with Statement of Financial Accounting Standards No. 144
(SFAS No. 144), Accounting for the Impairment or Disposal of Long-lived
Assets, the Company's policy is to record an impairment loss at each
balance sheet date when it is determined that the carrying amount may not
be recoverable based on undiscounted future cash flows of the related
asset. At April 30, 2004 and 2003 no long-lived assets were deemed to be
impaired.
Income Taxes
The Company and Mixers are taxed as partnerships under the provisions of
the Internal Revenue Code and applicable state statutes. Accordingly, the
members are responsible for the payment of federal and state income taxes
applicable to the taxable incomes of the Company and Mixers. Drinks, a C
Corporation under the provisions of the Internal Revenue Code and
applicable state statutes, records deferred income taxes based on the tax
effects of certain temporary differences between the valuation of assets
and liabilities for financial statement and income tax purposes. Deferred
tax balances are adjusted to reflect tax rates, based on current tax laws,
which will be in effect in the years in which the temporary differences
are expected to reverse. Valuation allowances are established as necessary
to reduce deferred tax assets to amounts more likely than not to be
realized.
Intangibles
The costs of intangible assets with determinable useful lives are
amortized over the respective useful life on the straight-line method. The
costs of trademarks and product distribution rights are amortized over
their related estimated useful lives of between 15 to 40 years.
Investments
The costs of Drinks' 25% ownership interest in Old Whiskey River
Distilling, LLC and Y Sake, LLC is accounted for under the equity method
of accounting.
-7-
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Advertising Costs
Advertising costs (not material in years ended April 30, 2004 and 2003)
are expensed as incurred.
Shipping and Delivery
The Companies include shipping and delivery costs in selling, general and
administrative expenses. These expenses were not material in the years
ended April 30, 2004 and 2003.
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 in the financial statements and accompanying notes. Actual results
could differ from those estimates.
Fair Value of Financial Instruments
The carrying amounts for cash, trade receivables, accounts payable and
notes and loans payable approximate fair values as of April 30, 2004 and
2003, because of the short term maturities of those instruments.
3. DUE FROM FACTOR
Due from factor at April 30, 2004 consists of the following:
Accounts receivable $ 89,083
Advances (42,950)
Allowances (12,000)
--------
$ 34,133
Drinks has an agreement with a factor, effective October 2003 and expiring
September 30, 2005, pursuant to which a substantial portion of accounts
receivable are sold to the factor without recourse as to bad debts, but with
recourse as to all customer claims. Immediately upon assigning a customer
invoice, Drinks receives a cash advance equal to 70% of the invoice amount, and
the balance at the time the factor receives the final payment from the customer.
No interest is charged on any factor cash advance. The factor's fee for these
services is 2.5% of the total of an assigned invoice, subject to the customer
paying in full within 30 days of the invoice date. The fee increases on a
cumulative effect basis for each 15 days it takes the factor to be paid in full
up to 7.5% of the invoice amount if the customer pays within 90 days of the
invoice date.
Guarantees of Drinks' obligations under the agreement have been provided by two
of the Company's principal members. The factor has a security interest in
Drinks' tangible and intangible assets.
-8-
4. INVENTORIES
As of April 30, 2004 and 2003 inventories consist entirely of finished
goods.
In April 2004, Drinks entered into an agreement with a trading company to
receive trade credits upon its delivery to the trading company of certain of its
non-alcoholic beverage products. In June 2004, the Company earned trade credits
of $203,600 by delivering inventories with a cost of $107,300, all of which is
included in inventories in the accompanying 2004 combined balance sheet. Drinks
is not committed to deliver any additional inventories. Upon delivery, the
agreement provides for Drinks to purchase certain goods and services made
available by the trading company, at a price equal to fair value as defined, for
a consideration of cash (85% of fair value) plus trade credits. The trade
credits are substantially restricted to the use of Drinks and its affiliates,
and must be redeemed in full by April 2009.
5. PROPERTY, FURNITURE AND EQUIPMENT
Property, furniture and equipment at April 30, 2004 and 2003 consist of
the following:
2004 2003
-------- --------
Useful life
-----------
Computer equipment 5 years $ 22,839 $ 22,839
Furniture 5 years 10,654 10,654
Automobile 4 years 43,840 43,840
Leasehold improvements 7 years 66,258 66,258
-------- --------
143,591 143,591
Accumulated depreciation and amortization 44,808 15,428
-------- --------
$ 98,783 $128,164
======== ========
6. INTANGIBLE ASSETS/INVESTMENTS
Old Whiskey River Distilling, LLC and Y Sake LLC:
In December 2002 Drinks acquired a 25% ownership interest in each of the
above limited liability companies for an aggregate $651,966 (including costs of
acquisition). Both companies own the trademarks and trade names of alcoholic
products associated with the names of two high profile celebrities. Concurrent
with its acquisition of the ownership interests, Drinks was awarded full
distribution rights to the related products on a worldwide basis by the
managements of each of the limited liability companies. As a result Drinks
entire investment in the limited liability companies has been allocated to
amortizable intangible assets.
- 9 -
6. INTANGIBLE ASSETS/INVESTMENTS (CONTINUED)
Amortized intangible assets consists of the following as of April 30, 2004
and 2003:
2004 2003
---- ----
Gross Carrying Accumulated Gross Carrying Accumulated
Amount Amortization Amount Amortization
-------- -------- -------- --------
Trademarks/Distribution
Rights $751,966 $ 30,806 $651,966 $ 8,489
Aggregate amortization expense was $22,317 and $8,489 for the years ended
April 30, 2004 and 2003, respectively.
Estimated annual amortization expenses as of April 30, 2004 are $18,900
(years 2005 to 2009) and a total of $626,600 thereafter.
7. NOTES AND LOANS PAYABLE
At April 30, 2004 and 2003, notes and loans payable are as follows:
2004 2003
-------- --------
Secured Convertible Notes Payable - Member (a) $187,896 $145,000
Other loans from members (b) 489,512 26,576
Due to sellers of investments and brand
trademark and distribution rights (c) 73,095 200,716
Other 78,880 24,979
-------- --------
$829,383 $397,271
======== ========
(a) On April 8, 2003 and July 28, 2003, the Company entered into two
agreements with a member, which owns approximately 11% of the Company's
membership units (the "Member"). Each of the agreements included a
secured convertible note issued by the Company to the Member in the
principal amount of $200,000. The principals, which were borrowed by the
Company on May 28, 2003 ($145,000 was borrowed as of April 30, 2003) and
September 8, 2003, respectively, were payable in full, with interest at
8% on September 8, 2003 and January 25, 2004.
-10-
7. NOTES AND LOANS PAYABLE (CONTINUED)
If any or all of the principal balances were unpaid as of the respective
due dates, interest would accrue at 11% thereafter. The outstanding
principal balances and accrued interest were collateralized by the
Companies' assets, and Drinks and Mixers guaranteed repayments to the
member. The Member has a security interest in the Companies' assets
subordinate to that of the factor (see Note 3). At any time prior to the
aforementioned due dates, the Member had the right to convert the
outstanding principal and accrued interest into membership units in the
event the Company proposed to complete a financing (none of the debt was
converted). The Company is currently repaying the principal of the note
dated July 28,2003, and in an agreement with its factor, one-third of all
factor cash distributions, as defined, are remitted by the factor to the
Member. $62,016 of principal and interest has been paid subsequent to
April 30, 2004. Warrants: Related to the above agreements, the Company and
the Member entered into two warrant agreements on the identical dates, in
which the Company issued warrants for units equal to .25% of the then
outstanding membership units (as of April 30, 2004 the amount was 1.5
units). The exercise price is $.01. The expiration dates are 10 years from
the agreement date. In addition the warrant agreement provided for the
automatic issuance of warrants in the event the Company was in default of
its obligations under the note. As of April 30, 2004 warrants to purchase
an additional membership unit were outstanding.
Subsequent to April 30, 2004, the Company and the Member reached an
agreement on the exercising of warrants, which will not result in the
Member receiving additional units from the Company.
(b) Included are 8% interest-bearing loans totaling $335,000 from the
member described in (a) above without any stipulated repayment date.
The balance of the members' loans represents cash advances without
interest or any stipulated repayment date. Subsequent to April 30,
2004, the Companies repaid $50,000 to the members for principal and
interest.
2004 2003
-------- --------
(c) Note payable to seller of Old Whiskey River Distilling, LLC
and Y Sake LLC equity interests (c1) $ 59,695 $200,716
Note payable to seller of Aguila Tequila trademark (c2) 13,400 --
-------- --------
$ 73,095 $200,716
======== ========
(c1) Drinks issued the original note in December 2002 for $225,000,
payable in full on June 15, 2003. The seller has taken no default
action, which was provided for in the agreement, and additional
payments have been made subsequent to April 30, 2004 in the amount
of $33,740.
(c2) Drinks acquired a 55% interest in the Aguila Tequila trademark
in July 2003 and as a result obtained worldwide distribution rights.
The seller's loan is without interest and was due on demand. In June
2004 the principal balance was repaid in full.
-11-
8. ACCRUED EXPENSES
Accrued expenses at April 30, 2004 and 2003 consist of the following:
2004 2003
---------- --------
Compensation to employees,
management and consultants $1,436,456 $372,472
Interest 38,269 5,000
Royalties, commissions, other 46,169 1,910
---------- --------
$1,520,894 $379,382
========== ========
9. MINORITY INTERESTS INVESTMENTS
Minority interests consist of the following as at April 30, 2004 and 2003:
2004 2003
-------- --------
(a) Drinks Americas, Inc. one common share issued, $0.01
par value (total of 101 issued and outstanding) $150,000 $ --
(b) Maxmillian Mixers, LLC various membership
units 205,200 190,200
-------- --------
Totals $355,200 $190,200
======== ========
The owner of the minority interest of Drinks Americas, Inc. is also a
member of Maxmillian Partners, LLC.
10. INCOME TAXES
The Companies file their Federal and state income tax returns using a
fiscal year of December 31, 2003. No tax benefit for recovery of Federal or
state income taxes was recorded in the 2004 and 2003 combined statements of
operations. As of December 31, 2003, Drinks has a Federal net operating loss
carryforward available of approximately $2,289,000 to offset against future
years' taxable income, expiring substantially in fiscal year 2023.
-12-
As of April 30, 2004 and 2003, Drinks deferred tax asset is reduced by a
valuation allowance as follows:
2004 2003
----------- -----------
Net operating loss $ 912,000 $ 375,000
Accrued expenses 521,000 147,000
Accounts receivable allowance 16,000 13,000
Less valuation allowance (1,449,000) (535,000)
----------- -----------
$ -- $ --
=========== ===========
A valuation allowance has been provided due to the uncertainty of future
profitability of Drinks. Management's position with respect to the likelihood of
recoverability of these deferred tax assets will be evaluated each reporting
period.
11. RELATED PARTY TRANSACTIONS
Consulting fees
In 2004 and 2003, the Company incurred consulting fees for financial and
business promotional services to three individuals owning approximately 6%
of the Company's outstanding membership units, approximating $262,300 and
$138,500, respectively. These individuals were owed $384,100 and $121,800
and are included in current liabilities as of April 30, 2004 and 2003,
respectively.
Royalty fees
In connection with its distribution and licensing agreements with its
equity method investees, Drinks incurred royalty expenses during 2004 and
2003 of approximately $147,000 and $39,000 respectively, included in cost
of goods sold in the accompanying combined statements of operations.
12. CUSTOMER CONCENTRATION
In the year ended April 30, 2004 two customers accounted for 17% and 12%
of net sales; no customers accounted for more than 10% of net sales for the year
ended April 30, 2003.
13. COMMITMENTS
Lease
The Company, as a subtenant leases office space for the benefit of the
Companies under an operating sublease, with minimum annual rentals through
July 31, 2009. The Company may at its option terminate the lease effective
July 31, 2007, subject to formal notification to the sublessor no later
than July 31, 2006. Rent expense under this lease and another operating
lease expiring in July 31, 2004 ($750 per month) for the years ended April
30, 2004 and 2003 approximated $51,200. Future minimum annual lease
payments as of April 30, 2004 are $50,400 (2005), $50,000 (2006), $50,000
(2007), and $12,500 (to July 31, 2007).
-13-
Litigation
Drinks has been named as a defendant in two lawsuits for failure to pay
obligations for services rendered. One lawsuit was settled subsequent to
April 30, 2004 and the other is in the settlement stage. Management
believes that the ultimate liabilities, which did or may result from the
settlements of these lawsuits, have been provided for in the accompanying
combined balance sheets.
14. SUBSEQUENT EVENTS
Line of Credit
In May 2004 Drinks entered into an unsecured line of credit with a
financial institution, which provided for maximum borrowings of $200,000,
with interest on all advances at 1.5% above prime. The facility is
renewable after 6 months. One of the Company's members has guaranteed the
payment of Drinks' obligations to this institution.
Agreement and Plan of Share Exchange with Gourmet Group, Inc. On June 9,
2004 Drinks entered into an agreement with Gourmet Group, Inc. ("GG"),
which will provide for the acquisition of Drinks by GG. GG will acquire
all of Drinks issued and outstanding common shares, and in exchange will
issue its own newly created, restricted common stock to the Drinks'
shareholders. As a result of the exchange, the Drinks common shareholders
will own 88% of the issued and outstanding common stock of GG. (See Note
2)
Subsequent to the date of the above agreement, Drinks and GG have entered
into a borrowing arrangement, whereby Drinks will issue various promissory
notes payable to GG for amounts, which in the aggregate will not exceed
$1,500,000. The notes will bear interest at 10% per annum. The principal
amounts of the notes shall each be payable in eight equal quarterly
installments, together with accrued interest, commencing 1 year from the
issuance date of each note. Accrued interest for the first year of each
promissory note will be payable in full, one year from the issuance date
of the note. The Drinks' notes sold to GG are in conjunction with notes of
identical principal, interest and repayment terms, which are sold by GG
pursuant to a Note Purchase Agreement, entered into by GG and purchasers
or registered GG Note Holders. The total of all the GG notes will not
exceed an aggregate principal amount of $1,500,000.
The note agreements between Drinks and GG further provide for a voluntary
conversion at the option or the Holder of any Drinks' note into shares of
Drinks' common stock during a period equal to the later of (1) ninety days
after the formal closing of the Drinks/GG Agreement above or (2) the
commencement of trading of Drinks or a successor company on the Nasdaq
Electronic Bulletin Board. In addition, if the exchange of shares
described in the agreement does not occur on or before 180 days after the
Initial Closing, as defined in the Agreement, each Registered Holder of
notes issued by GG shall have the option to demand that an identical note,
representing the unpaid principal and accrued interest owed on the GG
note, be issued by Drinks to him. Upon issuance of a note to any GG
Register Holder, Drinks related principal and accrued interest obligation
to GG will be fully satisfied. To date Drinks has borrowed an aggregate
amount of $762,500.
GG and its wholly owned subsidiary are companies currently without any
businesses.
-14-
ATTACHMENT F
MAXMILLIAN PARTNERS, LLC AND AFFILIATES
CONSOLIDATED STATEMENTS OF OPERATIONS,
CHANGES IN MEMBERS DEFICIT AND CASH FLOWS
FOR THE PERIODS ENDED SEPTEMBER 30, 2004 AND 2003
MAXMILLIAN PARTNERS, LLC
CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 2004
ASSETS
Current Assets:
Cash 37,609
Accounts receivable, net of allowance of
$50,000 83,194
Due from factor, net of allowance of $30,000 51,070
Inventories 784,513
Other current assets 178,972
-------------
TOTAL CURRENT ASSETS 1,135,359
Property and Equipment, at cost less accumulated
depreciation and amortization of $48,000 97,319
Investment in Equity Investees 9,982
Intangibles 734,757
Other 29,659
-------------
2,007,075
=============
LIABILITIES AND MEMBERS' DEFICIT
Current Liabilities:
Accounts payable 1,700,801
Notes and loans payable 1,081,915
Accrued expenses 2,171,610
-------------
Total current liabilities 4,954,326
Convertible notes payable 879,315
-------------
Total liabilities 5,833,641
Members' deficit (3,826,566)
-------------
2,007,075
=============
MAXMILLIAN PARTNERS, LLC
CONSOLIDATED STATEMENTS OF OPERATIONS
FIVE MONTHS ENDED SEPTEMBER 30, 2004
2004 2003
-------------- ------------
Net sales 917,588 482,559
Cost of products sold 773,049 446,215
-------------- ------------
Gross profit 144,539 36,344
Selling, general and administrative expenses 1,736,338 1,126,872
-------------- ------------
Operating loss (1,591,800) (1,090,528)
Other expenses:
Interest expense 25,632 7,548
-------------- ------------
25,632 7,548
-------------- ------------
Net loss (1,617,431) (1,098,076)
============== ============
MAXMILLIAN PARTNERS, LLC
CONSOLIDATED STATEMENTS OF CHANGES
IN MEMBERS' DEFICIT
FIVE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
MEMBER MEMBERS' MINORITY ACCUMULATED TOTAL
UNITS CAPITAL INTERESTS DEFICIT
INVESTED INVESTMENTS
BALANCE MAY 1, 2003 202 3,117,166 190,200 (3,682,427) (375,061)
MINORITY INTERESTS INVESTMENT 15,000 15,000
NET (LOSS) FOR THE PERIOD (1,098,076) (1,098,076)
BALANCE SEPTEMBER 30, 2003 202 3,117,166 205,200 (4,780,503) (1,458,137)
======================================================= ==============
BALANCE MAY 1, 2004 240 4,122,166 355,200 (6,686,501) (2,209,135)
-
NET (LOSS) FOR THE PERIOD (1,617,431) (1,617,431)
BALANCE SEPTEMBER 30, 2004 240 4,122,166 355,200 (8,303,932) (3,826,566)
======================================================= ==============
MAXMILLIAN PARTNERS, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
FIVE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
2004 2003
------------- ------------
Cash Flows From Operating Activities:
Net loss (1,617,431) (1,098,076)
Adjustments to reconcile net loss to net cash (used in
operating activities
Depreciation and amortization 11,000 14,045
Allowance for uncollectible accounts 50,000 43,000
Changes in assets and liabilities:
Accounts receivable (18,780) 21,377
Due from factor (16,937)
Inventories 71,744 (278,278)
Other current assets (162,818) (39,965)
Accounts payable (138,203) 518,105
Accrued expenses 650,716 529,238
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Net cashc(usedsin)ioperatingnactiv.tieses (1,170,709) (290,554)
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Cash Flows From Investing Activities:
Acquisition of property and equipment (1,534)
Acquisition of investment in equity method investee
Acquisition of intangibles (21,596)
Other (4,166) (500)
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Net cash (used in ) investing activities (27,296) (500)
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Cash Flows From Financing Activities:
Proceeds from members' investments - 15,000
Net increase in notes and loans payable 1,131,847 256,027
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Net cash provided by financing activities 1,131,847 271,027
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Net (decrease) in cash (66,159) (20,027)
Cash beginning 103,768 93,904
Cash ending 37,609 73,877
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Supplemental Disclosure of Cash Flow Information
Cash paid for interest 10,000 -
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