U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended August 31, 2015
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ____________ to ____________
Commission File No. 001-36549
SOUTH BEACH SPIRITS, INC.
(Exact name of small business issuer as specified in its charter)
Nevada 46-2084743
(State or other jurisdiction of (I.R.S. Employer
incorporation Or organization) Identification No.)
2690 Weston Road, Suite 200, Weston, FL 33331
(Address of Principal Executive Offices)
(954) 458-9996
(Issuer's telephone number)
(Former name, address and fiscal year, if changed since last report)
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 preceding 12 months (or for
such shorter period that the issuer was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.YES [X] NO [ ]
Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (ss.232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files). YES [X] NO [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer,"
"non-accelerated filer," and "smaller reporting company" in Rule 12b-2 of the
Exchange Act.
[ ] Large accelerated filer [ ] Accelerated filer
[ ] Non-accelerated filer [X] Smaller reporting company
APPLICABLE ONLY TO CORPORATE ISSUERS:
State the number of shares outstanding of each of the issuer's classes of common
equity, as of October 22, 2015: 71,400,000 shares of common stock.
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act): YES [ ] NO [X]
Transitional Small Business Disclosure Format (Check One) YES [ ] NO [X]
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements 3
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 13
Item 3. Quantitative and Qualitative Disclosures About Market Risk 17
Item 4. Control and Procedures 17
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 1A. Risk Factors 18
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 18
Item 3. Defaults Upon Senior Securities 18
Item 4. Mine Safety Disclosures 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURE 19
2
ITEM 1. FINANCIAL STATEMENTS
South Beach Spirits,Inc.
Fka CME Realty Inc.
Condensed Balance Sheets
August 31, 2015 February 28, 2015
--------------- -----------------
(Unaudited) (Audited)
ASSETS
Current Assets
Cash $ 13,560 $ --
----------- -----------
TOTAL CURRENT ASSETS 13,560 --
TOTAL ASSETS $ 13,560 $ --
=========== ===========
LIABILITIES & STOCKHOLDERS' DEFICIT
Current Liabilities
Account payable and accrued expenses $ 124,764 $ 6,000
Shareholder Loan 86,637 --
Loan Payable 36,606 --
Amount due to seller 965,000 --
Amount due to related party 175,000 --
----------- -----------
TOTAL CURRENT LIABILITIES 1,388,007 6,000
----------- -----------
TOTAL LIABILITIES 1,388,007 6,000
----------- -----------
STOCKHOLDERS' EQUITY (DEFICIT)
Common Stock, $0.001 Par Value
Authorized Common Stock
75,000,000 shares at $0.001
Issued and Outstanding
70,000,000 Common Shares at August 31, 2015 & February 28, 2015 70,000 70,000
Additional paid in capital 7,202 7,202
Common stock payable 447,860 --
Accumulated deficit (1,899,509) (83,202)
----------- -----------
TOTAL STOCKHOLDERS' DEFICIT (1,374,447) (6,000)
----------- -----------
TOTAL LIABILITIES & STOCKHOLDERS' DEFICIT $ 13,560 $ --
=========== ===========
The accompanying notes are an integral part of these
condensed financial statements.
On Feb 23, 2015, the Company approved a 5:1 forward split which has been
retroactively presented in these financial stmts.
3
South Beach Spirits, Inc.
fka CME Realty Inc.
Condensed Statements of Operations
For the For the For the For the
three months three months six months six months
ended ended ended ended
August 31, August 31, August 31, August 31,
2015 2014 2015 2014
----------- ----------- ----------- -----------
REVENUE
Revenues $ -- $ -- $ -- $ --
----------- ----------- ----------- -----------
Total Revenues -- -- -- --
----------- ----------- ----------- -----------
EXPENSES
General and Administrative expense 20,200 425 40,646 1,523
Professional fees 193,644 4,970 293,851 8,370
Officer salary 18,950 -- 33,950 --
Impairment loss 1,447,860 -- 1,447,860 --
----------- ----------- ----------- -----------
Total Expenses 1,680,654 5,395 1,816,307 9,893
----------- ----------- ----------- -----------
LOSS FROM OPERATIONS (1,680,654) (5,395) (1,816,307) (9,893)
Provision for income taxes -- -- -- --
----------- ----------- ----------- -----------
NET LOSS $(1,680,654) $ (5,395) $(1,816,307) $ (9,893)
=========== =========== =========== ===========
Basic and diluted loss per common share $ (0.02) $ (0.00) $ (0.03) $ (0.00)
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 70,000,000 70,000,000 70,000,000 70,000,000
=========== =========== =========== ===========
The accompanying notes are an integral part of these
condensed financial statements.
On Feb 23, 2015, the Company approved a 5:1 forward split which has been
retroactively presented in these financial stmts.
4
South Beach Spirits, Inc.
fka CME Realty Inc.
Statements of Stockholders' Equity (Deficit)
from Inception (August 10, 2012) to September 30, 2015
Deficit
Accumulated
Common Stock Common Additional During the
Number of stock Paid-In Development
Shares Amount Payable Capital Stage Total
------ ------ ------- ------- ----- -----
Balance at Inception (August 10, 2012) 0 $ -- $ -- $ -- $ -- $ --
Founder's shares issued for cash at
$0.0002 per share on February 21, 2013 25,000,000 25,000 (20,000) -- 5,000
Shares issued for Services at
$0.0002 per share on February 21, 2013 25,000,000 25,000 (20,000) -- 5,000
Net (Loss) from Inception through
Feb 28, 2013 (8,556) (8,556)
----------- -------- --------- --------- ----------- -----------
Balance, February 28, 2013 50,000,000 50,000 (40,000) (8,556) 1,444
----------- -------- --------- --------- ----------- -----------
Shares issued for cash at $0.002
per share on January 14, 2014 20,000,000 20,000 20,000 40,000
Net (Loss) for year ended
February 28, 2014 (51,651) (51,651)
----------- -------- --------- --------- ----------- -----------
Balance, February 28, 2014 70,000,000 70,000 (20,000) (60,207) (10,207)
----------- -------- --------- --------- ----------- -----------
Contributed Capital from release of
SH Loan on February 28, 2015 27,202 27,202
Net (Loss) for year ended
February 28, 2015 (22,995) (22,995)
----------- -------- --------- --------- ----------- -----------
Balance, February 28, 2015 70,000,000 70,000 7,202 (83,202) (6,000)
----------- -------- --------- --------- ----------- -----------
Common stock payable 447,860 447,860
Net (Loss) for period ended
August 31, 2015 (1,816,307) (1,816,307)
----------- -------- --------- --------- ----------- -----------
Balance, August 31, 2015 70,000,000 $ 70,000 $ 447,860 $ 7,202 $(1,899,509) $(1,374,447)
=========== ======== ========= ========= =========== ===========
The accompanying notes are an integral part of these
condensed financial statements.
On Feb 23, 2015, the Company approved a 5:1 forward split which has been
retroactively presented in these financial stmts.
5
South Beach Spirits, Inc.
fka CME Realty Inc.
Condensed Statements of Cash Flows
For the For the
six months six months
ended ended
August 31, August 31,
2015 2014
----------- -----------
OPERATING ACTIVITIES
Net Loss $(1,816,307) $ (9,893)
Adjustments to reconcile Net Loss
to net cash used in operations:
Impairment loss 1,447,860 --
Account payable and accrued expenses 118,764 (3,963)
Change in related Party Payable 175,000 --
----------- -----------
Net cash used in operating activities (74,683) (13,856)
----------- -----------
INVESTING ACTIVITIES
Payment for asset acquisition (35,000) --
----------- -----------
FINANCING ACTIVITIES
Shareholder Loan 86,637 6,700
Loan Payable 36,606 --
----------- -----------
Net cash provided by financing activities 123,243 6,700
----------- -----------
Net increase(decrease) in cash for period 13,560 (7,156)
Cash at beginning of period -- 9,404
----------- -----------
Cash at end of period $ 13,560 $ 2,248
=========== ===========
Supplemental Cash Flow Information and noncash Financing Activities:
Cash Paid For:
Amount due to seller in consideration with asset acquisition $ 965,000 $ --
=========== ===========
The accompanying notes are an integral part of these
condensed financial statements.
On Feb 23, 2015, the Company approved a 5:1 forward split which has been
retroactively presented in these financial stmts.
6
South Beach Spirits, Inc.
(formerly CME Realty Inc.)
Notes to the Unaudited Condensed Interim Financial Statements
August 31, 2015
NOTE 1 - NATURE OF OPERATIONS AND BASIS OF PRESENTATION
South Beach Spirits, Inc. (the "Company") was incorporated in the state of
Nevada on August 10, 2012 under the name "CME Realty, Inc." and its year-end is
February 28. The Company's initial plan of operations was to engage in providing
real estate services for the Las Vegas residential market. The Company was
unable to implement this plan of operations for a number of reasons, including
without limitation, the inability to raise sufficient capital.
In light of the foregoing, on February 13, 2015, Carlos Espinosa, the principal
shareholder and sole director and executive officer of the Company, sold
50,000,000 shares of the Company's common stock held by him (the "CME Shares")
to Kenneth McLeod for $252,000. The CME Shares represented 74.13% of the
Company's issued and outstanding common stock. Contemporaneously therewith, Mr.
Espinosa resigned as an officer of the Company and appointed Mr. McLeod as a
director, President and Secretary-Treasurer of the Company. Subsequently, Mr.
Espinosa resigned as a director of the Company. As a result of the foregoing, a
"change in control" of the Company was deemed to have taken place.
On March 17, 2015, the Company implemented a five-for-one split of our common
stock in the form of a stock dividend to shareholders on record at the close of
business on March 9, 2015. In connection therewith, shareholders as of that date
received four additional shares of the Company's common stock for each share
held by them as of the record date. Unless otherwise indicated, all share
numbers and per-share numbers in this report have been retroactively adjusted to
give effect to the March 2015 stock split.
On April 22, 2015, the Company entered into a letter of intent to acquire all of
the capital stock of Rock N' Roll Imports, Inc., a California corporation
("RNR") engaged in alcoholic beverage development, marketing and distribution in
exchange for (a) the issuance of 50,000,000 shares of the Company's common stock
and (b) the contemporaneous contribution to the Company's capital of the CME
Shares held by Mr. McLeod. On August 6, 2015, the Company terminated the letter
of intent with RNR as a result of the inability to agree upon the terms of
definitive transaction documentation.
On July 10, 2015, the Company approved, authorized and adopted an amendment to
the Company's Articles of Incorporation to change its name from "CME Realty,
Inc." to "South Beach Spirits, Inc." The name change was effective on September
9, 2015.
On August 6, 2015 the Company entered into a letter of intent to acquire the
worldwide intellectual property and related assets of V Georgio Vodka, an
ultra-premium brand of traditional and flavored vodkas from Victor G. Harvey,
Sr., the brand's founder, in exchange for 1,400,000 "restricted" shares of the
Company's common stock and $1,000,000 in cash, payable over a scheduled payment
period. In connection with the proposed transaction, 25,000,000 "restricted"
shares of common stock were to be returned by the Company's principal
shareholder for cancellation. Following completion of the transaction, the
Company intends to relaunch, market, and distribute V Georgio Vodka through, V
Georgio, Inc., a newly formed, wholly-owned subsidiary of the Company and to
focus on other opportunities in the alcoholic beverage industry.
7
South Beach Spirits, Inc.
(formerly CME Realty Inc.)
Notes to the Unaudited Condensed Interim Financial Statements
August 31, 2015
On August 25, 2015, the Company entered into an Asset Purchase Agreement with
Victor G. Harvey, Sr., and V Georgio Enterprises, LLC, a limited liability
company owned by him to acquire worldwide intellectual property, rights, and
other assets relating to the V Georgio brand. In conjunction with the Asset
Purchase Agreement, V Georgio, Inc., the Company's newly-formed subsidiary,
entered into an employment agreement with Victor G. Harvey, Sr. to serve as CEO
of the subsidiary for an initial period of three years with a base salary of
$120,000 per annum which contains confidentiality, non-competition and
non-solicitation covenants.
Upon consummation of the acquisition, the Company also entered into an
employment agreement with Vincent Prince, to serve as its CFO for an initial
period of three years with a base salary of $120,000 per annum which contains
confidentiality, non-competition and non-solicitation covenants.
Contemporaneously therewith, the Company entered into a consulting agreement
with LandAmerica Holdings & Investments Group, LLC, and its principal Vincent
Prince, for services rendered since March 1, 2015 and prior to consummation of
the acquisition of the V Georgio brand, with respect to business development,
strategic planning, evaluating business opportunities in the alcoholic beverage
industry, assisting management in structuring and potential business development
opportunities, and providing such other corporate advisory consulting services
as management requested. In consideration for the performance of the services,
the Company has agreed to pay the consultant a fee of $175,000 for services
completed on the Company's behalf.
Following the consummation of the acquisition of the V Georgio brand, Kenneth
McLeod, returned 24,892,000 shares of "restricted" common stock held by him to
the Company for cancellation and sold 25,000,000 shares of "restricted" common
stock held by him to Vincent Prince, resulting in an additional "change in
control" having taken place.
See "Note 6 - Subsequent Event" with respect to certain pro se litigation
instituted by Victor G Harvey, Sr. and V Georgio Enterprises, LLC against the
Company in October 2015, alleging certain breaches of the Company's payment
obligations under the Asset Purchase Agreement and certain collateral
documentation executed and delivered in connection with the Company's
acquisition of the V Georgio brand.
NOTE 2 - GOING CONCERN
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company has a history of losses
and incurred losses of $1,680,654 and $1,816,307 for the three and six month
periods ending August 31, 2015, respectively. Losses have resulted in an
accumulated deficit of $1,899,509 as of August 31, 2015. From inception through
August 31, 2015, the Company has had no revenue producing operations and has not
commenced its business plan. In view of these matters, the Company's ability to
continue as a going concern is dependent upon the Company's ability to begin
operations and to achieve a level of profitability. The Company intends on
financing its future development activities and its working capital needs
largely from the sale of public equity securities with some additional funding
from other traditional financing sources, including term notes until such time
that funds provided by operations are sufficient to fund working capital
requirements. The financial statements of the Company do not include any
adjustments relating to the recoverability and classification of recorded
assets, or the amounts and classifications of liabilities that might be
necessary should the Company be unable to continue as a going concern.
8
South Beach Spirits, Inc.
(formerly CME Realty Inc.)
Notes to the Unaudited Condensed Interim Financial Statements
August 31, 2015
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America have been condensed or omitted. It is suggested
that these condensed financial statements be read in conjunction with the
financial statements and notes thereto included in the Company's February 28,
2015 audited financial statements. The results of operations for the three and
six month periods ended August 31, 2015 and the same periods last year are not
necessarily indicative of the operating results for the full year.
In the opinion of management, all adjustments consisting of normal recurring
entries necessary for a fair statement of the periods presented for: (a) the
financial position; (b) the result of operations; and (c) cash flows, have been
made in order to make the financial statements presented not misleading. The
results of operations for such interim periods are not necessarily indicative of
operations for a full year.
The financial statements present the balance sheets, statements of operations,
and cash flows of the Company. These financial statements are presented in
United States dollars and have been prepared in accordance with accounting
principles generally accepted in the United States.
Impairment on Long-Lived Assets and Other Acquired Intangible Assets
We evaluate the recoverability of equipment and amortizable intangible assets
for possible impairment whenever events or circumstances indicate that the
carrying amount of such assets may not be recoverable. Recoverability of these
assets is measured by a comparison of the carrying amounts to the future
undiscounted cash flows the assets are expected to generate. If such review
indicates that the carrying amount of property and equipment and intangible
assets is not recoverable, the carrying amount of such assets is reduced to fair
value.
In addition to the recoverability assessment, we routinely review the remaining
estimated useful lives of amortizable intangible assets. If we reduce the
estimated useful life assumption for any asset, the remaining unamortized
balance would be amortized or depreciated over the revised estimated useful
life.
USE OF ESTIMATES AND ASSUMPTIONS
Preparation of the financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
9
South Beach Spirits, Inc.
(formerly CME Realty Inc.)
Notes to the Unaudited Condensed Interim Financial Statements
August 31, 2015
REVENUE AND COST RECOGNITION
The Company has no current source of revenue; therefore the Company has not yet
adopted any policy regarding the recognition of revenue or cost.
NET LOSS PER SHARE
Basic loss per share includes no dilution and is computed by dividing loss
available to common stockholders by the weighted average number of common shares
outstanding for the period. Dilutive loss per share reflects the potential
dilution of securities that could share in the losses of the Company. Because
the Company does not have any potentially dilutive securities, the accompanying
presentation is only of basic loss per share.
RECENT ACCOUNTING PRONOUNCEMENTS
The Company has evaluated all the recent accounting pronouncements and believes
that none of them will have a material effect on the Company's financial
statements.
NOTE 4 - RELATED PARTY TRANSACTIONS
On March 1, 2015, the Company approved compensation to the President at $1,250
per week for services performed. At August 31, 2015 and February 28, 2015, the
Company has paid or accrued $33,950 and $0, respectively.
Pursuant to the Asset Purchase Agreement with Victor G. Harvey, Sr. and V
Georgio Enterprises, the Company paid $35,000, and has an amount due to seller
of $965,000, which is payable per the asset purchase agreement. In connection
with this transaction, the Company recorded an intangible asset in the amount of
$1,000,000. A full impairment was recorded at August 31, 2015 due to the absence
of an independent third party valuation report.
As of August 31, 2015, the Company has made no payments regarding the employment
agreements with Victor G. Harvey, Sr. or Vincent Prince. Effective September 1,
2015, the Company will accrue monthly salary in the amount of $10,000 to both
Mr. Harvey and Mr. Prince.
The Company has accrued $175,000 payable to LandAmerica Holdings & Investments
Group, LLC for consulting service performed during the period leading up to the
Asset Acquisition at August 31, 2015.
As of August 31, 2015, a shareholder has paid expenses on behalf of the Company
in the amount of $86,637, ($0 at February 28, 2015). These loans are not
secured, are due on demand, and carry no interest.
In the quarter ending May 31, 2015, the Company entered into a rental agreement
with a related party for office space at $500 per month. At August 31, 2015, May
31, 2015, and February 28, 2015, the Company has paid a total of $1750, $250,
and $0 for rent thereunder, respectively.
10
South Beach Spirits, Inc.
(formerly CME Realty Inc.)
Notes to the Unaudited Condensed Interim Financial Statements
August 31, 2015
NOTE 5 - CAPITAL STOCK
The Company is authorized to issue an aggregate of 75,000,000 common shares with
a par value of $0.001 per share. No preferred shares have been authorized or
issued. At both August 31, 2015 and February 28, 2015, 70,000,000 common shares
are issued and outstanding.
On February 21, 2013, the Company issued 25,000,000 Founder's shares at $0.0002
per share (par value $0.001) for total cash of $5,000.
On February 25, 2013, the Company issued 25,000,000 shares for services provided
since inception. These shares were issued at $0.0002 per share for services
valued at $5,000.
On January 14, 2014, the Company issued 20,000,000 shares for cash to multiple
investors. These shares were issued at $0.002 per share for total cash of
$40,000.
On February 23, 2015, the board of directors declared a five-for-one split of
the Company's stock in the form of a stock dividend to shareholders of record at
the close of business on March 9, 2015. Accordingly, shareholders of the Company
as of the record date will receive four additional shares of common stock for
each share then held. Certificates evidencing the additional shares were
distributed March 2015. All share presented have been retroactively restated for
the effects of the forward stock split.
At August 31, 2015, 1,400,000 "restricted" shares of common stock payable to
Victor Harvey Sr. pursuant to the August 25, 2015 Asset Purchase Agreement were
reflected on the financial statements at $0.32 per share, the price of the last
share purchase. At August 31, 2015, the $447,860 was impaired, see "Note 4-
Related Party Transactions".
As of August 31, 2015, there are no warrants or options outstanding to acquire
any additional shares of common stock of the Company.
NOTE 6 - LOAN PAYABLE
As of August 31, 2015, a non-related party has loaned and/or paid expenses on
behalf of the Company in the amount of $36,606, ($0 at February 28, 2015). These
loans are not secured, are due on demand, and carry no interest.
11
South Beach Spirits, Inc.
(formerly CME Realty Inc.)
Notes to the Unaudited Condensed Interim Financial Statements
August 31, 2015
NOTE 7 - SUBSEQUENT EVENTS
On October 8, 2015, the former officer returned 24,892,000 shares of
"restricted" common stock held by him to the Company for cancellation and sold
25,000,000 shares of "restricted" common stock held by him to Vincent Prince,
resulting in an additional "change in control" having taken place, see "Note 4 -
Related Party Transactions".
On October 19, 2015, the Company was served with a pro se legal action filed by
Victor G. Harvey, Sr. and his wholly-owned limited liability company, V Georgio
Enterprises, LLC, in Circuit Court, Broward County, Florida, alleging certain
breaches of the Company's payment obligations under the Asset Purchase Agreement
and related agreements entered into with the Company. The complaint purportedly
seeks, somewhat inconsistently, injunctive relief for damages incurred by the
plaintiffs as a result of such breaches. Contemporaneously therewith, Mr. Harvey
resigned as CEO of our V Georgio, Inc. subsidiary. The Company believes that the
plaintiffs' claims are without merit, that it has various defenses and potential
counterclaims against the plaintiffs and will vigorously defend against this
action.
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS
OF OPERATIONS
The terms "SOUTH BEACH SPIRITS", the "COMPANY," "WE," "OUR," "US" or any
derivative or similar terms used herein, refer to South Beach Spirits, Inc. and
its wholly-owned subsidiary, V Georgio, Inc.
NOTE REGARDING FORWARD LOOKING STATEMENTS
This quarterly report on Form 10-Q of South Beach Spirits, Inc. fka CME Realty,
Inc. for the three and six month periods ended August 31, 2015 contains certain
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended, which are intended to be covered by the safe harbors created
thereby. To the extent that such statements are not recitations of historical
fact, such statements constitute forward-looking statements which, by
definition, involve risks and uncertainties. In particular, statements under the
Sections; Description of Business, Management's Discussion and Analysis of
Financial Condition and Results of Operations contain forward-looking
statements. Where, in any forward-looking statement, the Company expresses an
expectation or belief as to future results or events, such expectation or belief
is expressed in good faith and believed to have a reasonable basis, but there
can be no assurance that the statement of expectation or belief will result or
be achieved or accomplished.
The following are factors that could cause actual results or events to differ
materially from those anticipated, and include but are not limited to: general
economic, financial and business conditions; changes in and compliance with
governmental regulations; changes in tax laws; and the costs and effects of
legal proceedings.
You should not rely on forward-looking statements in this quarterly report. This
quarterly report contains forward-looking statements that involve risks and
uncertainties. We use words such as "ANTICIPATES," "BELIEVES," "PLANS,"
"EXPECTS," "FUTURE," "INTENDS" and similar expressions to identify these
forward-looking statements. Prospective investors should not place undue
reliance on these forward-looking statements, which apply only as of the date of
this report. Our actual results could differ materially from those anticipated
in these forward-looking statements for many reasons, including the risks faced
by South Beach Spirits. Financial information provided in this Form 10-Q for
periods subsequent to February 28, 2015 is preliminary and remains subject to
audit. As such, this information is not final or complete, and remains subject
to change, possibly materially.
INTRODUCTION
South Beach Spirits was incorporated in the state of Nevada on August 10, 2012
under the name "CME REALTY, INC." and its year-end is February 28. The Company's
initial plan of operations was to engage in providing real estate services for
the Las Vegas residential market. The Company was unable to implement this plan
of operations for a number of reasons, including without limitation, the
inability to raise sufficient capital.
13
In light of the foregoing, on February 13, 2015, Carlos Espinosa, the principal
shareholder and sole director and executive officer of the Company, sold
50,000,000 shares of the Company's common stock held by him (the "CME SHARES")
to Kenneth McLeod for $252,000. The CME Shares represented 74.13% of the
Company's issued and outstanding common stock. Contemporaneously therewith, Mr.
Espinosa resigned as an officer of the Company and appointed Mr. McLeod as a
director, President and Secretary-Treasurer of the Company. Subsequently, Mr.
Espinosa resigned as a director of the Company. As a result of the foregoing, a
"CHANGE IN CONTROL" of the Company was deemed to have taken place.
On March 17, 2015, the Company implemented a five-for-one split of our common
stock in the form of a stock dividend to shareholders on record at the close of
business on March 9, 2015. In connection therewith, shareholders as of that date
received four additional shares of the Company's common stock for each share
held by them as of the record date. Unless otherwise indicated, all share
numbers and per-share numbers in this report have been retroactively adjusted to
give effect to the March 2015 stock split.
On April 22, 2015, the Company entered into a letter of intent to acquire all of
the capital stock of Rock N' Roll Imports, Inc., a California corporation
("RNR") engaged in alcoholic beverage development, marketing and distribution in
exchange for (a) the issuance of 50,000,000 shares of the Company's common stock
and (b) the contemporaneous contribution to the Company's capital of the CME
Shares held by Mr. McLeod. On August 6, 2015, the Company terminated the letter
of intent with RNR as a result of the inability to agree upon the terms of
definitive transaction documentation.
On July 10, 2015, the Company approved, authorized and adopted an amendment to
the Company's Articles of Incorporation to change its name from "CME REALTY,
INC." to "SOUTH BEACH SPIRITS, INC." The name change was effective on September
9, 2015.
On August 6, 2015 the Company entered into a letter of intent to acquire the
worldwide intellectual property and related assets of V Georgio Vodka, an
ultra-premium brand of traditional and flavored vodkas from Victor G. Harvey,
Sr., the brand's founder, in exchange for 1,400,000 "RESTRICTED" shares of the
Company's common stock and $1,000,000, payable over a scheduled payment period.
In connection with the proposed transaction, 25,000,000 "RESTRICTED" shares of
common stock were to be returned by the Company's principal shareholder for
cancellation. Following completion of the transaction, the Company intends to
relaunch, market, and distribute V Georgio Vodka through, V Georgio, Inc., a
newly formed, wholly-owned subsidiary of the Company and to focus on other
opportunities in the alcoholic beverage industry.
On August 25, 2015, the Company entered into an Asset Purchase Agreement with
Victor G. Harvey, Sr., and V Georgio Enterprises, LLC, a limited liability
company owned by him to acquire worldwide intellectual property, rights, and
other assets relating to the V Georgio brand. In conjunction with the Asset
Purchase Agreement, V Georgio, Inc., the Company's newly-formed subsidiary,
entered into an employment agreement with Victor G. Harvey, Sr. to serve as CEO
of the subsidiary for an initial period of three years with a base salary of
$120,000 per annum which contains confidentiality, non-competition and
non-solicitation covenants.
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Upon consummation of the acquisition, the Company also entered into an
employment agreement with Vincent Prince, to serve as its CFO for an initial
period of three years with a base salary of $120,000 per annum which contains
confidentiality, non-competition and non-solicitation covenants.
Contemporaneously therewith, the Company entered into a consulting agreement
with LandAmerica Holdings & Investments Group, LLC, and its principal Vincent
Prince, for services rendered since March 1, 2015 and prior to consummation of
the acquisition of the V Georgio brand, with respect to business development,
strategic planning, evaluating business opportunities in the alcoholic beverage
industry, assisting management in structuring and potential business development
opportunities, and providing such other corporate advisory consulting services
as management requested. In consideration for the performance of the services
completed at August 31, 2015, the Company has agreed to pay the consultant a fee
of $175,000.
Following the consummation of the acquisition of the V Georgio brand, Kenneth
McLeod, returned 24,892,000 shares of "RESTRICTED" common stock held by him to
the Company for cancellation and sold 25,000,000 shares of "RESTRICTED" common
stock held by him to Vincent Prince, resulting in an additional "CHANGE IN
CONTROL" having taken place.
See "NOTE 6 - SUBSEQUENT EVENTS" of this Report with respect to certain PRO SE
litigation instituted by Victor G Harvey, Sr. and V Georgio Enterprises, LLC
against the Company in October 2015, alleging certain breaches of the Company's
payment obligations under the Asset Purchase Agreement and certain collateral
documentation executed and delivered in connection with the Company's
acquisition of the V Georgio brand.
RESULTS OF OPERATIONS
THREE AND SIX MONTH PERIODS ENDED AUGUST 31, 2015 AND 2014
The Company did not have any revenues or operating income for the three and six
month periods ended August 31, 2015 and 2014. Operating expenses for the
three-month periods ended August 31, 2015 and 2014 were $1,680,654 and $5,395
respectively. Operating expenses for the six-month periods ended August 31, 2015
and 2014 were $1,816,307 and $9,893, respectively. These expenses were comprised
of costs mainly associated with legal, accounting and office operations, with
the additional impairment of intangible assets at August 31, 2015. Prior to the
completion of the acquisition of the V Georgio brand in August 2015, operating
expenses were minimized and primarily related to expenses associated with our
public filing requirements, the proposed and subsequently terminated acquisition
of RNR during the 2015 periods and the completed acquisition of the V Georgio
brand in August 2015. We anticipate that these expenses will increase as we
transition into operations focused on the development, manufacture, marketing
and sale of alcoholic beverages.
LIQUIDITY AND CAPITAL RESOURCES
The Company initially financed its expenses and costs thus far through an equity
investment and funding from its founder. We received a Notice of Effectiveness
of our Registration Statement on Form S-1 from the Securities and Exchange
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Commission on October 2, 2013, pursuant to which we sold 4,000,000 shares of
common stock at a fixed price of $0.002 per share. The offering closed on
January 10, 2014 and generated $40,000 in gross proceeds for the Company.
As the Company has proceeded with implementing its business plan to engage in
the alcoholic beverage industry, it has secured additional capital through loans
or having expenses paid by a shareholder and a non-related party, which
obligations aggregated $86,637 and $36,606, respectively as of August 31, 2015.
These loans are not secured, are due on demand, and carry no interest.
Subsequent to August 31, 2015, these loans were converted into 166,600 and
70,400 shares of "RESTRICTED" common stock, respectively, at an effective
conversion rate of $0.52 per share.
Subsequent to August 31, 2015, the Company has not sold any "RESTRICTED" shares
of its common stock to investors. Shares, when sold, will be sold in a private
placement pursuant to the exemption from registration afforded by Section
4(a)(2) of the Securities Act of 1933, as amended. The Company expects to
continue to effect additional private sales of its securities in order to
generate capital for implementing its business plan. There can be no assurance
given, however, that the Company will be able to do so on acceptable terms, or
at all. Failure to secure financing when needed on acceptable terms will impair
the Company's ability to implement its business plan and may significantly harm
its operations and prospects.
OFF BALANCE SHEET ARRANGEMENTS
We have no known demands or commitments and are not aware of any events or
uncertainties as of August 31, 2015 that will result in or that are reasonably
likely to materially increase or decrease our current liquidity.
CRITICAL ACCOUNTING POLICIES
We prepare our financial statements in conformity with GAAP, which requires
management to make certain estimates and apply judgments. We base our estimates
and judgments on historical experience, current trends and other factors that
management believes to be important at the time the financial statements are
prepared. Due to the need to make estimates about the effect of matters that are
inherently uncertain, materially different amounts could be reported under
different conditions or using different assumptions. On a regular basis, we
review our critical accounting policies and how they are applied in the
preparation of our financial statements.
While we believe that the historical experience, current trends and other
factors considered support the preparation of our financial statements in
conformity with GAAP, actual results could differ from our estimates and such
differences could be material.
For a full description of our critical accounting policies, please refer to
"ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS" in our Annual Report on Form 10-K for the year ended February 28,
2015.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a smaller reporting company, as defined in Rule 12b-2 of the Securities
Exchange Act of 1934, as amended ( the "EXCHANGE ACT"), we are not required to
provide the information required by this item.
ITEM 4. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
The Company's Acting Chief Executive Officer and Chief Financial Officer, after
evaluating the effectiveness of the design and operation of the Company's
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15 (f)
and 15d-15(f)) as of August 31, 2015, has concluded that as of such date the
Company's disclosure controls and procedures are ineffective. Material
weaknesses noted are lack of an audit committee, lack of a majority of outside
directors on the board of directors (although the Company added an independent
director subsequent to August 31, 2015), resulting in ineffective oversight in
the establishment and monitoring of required internal controls and procedures.
Moreover, current management is dominated by a single individual, without
adequate compensating controls.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There have been no changes in our internal controls over financial reporting
identified in connection with the evaluation required by paragraph (d) of
Exchange Act Rule 13a-15 or Rule 15d-15 that occurred in the three months ended
August 31, 2015, that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On October 19, 2015, the Company was served with a PRO SE legal action filed by
Victor G. Harvey, Sr. and his wholly-owned limited liability company, V Georgio
Enterprises, LLC, in Circuit Court, Broward County, Florida, alleging certain
breaches of the Company's payment obligations under the Asset Purchase Agreement
and related agreements entered into with the Company. The complaint purportedly
seeks, somewhat inconsistently, injunctive relief for damages incurred by the
plaintiffs as a result of such breaches. Contemporaneously therewith, Mr. Harvey
resigned as CEO of our V Georgio, Inc. subsidiary. The Company believes that the
plaintiffs' claims are without merit, that it has various defenses and potential
counterclaims against the plaintiffs and will vigorously defend against this
action.
ITEM 1A. RISK FACTORS
Reference is made to "ITEM 1A. RISK FACTORS" in our Annual Report on Form 10-K
for the year ended February 28, 2015.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
31.1 Certification pursuant to Section 302 of Sarbanes Oxley Act of 2002
32.1 Certification pursuant to Section 906 of Sarbanes Oxley Act of 2002
101 Interactive Data files pursuant to Regulation S-T *
----------
To be filed by amendment.
(b) Reports on Form 8-K
None.
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SIGNATURE
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SOUTH BEACH SPIRITS, INC.
F/K/A CME REALTY, INC.
Date: October 23, 2015 By: /s/ Vincent Prince
---------------------------------
Chief Financial Officer
(Principal Executive (Acting),
Financial and Accounting Officer)
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