-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IFUno8fcPiE8XqTskcUQNSl/A9OsJ2M3CKGyTkoqRbZ0NeffUpN4Mmqedo7K3ylu EJ7xOpXuSIbXly5V5Q8gAg== 0001019687-07-003996.txt : 20071115 0001019687-07-003996.hdr.sgml : 20071115 20071115172526 ACCESSION NUMBER: 0001019687-07-003996 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20070930 FILED AS OF DATE: 20071115 DATE AS OF CHANGE: 20071115 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Nascent Wine Company, Inc. CENTRAL INDEX KEY: 0001310213 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-BEER, WINE & DISTILLED ALCOHOLIC BEVERAGES [5180] IRS NUMBER: 820576512 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 333-120949 FILM NUMBER: 071250765 BUSINESS ADDRESS: STREET 1: 2355-A PASEO DE LAS AMERICAS CITY: SAN DIEGO STATE: CA ZIP: 92154 BUSINESS PHONE: (619) 661-0458 MAIL ADDRESS: STREET 1: 2355-A PASEO DE LAS AMERICAS CITY: SAN DIEGO STATE: CA ZIP: 92154 10QSB 1 nascent_10qsb-093007.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB (Mark One) [ ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: September 30, 2007 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to _____________ Commission File Number: 333-120949 NASCENT WINE COMPANY, INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Nevada 82-0576512 ------ ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2355 Paseo de las Americas San Diego, Ca. 92154 -------------- ---------- (Address of principal executive offices) (Zip Code) (619) 661 0458 -------------- (Registrant's telephone number, including area code) N/A --- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes [ ] No [ ] APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: October 20, 2007, 83,718,070 shares of common stock and 1,000,000 shares of its Series A Convertible preferred stock outstanding NASCENT WINE COMPANY, INC. AND SUBSIDIARIES TABLE OF CONTENTS PAGE ---- PART I - FINANCIAL INFORMATION Unaudited Financial Statements 2 Consolidated Balance Sheets 3 Consolidated Statements of Operations 4 Consolidated Statements of Cash Flows 5 Notes to Financial Statements 6 Management's Discussion and Plan of Operations 13 Controls and Procedures 16 PART II - OTHER INFORMATION 16 Item 1. Legal Proceedings 16 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 16 Item 3. Defaults On Senior Securities 16 Item 4. Submission of Items to a Vote 16 Item 5. Other Information 16 Item 6. (a) Exhibits 17 (b) Reports on Form 8K 13 SIGNATURES AND CERTIFICATES 18 UNAUDITED FINANCIAL STATEMENTS The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial reporting and pursuant to the rules and regulations of the Securities and Exchange Commission ("Commission"). While these statements reflect all normal recurring adjustments which are, in the opinion of management, necessary for fair presentation of the results of the interim period, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the financial statements and footnotes that are included in the Company's December 31, 2006 annual report on Form 10-KSB previously filed with the Commission on April 17, 2007, and subsequent amendments made thereto. 2 NASCENT WINE COMPANY, INC. AND ITS CONSOLIDATED SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) SEPTEMBER 30, DECEMBER 31, 2007 2006 ------------ ------------ ASSETS Current assets: Cash $ 1,905,734 $ 476,376 Accounts receivable, less allowance of $246,696 And $50,000 September 30, 2007 and December 31, 2006 respectively 6,474,159 1,327,153 Inventory 5,116,255 1,137,459 Investments 458,698 -- Prepaid and deposits 1,035,103 177,976 ------------ ------------ TOTAL CURRENT ASSETS 14,989,949 3,118,964 Property and equipment, net 1,948,508 593,691 Other assets: License to distribution Miller Beer (net)of amortization 6,894,373 8,110,000 Licensed trade marks 4,363,333 -- Goodwill 14,645,046 11,936,217 ------------ ------------ TOTAL ASSETS $ 42,841,209 $ 23,758,872 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 3,514,859 $ 2,179,342 Accrued expenses 929,162 137,037 Accrued interest 377,291 276,991 Bank loans 575,663 367,633 Loans payable, less un-amortized debt interest (515,059) 932,005 Other loans payable 411,345 309,434 Capital lease deferred 775,342 -- Acquisition loans-current portion 6,200,000 -- Shareholder loans 831,003 2,440,148 ------------ ------------ TOTAL CURRENT LIABILITIES 13,099,606 6,662,590 Long term debt- Acquisition loans 2,000,000 186,672 ------------ ------------ TOTAL LIABILITIES 15,099,606 6,849,262 Stockholders' equity: Preferred stock, $0.001 par value, 5,000,000 shares authorized 1,000,000 issued and outstanding at September 30, 2007 1,000 -- Paid in preferred stock 7,342,305 -- Common stock, $0.001 par value, 195,000,000 shares authorized 83,641,706 and 52,050,000 shares issued and outstanding as of September 30, 2007 and December 31,2006, respectively 83,642 52,050 Additional paid-in capital 28,853,464 16,314,478 Subscribed stock less cost to sell -- 2,334,727 Accumulated other comprehensive loss (76,799) (1) Deficit accumulated (8,462,009) (1,791,644) ------------ ------------ TOTAL STOCKHOLDERS' EQUITY 27,741,603 16,909,610 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 42,841,209 $ 23,758,872 ============ ============ The accompanying notes are an integral part of these financial statements. 3 NASCENT WINE COMPANY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) FOR THE NINE FOR THE NINE FOR THE THREE FOR THE THREE MONTHS ENDED MONTHS ENDED MONTHS ENDED MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 2007 2006 2007 2006 ------------ ------------ ------------ ------------ REVENUES $ 25,415,739 $ 1,203,826 $ 12,490,061 $ 1,203,437 COST OF REVENUES 21,074,023 990,352 10,331,156 990,109 ------------ ------------ ------------ ------------ GROSS PROFIT 4,341,716 213,474 2,158,905 213,328 OPERATING EXPENSES General and administrative expenses 7,848,583 1,076,153 2,810,178 810,745 ------------ ------------ ------------ ------------ TOTAL OPERATING EXPENSES 7,848,583 1,076,153 2,810,178 810,745 LOSS FROM OPERATIONS (3,506,867) (832,679) (651,273) (597,417) OTHER INCOME AND (EXPENSE) Interest income 12,883 3,922 6,832 3,011 Interest expense (1,450,821) (361,646) (470,658) (290,942) Warrant expense (1,460,300) -- (1,460,300) -- Provision for income taxes -- -- -- -- ------------ ------------ ------------ ------------ NET LOSS $ (6,405,105) $ (1,220,403) $ (2,575,499) $ (885,348) ============ ============ ============ ============ NET (LOSS) PER SHARE - BASIC AND FULLY DILUTED $ (0.10) $ (0.04) $ (0.03) $ (0.03) ============ ============ ============ ============ WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING BASIC AND FULLY DILUTED 63,266,449 30,961,538 83,102,336 35,000,000 ============ ============ ============ ============ The accompanying notes are an integral part of these financial statements. 4 NASCENT WINE COMPANY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE NINE FOR THE NINE MONTHS ENDED MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 2007 2006 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ (6,405,105) $ (1,220,403) Adjustment to reconcile net loss to net cash used for operating activities: Shares issued for services 129,000 -- Depreciation 158,912 13,686 Amortization of distribution rights 1,252,294 348,125 Warrants issued expense 2,245,736 293,088 Changes in operating assets and liabilities: Increase in accounts receivable (5,132,155) (468,770) Increase in inventory (2,634,618) (321,242) Increase in deposits (391,108) (84,860) Increase in accrued interest 116,423 58,696 Increase in accounts payable 3,832,834 794,436 Decrease in accrued expense 206,387 91,821 Decrease in payroll taxes (980,839) -- ------------ ------------ NET CASH USED FOR OPERATING ACTIVITIES (7,602,239) (495,423) CASH FLOWS FROM INVESTING ACTIVITIES Purchase of fixed assets (1,155,424) (361,217) Acquisition of license to distribute Miller Beer -- (800,000) Acquisition of Licensed trade marks (4,400,000) -- Acquisition of Pasani\Eco Pac, net of cash acquired (1,577,961) -- Acquisition of Grupo Sur, net of cash acquired (4,535,387) -- Investments (163,740) ------------ ------------ NET CASH USED FOR INVESTING ACTIVITIES (11,832,512) (1,161,217) CASH FLOWS FROM FINANCING ACTIVITIES Increase (decrease) in bridge loans payable (2,217,500) 2,370,000 Common stock issued for cash-less expenses 8,459,183 -- Preferred stock issued 7,343,305 Increase in acquisition loans 8,200,000 -- Decrease in bank loans (43,077) -- Decrease in shareholder loans (1,751,521) -- Increase in other loans 155,269 281,826 Increase in capital leases 775,342 -- Decrease in notes receivable -- (599,179) ------------ ------------ NET CASH PROVIDED BY FINANCING ACTIVITIES 20,921,000 2,052,647 EFFECT OF EXCHANGE RATE CHANGES ON CASH (56,890) (725) ------------ ------------ NET INCREASE IN CASH 1,429,359 395,282 Cash - Beginning 476,376 14,254 ------------ ------------ CASH - Ending $ 1,905,735 $ 409,536 ============ ============ SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITY: Issuance of stock for shareholder loans $ 1,172,693 $ -- ============ ============ Issuance of stock for Miller distribution license -- 7,875,000 ============ ============ Issuance of stock for services $ 136,000 $ -- ============ ============ Warrants issued $ 1,616,800 $ 1,037,000 ============ ============ Interest paid $ 1,248,200 $ -- ============ ============ The accompanying notes are an integral part of these financial statements.
5 NASCENT WINE COMPANY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2007 (UNAUDITED) NOTE A - COMPANY OVERVIEW AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES INTERIM FINANCIAL INFORMATION The consolidated financial statements of Nascent Wine Company, Inc. (the "Company"), and its wholly-owned subsidiaries, Best Beer S.A. de C. V., (Best Beer) International Foodservice Specialists, Inc. (IFS), Palermo Italian Foods, LLC (Palermo), Pasani, S.A de C.V. (Pasani), Eco Pac Distributing, LLC (Eco Pac) and Grupo Sur Promociones de Mexico, S.A de C.V (Grupo Sur) as of September 30, 2007 and related footnote information are unaudited. All adjustments (consisting only of normal recurring adjustments) have been made which, in the opinion of management, are necessary for a fair presentation. Results of operations for the nine months and three months ended September 30, 2007 and 2006 are not necessarily indicative of the results that may be expected for any future period. Certain information and footnote disclosures, normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America, have been omitted. These financial statements should be read in conjunction with the audited financial statements and notes for the year ended December 31, 2006. COMPANY OVERVIEW The Company was incorporated under the laws of the State of Nevada, on December 31, 2002 (Date of inception). The Company had minimal operations until it acquired the rights to distribute Miller Beer in Baja California, Mexico from Piancone Group International, Inc. (PGII), issuing 17,500,000 shares of common stock at the par value $0.45 per share ($7,875,000) and paying off $800,000 debt of previous license holder. It started its distribution operations as of July 1, 2006. In addition to Beer it distributes food and beverage products. In accordance with SFAS #7, the Company was considered a development stage company until it started operations on July 1, 2006. The Company incorporated Best Beer S.A. de C. V. (Best Beer) in May 2006 in order to distribute in Baja California. The Company acquired the assets of Piancone Group International, Inc., which was merged into Nascent, and Palermo Italian Foods, LLC in the fourth quarter of 2006. In May 2007 the Company acquired Pasani, S.A.de C.V. and Eco Pac Distributing, LLC that distributes imported products throughout Mexico. In July 2007 the Company acquired Grupo Sur Promociones de Mexico, S.A. de C. V. (Grupo Sur). Grupo Sur has been in the Mexican market for 30 years and is one of the leading field marketing and below the line marketing organization in Mexico with 4,500 contract employees servicing 240,000 retail accounts including supermarkets and convenience stores. Grupo Sur's expertise includes merchandising, promotions, sampling , retail data collection and sales and marketing of retail products PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Best Beer S.A. de C. V., (Best Beer) International Foodservice Specialists, Inc. (IFS), Palermo Italian Foods, LLC (Palermo), Pasani, S.A de C.V.(Pasani), Eco Pac Distributing, LLC (Eco Pac) and Grupo Sur Promociones de Mexico, S.A. de C. V. (Grupo Sur). The financial statements have been consolidated with the parent company and all inter-company transactions and balances have been eliminated in consolidation. 6 FOREIGN CURRENCY TRANSLATION The Company translates the foreign currency financial statements of its foreign operations in accordance with Generally Accepted Accounting Principles by translating balance sheet accounts at the appropriate historical or current exchange rate on the balance sheet date and the income statement accounts using the prevailing exchange rates at the transaction date. Cash flow statements are are prepared in the foreign currency prior to translation. Translation gains and losses are recorded in stockholders' equity and realized gains and losses are reflected in operations. BASIS OF PREPARATION OF FINANCIAL STATEMENTS The accompanying financial statements are prepared in accordance with U.S. generally accepted accounting standards (GAAP). The financial statements have been prepared assuming that the Company will continue as a going concern. USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets, and liabilities on the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates, however the Company is not currently aware of any changes in such estimates. INVENTORIES Inventories are accounted for on the first-in, first-out basis. Any products reaching their expiration dates are written off. REVENUE RECOGNITION The Company reports revenue using the accrual method, in which revenues are recorded as services are rendered or as products are delivered and billings are generated. ALLOWANCE FOR DOUBTFUL ACCOUNTS The Company has not had sufficient experience with bad debts to establish a policy. However, the Company has reviewed all accounts and determined that an allowance for uncollectible accounts required at September 30, 2007 is $246,696. PROPERTY AND EQUIPMENT Property and equipment is stated at cost and depreciated using the straight-line method over the estimated useful life of the assets, which is three to ten years. IMPAIRMENT OF LONG-LIVED ASSETES The Company acquired long-lived assets during the last six month of the year ended December 31, 2006 and first nine months of 2007. The company will review the carrying values of its long-lived assets for possible impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable and\or annually. No impairment losses were recorded in 2007. TAXES ON INCOME The Company follows Statement of Financial Accounting Standard No. 109 "Accounting for Income Taxes" (SFAS No. 109) for recording the provision for income taxes. Deferred tax assets and liabilities are computed based upon the differences between the financial statement and income tax basis of assets and liabilities using the enacted marginal tax rate applicable when the related asset or liability is expected to be realized or settled. Deferred income tax expense or benefit is based on the change in the asset or liability each period. If available evidence suggests that is more likely than not that some portion or all of the deferred tax assets will not be realized, a valuation allowance is required to reduce the deferred tax asset to the amount that is more likely than not to be realized. Future changes in such valuation allowance are included in the provision for deferred income taxes in the period of change. 7 Deferred income taxes may arise from temporary differences resulting from income and expense items reported for financial accounting and tax purposes in different periods. Deferred taxes are classified as current or non-current, depending on the classification of assets and liabilities to which they relate. Deferred taxes arising from temporary differences that are not related to an asset or liability are classified as current or non-current depending on the periods in which the temporary differences are expected to reverse. STOCK - BASED COMPENSATION The Company accounts for stock-based compensation in accordance with Statement of Financial Accounting Standards No. 123r share based payment. The Company recognizes in the statement of operations the grant-date fair value of stock options and other equity based compensation issued to employees and non- employees. The Company did not grant any new employee options and no options were cancelled or exercised during the nine months ended September 30, 2007. EARNINGS PER SHARE Basic earnings per share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding during the period. GOING CONCERN The Company's financial statements are prepared using the generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and the liquidation of liabilities in the normal course of business. The Company commenced operations distributing Miller beer and other products in Baja California, Mexico starting July 1, 2006. The Company has acquired three additional distribution companies and a merchandising, promotions, sampling, retail data collection company during the past year. NOTE B - NOTES PAYABLE The Company has obtained Bridge loan financing that reached $4,515,000 at the end of May 2007. The balance at September 30, 2007 is zero. As additional consideration to obtain the loans, the Company issued warrants to the lenders to purchase 10,774,000 shares of common stock at a price per share of $0.25 to $1.05. The difference between the price to purchase shares and the closing price of the stock on the date of grant of the warrants $1,305,000 is being written off over the life of the loans (one year). The un-amortized interest, $515,000 will be expensed by December 31, 2007. Interest amortized during the period was $785,426 NOTE C - STOCKHOLDERS' EQUITY The Company is authorized to issue 195,000,000 shares of common stock at $.001 par value, and 5,000,000 shares of preferred stock at $.001 par value. On April 12, 2006, the Company did a 20 for 1 split. The balance of shares issued after the split was 86,568,800. On April 27, 2006, 69,068,800 shares were cancelled. On April 27, 2006, the Company issued 17,500,000 shares of common stock to acquire the distribution rights for Miller beer in Baja California, Mexico at a per share value of $0.45 per share ($7,875,000) and paid off the debt of the previous license holder to Miller Beer ($800,000). The total cost of the license was $8,675,000. The Company is amortizing the acquisition over 10 year and will evaluate the value of the intangible asset on an annual basis. During the nine months ended September 30, 2007 the Company issued 127,500 shares of common stock for services rendered in the amount of $129,000 and 2,926,181 shares of common stock to redeem notes payable to shareholders in the amount of $1,171,872. The Company received subscriptions for an additional 21,304,000 shares of common stock in the amount of $8,522,468 less expenses of $1,235,151. At September 30, 2007 the Company had outstanding warrants (not including the York warrants-see below) to purchase 18,120,476 shares of common stock at a price of between $0.25 and $1.05 expiring in 2010. If all warrants were exercised the Company would receive $7,070,000. On July 3, 2007 the Company issued 1,000,000 shares of its Series A and Series B Convertible Preferred Stock, par value $0.001 per share at $8.00 per share ($8,000,000) to York Capital Management (York). The Series A and Series B Convertible Preferred Stock is convertible into 20,000,000 shares of the Company's common stock, par value $0.001, of the Company, based upon a conversion price of $0.40 per share and a liquidation amount of $8.00 per share. The Preferred shares are entitled to a dividend of 15% payable quarterly in preferred stock for three years. 8 In addition the Company issued the following warrants to purchase: Series A-1 Warrants 500,000 shares of Series A preferred stock $8.00 per share Immediately exercisable and expire July 3, 2010 Series A-2 Warrants 375,000 shares of Series A preferred stock $8.00 per share Immediately exercisable and expire July 3, 2014 Series B Warrants Variable shares of Series B convertible 33% of the average of Immediately exercisable and preferred stock depended on the per market the Per Share Market expire July 3, 2014 value of common shares Value of common stock 30 days preceding date of exercise.
If total warrants exercised they would be convertible to up to 25,000,000 shares of common stock or less, dependent on the Per Share Market Value of the common stock when exercised. The Company paid a cash finder's fee of $560,000 and issued to the finder an aggregate of 1,600,000 common share warrants, each warrant exercisable to purchase one share of common stock at any time until July 3, 2010 at a purchase price of $0.40 per share. NOTE D- SEGMENT INFORMATION The Company has adopted FAS Statement No. 131, "Disclosures about Segments of a Business Enterprise and Related Information". United States Mexico ------------- ------------ Net loss for the nine months ended Sept. 30, 2007 $ 6,291,184 $ 113,921 Net loss for the nine months ended Sept. 30, 2006 $ 196,000 $ 8,000 Long lived assets (net) at Sept. 30, 2007 $ 961,255 $ 987,253 Long lived assets (net) at Sept. 30, 2006 $ 3,000 $ 37,000 9 NOTE E - RELATED PARTY TRANSACTIONS The Company has unsecured loans form stockholders totaling $628,000 at September 30, 2007. The loans have various due dates and contain interest rates ranging from 10% to 18%. During the nine months ended September 30, 2007 the Company issued 2,926,181 to retire $1,171,872 of shareholder debt. The maturities of notes payable at September 30, 2007 are as all within one year. On May 3, 2006, we acquired the exclusive rights from Piancone Group International, Inc. to market Miller Beer in Baja California, Mexico, in exchange for 17,500,000 shares of our common stock. At that time, neither Sandro Piancone nor Piancone Group was an affiliate. Concurrent with the acquisition of these rights, Sandro Piancone became our Chief Executive Officer and a director. In October 2006, we acquired substantially all of the assets of Piancone Group in exchange for the issuance of 15,000,000 shares of our common stock. Sandro Piancone, our Chief Executive Officer and a director, was the Chief Executive Officer, a director and the controlling stockholder of Piancone Group International, Inc. at the time its assets were acquired by us. We believe our purchase of Piancone Group's assets was fair and reasonable. NOTE F - ACQUISITIONS OF PASANI, S.A. DE C.V.(PASANI) AND ECO PAC DISTRUBUTING, LLC (ECO) AND GRUPO SUR PROMOCIONES DE MEXICO S.A. DE C.V. (GRUPO SUR) Acquisition of Pasani, S.A. de C.V. On May 11, 2007, the Company issued notes payable in the amount of $1,600,000 with interest at 8% to acquire Pasani and Eco (a related company to Pasani) distribution companies based in Mexico City. The note is payable $500,000 with interest November 11, 2007 and $1,000,000 May 11, 2008 with interest. The notes may be converted to common stock at $1.40 per share Current assets $ 2,843,087 Property, plant and equipment 172,017 Goodwill (682,907) Current liabilities (732,196) --------------- TOTAL PURCHASE PRICE $ 1,600,000 =============== Acquisition of Grupo Sur Promociones de Mexico S.A. de C.V. In July, 2007 the Company acquired Groupo Sur Promociones de Mexico S.A. de C.V. (Groupo Sur) and related companies for a purchase price of $4,500,000. The amount of the purchase price was payable $1,000,000 at closing and the issuance of a note payable in the amount of $3,500,000 at an interest rate of 6% The note is payable $1,500,000 on June 30, 2008 and $2,000,000 with interest on December 31, 2008. The note is payable in cash or convertible into shares at the market closing sales price on the day immediately prior to the conversion. Grupo Sur has been in the Mexican market for 30 years and is one of the leading field marketing and below the line marketing organization in Mexico with 4,500 contract employees servicing 240,000 retail accounts including supermarkets and convenience stores. Grupo Sur's expertise includes merchandising, promotions, sampling , retail data collection and sales and marketing of retail products. Current assets $ 2,356,722 Property and equipment 158,349 Goodwill 3,490,760 Current liabilities (1,505,831) --------------------- TOTAL PURCHASE PRICE $ 4,500,000 ===================== 10 Additional Information The pro forma financial information is that of the consolidated operations of the Company as if the Pasani and Grupo Sur acquisitions had occurred as of the beginning of the period presented below. FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007 ----------------------------------------------------------------------- Per the Company without Pasani and Total Pro Grupo Sur Pasani Grupo sur Forma ------------ ------------ ------------ ------------ REVENUES $ 17,051,397 $ 4,801,952 $ 18,464,127 $ 40,317,476 COST OF SALES 14,884,420 3,297,725 15,782,370 33,964,515 ------------ ------------ ------------ ------------ GROSS PROFIT 2,166,977 1,504,227 2,681,757 6,332,961 GENERAL AND ADMINISTATIVE EXPENSES 6,513,471 1,339,918 1,592,360 9,445,749 ------------ ------------ ------------ ------------ GAIN (LOSS) FROM OPERATIONS (4,346,494) 164,309 1,089,397 (3,092,788) OTHER INCOME (EXPENSE) INTEREST INCOME 9,014 2,124 5,801 16,939 INTEREST EXPENSE (1,440,378) (15,518) -- (1,455,896) WARRANT EXPENSES (1,460,300) -- -- (1,460,300) PROVISION FOR INCOME TAXES -- -- -- -- ------------ ------------ ------------ ------------ NET LOSS $ (7,238,158) $ 150,915 $ 1,095,198 $ (5,992,045) ============ ============ ============ ============ Pro Forma Statement of operations for the nine months ended September 30, 2006 includes PGII and Palermo, which were acquired in the fourth quarter of 2006 and Pasani acquired in May 2007 and Group Sur acquired in July 2007. The Pro Forma Statement of operations for the nine months ended September 30, 2007 includes Parsani acquired in May 2007 and Grupo Sur acquired in July 2007. PRO FORMA FOR THE PRO FORMA FOR THE NINE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, 2007 SEPTEMBER 30, 2006 ------------------ ------------------ REVENUES $ 40,317,476 $ 27,717,239 COST OF REVENUES 33,964,515 22,054,387 ------------ ------------ GROSS PROFIT 6,332,961 5,662,852 GENERAL AND ANDMINISTRATIVE EXPENSES 9,445,749 4,863,352 ------------ ------------ GAIN OR (LOSS) FROM OPERATIONS (3,092,788) 799,499 OTHER INCOME AND (EXPENES) INTEREST INCOME 16,939 13,593 INTEREST EXPENSE (1,455,896) (898,737) WARRANT EXPENSE (1,460,300) -- PROVISION FOR INCOME TAXES -- -- ------------ ------------ NET INCOME (LOSS) $ (5,992,045) $ (85,644) ============ ============
11 NOTE G - ACQUISITION OF LICENSED TRADE MARKS On May 11, 2007 the company entered into a License Agreement with One Seven Props, Inc. whereby the Company was granted an exclusive license to use Licensed trade marks in the United States and Mexico. The Company paid $1,900,000 and a promise to pay $2,500,000 May 11, 2008.The Company will amortize the license total $4,400,000 over 20 years. NOTE H - SUBSEQUENT EVENTS Acquisition of Comerical Targa On October 29, 2007, the Company entered into a Stock Purchase Agreement (the "Stock Purchase Agreement") with Comercial Targa, S.A. de C.V. (Targa), to purchase all of the issued and outstanding capital stock of the Company. As a result of the Acquisition, the Company is a wholly-owned subsidiary of the Company. The purchase price for the Targa was $400,000, payable as follows: (a) $150,000 in cash paid to the Sellers on the Closing Date; and (b) $250,000 in cash deposited with Corporate Stock Transfer, Inc. on the Closing Date to be held and disbursed pursuant to the terms of the Escrow Agreement dated as of October 29, 2007, by and among the Company, the Sellers and the Escrow Agent. The Escrow Agreement provides that the Escrow Funds will be held for a period of six months following the Closing Date to satisfy any indemnification losses and claims of the Company under the Stock Purchase Agreement and the Trademark Assignment Agreement. In connection with the Stock Purchase Agreement, the Company and Olavarri de Arana entered into an Trademark Rights Transmission Contract dated October 29, 2007 (the "Trademark Assignment Agreement") pursuant to which Olavarri de Arana assigned to the Registrant all of Olavarri de Arana's right, title and interest in and to the trademarks "Nery's Choice", "Puro Monterey", "Nero's Puro Monterey" and "Nery's" (two versions) (collectively, the "Trademarks") in exchange for the payment to Olavarri de Arana of $3,400,000 in cash. The Trademarks are registered in Mexico. Exercise of Warrants by York Capital Management In October and November York Capital Management exercised all of its preferred stock warrants outstanding (1,250,000 preferred share) in the amount of $8,333,000. 12 MANAGEMENT'S DISCUSSION AND PLAN OF OPERATION FORWARD-LOOKING STATEMENTS This Quarterly Report contains forward-looking statements about Nascent Wine Company, Inc.'s business, financial condition and prospects that reflect management's assumptions and beliefs based on information currently available. We can give no assurance that the expectations indicated by such forward-looking statements will be realized. If any of our management's assumptions should prove incorrect, or if any of the risks and uncertainties underlying such expectations should materialize, Nascent's actual results may differ materially from those indicated by the forward-looking statements. The key factors that are not within our control and that may have a direct bearing on operating results include, but are not limited to, acceptance of our services, our ability to expand our customer base, managements' ability to raise capital in the future, the retention of key employees and changes in the regulation of our industry. There may be other risks and circumstances that management may be unable to predict. When used in this Quarterly Report, words such as, "BELIEVES," "EXPECTS," "INTENDS," "PLANS," "ANTICIPATES," "ESTIMATES" and similar expressions are intended to identify forward-looking statements, although there may be certain forward-looking statements not accompanied by such expressions. The information contained in this section has been derived from our consolidated financial statements and should be read together with our consolidated financial statements and related notes included elsewhere in this report. The discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those expressed or implied in these forward-looking statements as a result of various factors, including those set forth at the end of this section under "Factors That May Impact Our Results of Operations". OVERVIEW The Company is incorporated in Nevada and until May 2006 the company was a development stage company. In May the company secured the distribution rights for Miller Beer in Baja California, Mexico, and began distributing food products and beer in July 2006. The company acquired two additional distribution companies operations, Piancone Group International, Inc. and Palermo Italian Food, LLC expanding the Mexico operations, offering more than 2,000 food and food-related products to over 1,300 customers primarily in the Baja California region of Mexico and Miami Florida at the year end 2006. Our customers include grocery stores, convenience stores, hotels, resorts, cafeterias, schools, industrial caterers and restaurants. We distribute a full line of frozen foods, such as meats, fully prepared entrees and desserts, and a full line of canned and dry goods, fresh meats and imported specialties. We also distribute a wide variety of food-related items such as disposable napkins, plates and cups, and have the exclusive right to distribute Miller beer in Baja California, Mexico. We believe that prompt and accurate delivery of orders, close contact with customers and the ability to provide a full array of products and services to assist customers in their food service operations are of primary importance in the marketing and distribution process. We offer daily delivery to certain customer locations and have the capability of delivering special orders on short notice. Through our 56 member sales force, we stay informed of the needs of our customers and acquaint them with new products and services. We also provide ancillary services to our customers relating to food service distribution such as providing product usage reports and other data, menu-planning advice, food safety training and assistance in inventory control. RESULTS OF OPERATIONS Nine months ended September 30, 2007 as compared to nine months ended September 30, 2006 The Company was in the development stage until June 30, 2006. We generated revenues of $25,416,000 compared to $1,204,000 for the nine months ended September 30, 2007 and 2006 respectively. The increase is due primarily to the following reasons: 13 Change from prior year nine months ------------------ Acquisition of Grupo Sur in July, 2007 $ 6,034,000 Acquisition of Pasani in May, 2007 2,563,000 Best Beer operated from July 1 to Sept. 30 in 2006 and had sales of $1,137,000 for the quarter as compared to $2,340,000 sales in same quarter in 2006 5,587,000 Acquisition of Palermo in October, 2007 8,769,000 International Food Services that started operations in October, 2006 1,225,000 ------------------ $ 24,178,000 ================== Gross profit for the nine months ended September 30, 2007 was $4,342,000 (17%) of sales as compared to $213,000 for the same period in 2006. In addition to increasing sales volumes the Company is also striving to increase the percentage of gross profit. Selling, general and administrative expenses were $7,849,000 for the nine months ended September 30, 2007 as compared to $1,076,000 for the same period 2006. The increases were due to the following: Nine months ended Nine months ended September 30, 2007 September 30, 2006 ------------------- ------------------- Acquisition of Grupo Sur in July, 2007 $ 492,000 $ -- Acquisition of Pasani in May, 2007 $ 842,000 $ -- Acquisition of Palermo in October, 2007 $ 1,735,000 $ -- Amortization of Miller Beer license $ 1,253,000 $ 348,000 Accounting and legal fees increased because of acquisitions $ 602,000 $ 334,000 Salaries $ 538,000 $ 3,000 Opening of additional distribution warehouses $ 300,000 $ --
Net loss from operation $3,507,000 is the result of all the factors above. The Company will continue to increase sales and margins on sales and reducing overhead expenses. Net loss of $6,405,000 is a result of the Company's debt interest of $1,451,000 and warrant expense of $1,460,300. The Company converted $1,173,000 of loans to equity in the nine months ended September 30, 2007, which will help to reduce interest expense in the future. PRO FORMA Pro Forma Statement of operations for the nine months ended September 30, 2006 includes PGII and Palermo, which were acquired in the fourth quarter of 2006 and Pasani acquired in May 2007 and Group Sur acquired in July 2007. The Pro Forma Statement of operations for the nine months ended September 30, 2007 includes Parsani acquired in May 2007 and Grupo Sur acquired in July 2007. 14 PRO FORMA FOR THE PRO FORMA FOR THE NINE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, 2007 SEPTEMBER 30, 2006 ------------------ ------------------ REVENUES $ 40,317,476 $ 27,717,239 COST OF REVENUES 33,964,515 22,054,387 ------------ ------------ GROSS PROFIT 6,332,961 5,662,852 GENERAL AND ANDMINISTRATIVE EXPENSES 9,445,749 4,863,352 ------------ ------------ GAIN OR (LOSS) FROM OPERATIONS (3,092,788) 799,499 OTHER INCOME AND (EXPENES) INTEREST INCOME 16,939 13,593 INTEREST EXPENSE (1,455,896) (898,737) WARRANT EXPENSE (1,460,300) -- PROVISION FOR INCOME TAXES -- -- ------------ ------------ NET INCOME (LOSS) $ (5,992,045) $ (85,644) ============ ============ The Company has acquired four companies in the past twelve months. The Company is expending great effort in reducing general and administrative expenses and interest expense by combining administrative and general expenses of the various subsidiaries and converting debt to capital. Liquidity and capital resources The Company had a cash balance of $1,905,734 at September 30, 2007 as compared to $476,376 at December 31, 2007. The Company has been able to raise capital or obtain financing to acquire License trade marks for $4,400,000, Pasani for $1,600,000 and Grupo Sur for $4,500,000. These acquisitions were financed with notes payable of $8,200,000 and cash 2,300,000. The net cash used for operations $7,595,000 and the pay down of debt 2,218,000 was financed by the sale shares during the nine months ended September 30, 2007. The Company expects to finance the capital needed with additional issuances of its securities. During the nine months ended September 30, 2007 the Company closed out the share offering provided by Brookstreet Securities Corporation. 15 Item 8-A. CONTROLS AND PROCEDURES EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. The Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of the Company's disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) and 15d-15(e) as of the end of the period September 30, 2007, have concluded that its disclosure controls and procedures are effective to reasonably ensure that material information required to be disclosed by the Company in the reports that are filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by Securities and Exchange Commissions' Rules and Forms and that such information is accumulated and communicated to our Management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING. There were no changes made during our most recently completed fiscal quarter in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. PART II. OTHER INFORMATION Item 1. Legal proceedings NONE Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During the nine month period ended September 30, 2007, the Company issued shares of its common and preferred stock in the following cash transactions: DATE ISSUED AMOUNT NAME CASH DESCRIPTION OF TRANSACTION --------------------------- --------------- ------------------------------ ------------------ ----------------------------------- June and July 2007 $ 9,593,578 Brookstreet offering-common Cash Private Placement July 2007 $ 7,343,305 York Select Unit Trust Cash Private Placement
Item 3. Defaults on Senior Securities NONE Item 4. Submission of Items to a Vote NONE Item 5. Other Information NONE 16 Item 6. (a) Exhibits The following Exhibits are incorporated herein by reference or are filed with this report as indicated below. ------------- ------------------------------------------------------------- Exhibit No. ------------- ------------------------------------------------------------- *3.1 Articles of Incorporation filed on December 10, 2002 ------------- ------------------------------------------------------------- *3.2 By-Laws adopted on December 12, 2002 ------------- ------------------------------------------------------------- *3.3 Certificate of Amendment to Articles of Incorporation filed on March 28, 2006 ------------- ------------------------------------------------------------- *2.1 Asset Purchase Agreement and Exhibits thereto for acquisition of Piancone Group International, Inc. June 5, 2006 ------------- ------------------------------------------------------------- *2.2 Agreement Concerning the Exchange of Securities to acquire Palermo Italian Foods, LLC Nov. 15, 2006 ------------- ------------------------------------------------------------- *10.1 Stock Purchase Agreement, dated May 11, 2007, by and among Nascent Wine Company, Inc., Pasani S.A. de C.V., and the Shareholders of Pasani S.A. de C.V. ------------- ------------------------------------------------------------- *10.2 Promissory Note, dated as of May 11, 2007, in the principal amount of $1,500,000, made by Nascent Wine Company, Inc. in the name of Alejandro Gutierrez Pederzini and Leticia Gutierrez Pederzini. ------------- ------------------------------------------------------------- *10.3 Pledge on Shares Agreement, dated May 11, 2007, by and among Nascent Wine Company, Inc., Alejandro Gutierrez Pederzini and Leticia Gutierrez Pederzini ------------- ------------------------------------------------------------- *10.4 Trademark License and Purchase Agreement, dated May 11, 2007 by and between Nascent Wine Company, Inc. and One Seven Props, Inc. ------------- ------------------------------------------------------------- *10.5 Membership Interest Purchase Agreement, dated May 11, 2007, by and among Nascent Wine Company, Inc., Eco Pak Distributing LLC and Alejandro Gutierrez Pederzini. ------------- ------------------------------------------------------------- Exhibit 31 Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act ------------- ------------------------------------------------------------- Exhibit 32 Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act ------------- ------------------------------------------------------------- * Denotes filed previously b) Reports on 8K during the quarter: 8-K dated 4/27/07 Item 3.02 Unregistered sales of equity securities. 8-K dated 5/11/07 Item 1.01 Entry into a material definitive agreement 2.01 Completion of acquisition or disposition of assets 8-K dated 6/28/07 Item 3.02 Unregistered sales of equity securities. 17 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, hereunto duly authorized. NASCENT WINE COMPANY, INC. Dated: November 9, 2007 By: /s/ Sandro Piancone ----------------------- Sandro Piancone, Chief Executive Officer Pursuant to the requirements of the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /s/ Sandro Piancone Chief Executive Officer Date: 11/9/07 - ------------------------ Sandro Piancone /s/ Victor Petrone President and Director Date: 11/9/07 - ------------------------ Victor Petrone /s/ William Lindberg Chief Financial Officer Date: 11/9/07 - ------------------------ William Lindberg 18 EX-31 2 nascent_10qsbex-31.txt Exhibit 31 CERTIFICATIONS OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT CERTIFICATIONS I, Sandro Piancone, Chief Executive Officer and William Lindberg, Chief Financial Officer of Nascent Wine Company, Inc., certify that: 1. We have reviewed this Form 10-QSB of Nascent Wine Company , Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report; 4. The small business issuer's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared; (b)Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, The small business issuer's internal control over financial reporting. 5. The small business issuer's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of small business issuer's board of directors (or persons performing the equivalent functions): (a)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting; Date: November 9, 2007 /s/ Sandro Piancone --------------------------------------------- Sandro Piancone, Chief Executive Officer Date: November 9, 2007 /s/ William Lindberg --------------------------------------------- William Lindberg, Chief Financial Officer EX-32 3 nascent_10qsbex-32.txt Exhibit 32 CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT In connection with the Report of Nascent Wine Company, Inc. (the "Company") on Form 10-QSB for the for the quarter ended September 30, 2007 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), we, Sandro Piancone, Chief Executive Officer and William Lindberg, Chief Financial Officer of the Company, certify pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ Sandro Piancone - ------------------------------------- Sandro Piancone Chief Executive Officer November 9, 2007 /s/ William Lindberg - ------------------------------------- William Lindberg Chief Financial Officer November 9, 2007 -----END PRIVACY-ENHANCED MESSAGE-----