This
prospectus relates to the resale by certain selling security holders
identified
herein of up to 22,600,000 shares of common stock, of which up to 22,000,000
shares of our common stock are issuable upon the conversion of shares
of our
Series A Preferred Stock and 600,000 shares of our common stock are issuable
on
the exercise of certain warrants. The common stock offered by this prospectus
shall be adjusted to cover any additional securities as may become issuable
on
the conversion of shares of our preferred stock or on the exercise of
the
warrants to prevent dilution resulting from stock splits, stock dividends
or
similar transactions. The issuances of such securities to the selling
security
holders was made in reliance upon an exemption from the registration
requirements of the Securities Act provided by Section 4(2) of the Securities
Act for private transactions. Additional information concerning the transactions
in which the rights to acquire the shares covered by this prospectus
were
obtained by the selling security holders are set forth in the section
of this
prospectus entitled "Selling Security Holders."
SALES
BY SELLING SECURITY HOLDERS
The
selling security holders may offer the common stock pursuant to this prospectus
in varying amounts and transactions so long as this prospectus is then current
under the rules of the Securities and Exchange Commission (the "SEC") and
we
have not withdrawn the registration statement. The offering of common stock
may
be through the facilities of the over-the-counter Bulletin Board or such
other
exchange or reporting system where the common stock may be traded. Brokerage
commissions may be paid or discounts allowed in connection with such sales;
however, it is anticipated that the discounts allowed or commissions paid
will
be no more than the ordinary brokerage commissions paid on sales affected
through brokers or dealers. To our knowledge, as of the date hereof, no one
has
made any arrangements with a broker or dealer concerning the offer or sale
of
the common stock. See "Plan of Distribution."
OUTSTANDING
SECURITIES
As
of
March 7, 2008, there were 80,842,769 shares of our common stock
outstanding.
An
investment in the shares of our company is subject to a number of risks.
We have
set forth these risk factors below under the heading "Risk Factors" which
you
should carefully review.
RISK
FACTORS
This
offering involves a high degree of risk. Before you invest you should carefully
consider the risks and uncertainties described below and other information
and
our consolidated financial statements and related notes included elsewhere
in
this prospectus. If any of the events described below actually occur, our
operating results would be dramatically adversely affected, which in turn
could
cause the price of our common stock to decline, perhaps significantly. Further,
we may not be able to continue our operations. This means you could lose
all or
a part of your investment.
CERTAIN
FACTORS THAT MAY AFFECT FUTURE RESULTS
FACTORS
RELATING TO OUR COMPANY AND OUR BUSINESS
WE
ARE A
DEVELOPING COMPANY AND OUR PROSPECTS MUST BE CONSIDERED IN LIGHT OF OUR SHORT
OPERATING HISTORY AND SHORTAGE OF WORKING CAPITAL.
We
are a
developing company with a very short operating history, having been incorporated
in September 2002. Our prospects must be considered in light of the risks,
expenses and difficulties frequently encountered by developing companies,
including dealing with a shortage of necessary funds in the very competitive
marketplace in which the alcoholic and non-alcoholic beverage business is
carried on, as well as the many risks commonly anticipated or experienced
by
mature companies. Our ability to operate as a going concern and to achieve
profitable operations will be dependent on such factors as the success of
our
business model and marketing strategy, market penetration of existing products,
competition, future brand additions, continued development of distribution
relationships and the availability of financing. No assurance can be given
that
we will be able successfully to develop our business under the foregoing
conditions.
WE
RELY
HEAVILY ON OUR INDEPENDENT DISTRIBUTORS, AND THIS COULD AFFECT OUR ABILITY
TO
EFFICIENTLY AND PROFITABLY DISTRIBUTE AND MARKET OUR PRODUCTS, AND MAINTAIN
OUR
EXISTING MARKETS AND EXPAND OUR BUSINESS INTO OTHER GEOGRAPHIC
MARKETS.
Our
ability to establish a market for our brands and products in new geographic
distribution areas, as well as maintain and expand our existing markets,
is
dependent on our ability to establish and maintain successful relationships
with
reliable independent distributors strategically positioned to serve those
areas.
Many of our larger distributors sell and distribute competing products,
including non-alcoholic and alcoholic beverages, and our products may represent
a small portion of their business. To the extent that our distributors are
distracted from selling our products or do not expend sufficient efforts
in
managing and selling our products, our sales will be adversely affected.
Our
ability to maintain our distribution network and attract additional distributors
will depend on a number of factors, many of which are outside our control.
Some
of these factors include: (i) the level of demand for our brands and products
in
a particular distribution area; (ii) our ability to price our products at
levels
competitive with those offered by competing products and (iii) our ability
to
deliver products in the quantity and at the time ordered by
distributors.
There
can
be no assurance that we will be able to meet all or any of these factors
in any
of our current or prospective geographic areas of distribution. Further,
shortage of adequate working capital may make it impossible for us to do
so. Our
inability to achieve any of these factors in a geographic distribution area
will
have a material adverse effect on our relationships with our distributors
in
that particular geographic area, thus limiting our ability to maintain and
expand our market, which will likely adversely effect our revenues and financial
results.
WE
GENERALLY DO NOT HAVE LONG-TERM AGREEMENTS WITH OUR DISTRIBUTORS, AND WE
EXPEND
SIGNIFICANT TIME AND MAY NEED TO INCUR SIGNIFICANT EXPENSE IN ATTRACTING
AND
MAINTAINING KEY DISTRIBUTORS.
Our
marketing and sales strategy presently, and in the future, will rely on the
performance of our independent distributors and our ability to attract
additional distributors. We have entered into written agreements with certain
of
our distributors for varying terms and duration; however, most of our
distribution relationships are informal (based solely on purchase orders)
and
are terminable by either party at will. We currently do not have, nor do
we
anticipate in the future that we will be able to establish, long-term
contractual commitments from many of our distributors. In addition, despite
the
terms of the written agreements with certain of our significant distributors,
we
have no assurance as to the level of performance under those agreements,
or that
those agreements will not be terminated. There is also no assurance that
we will
be able to maintain our current distribution relationships or establish and
maintain successful relationships with distributors in new geographic
distribution areas. Moreover, there is the additional possibility that we
will
have to incur significant expenses to attract and maintain key distributors
in
one or more of our geographic distribution areas in order to profitably exploit
our geographic markets. We may not have sufficient working capital to allow
us
to do so.
BECAUSE
OUR DISTRIBUTORS ARE NOT REQUIRED TO PLACE MINIMUM ORDERS WITH US, WE NEED
TO
CAREFULLY MANAGE OUR INVENTORY LEVELS, AND IT IS DIFFICULT TO PREDICT THE
TIMING
AND AMOUNT OF OUR SALES.
Our
independent distributors are not required to place minimum monthly, quarterly
or
annual orders for our products. In order to reduce their inventory costs,
our
independent distributors maintain low levels of inventory which, depending
on
the product and the distributor, range from 15 to 45 days of typical sales
volume in the distribution area. We believe that our independent distributors
endeavor to order products from us in such quantities, at such times, as
will
allow them to satisfy the demand for our products in the distribution area.
Accordingly, there is no assurance as to the timing or quantity of purchases
by
any of our independent distributors or that any of our distributors will
continue to purchase products from us in the same frequencies and volumes
as
they may have done in the past. Our goal is to maintain inventory levels
for
each of our products sufficient to satisfy anticipated purchase orders for
our
products from our distributors, which is difficult to estimate. This places
burdens on our working capital which has been limited since we began operations.
As a result, we have not consistently been able to maintain sufficient inventory
levels and may not be able to do so in the future.
As
is
customary in the contract packing industry for small companies, we are expected
to arrange for the production of our products sufficiently in advance of
anticipated requirements. To the extent demand for our products exceeds
available inventory and the capacities available under our contract packing
arrangements, or orders are not submitted on a timely basis, we will be unable
to fulfill distributor orders on a timely basis. Conversely, we may produce
more
products than warranted by actual demand, resulting in higher storage costs
and
the potential risk of inventory spoilage. Our failure to accurately predict
and
manage our contract packaging requirements may impair relationships with
our
independent distributors, which, in turn, would likely have a material adverse
effect on our ability to maintain relationships with those
distributors.
THE
BANKRUPTCY, CESSATION OF OPERATIONS, OR DECLINE IN BUSINESS OF A SIGNIFICANT
DISTRIBUTOR COULD ADVERSELY AFFECT OUR REVENUES, AND COULD RESULT IN INCREASED
COSTS IN OBTAINING A REPLACEMENT.
If
any of
our primary distributors were to stop selling our products or decrease the
number of cases purchased, our revenues and financial results could be adversely
affected. There can be no assurance that, in the future, we will be successful
in finding new or replacement distributors if any of our existing significant
distributors discontinue our brands, cease operations, file for bankruptcy
or
terminate their relationship with us.
WE
HAVE
NOT SATISFIED CERTAIN OF OUR COMMITMENTS UNDER DISTRIBUTION AGREEMENTS, WHICH
ENTITLE US TO DISTRIBUTE CERTAIN OF OUR PRODUCTS. IF ANY OF THESE AGREEMENTS
WERE CANCELLED IT WOULD HAVE A MATERIAL ADVERSE EFFECT ON OUR
BUSINESS.
Our
rights to distribute certain of our products are generally governed by
distribution agreements which contain minimum sales targets and other
requirements some of which we have not satisfied to date. Therefore virtually
all of our distribution contracts can be cancelled. We rely on our relationships
with the parties who have granted us distribution rights rather than contractual
protection. Cancellation of one or more of our distribution contracts would
have
a material adverse effect on our business.
WE
NEED
TO EFFECTIVELY MANAGE OUR GROWTH AND THE EXECUTION OF OUR BUSINESS PLAN.
ANY
FAILURE TO DO SO WOULD NEGATIVELY IMPACT OUR RESULTS.
To
manage
operations effectively, we must improve our operational, financial and other
management processes and systems. We have a small staff and our success also
depends on our ability to maintain high levels of employee efficiency, to
manage
our costs in general and administrative expense in particular, and otherwise
to
efficiently execute our business plan. We need to cost-efficiently add new
brands and products, develop and expand our distribution channels, and
efficiently implement our business strategies. There are no assurances that
we
will be able to effectively and efficiently manage our growth. Any inability
to
do so, could increase our expenses and negatively impact the results of our
operations.
THE
LOSS
OF KEY PERSONNEL WOULD DIRECTLY AFFECT OUR EFFICIENCY AND ECONOMIC
RESULTS.
We
are
dependent upon the creative skills and leadership of our founder, J. Patrick
Kenny, who serves as our President and Chief Executive Officer and upon the
management, financial and operational skills of Jason Lazo, our Chief Operating
Officer. We currently maintain key person life insurance on Mr. Kenny in
the
amount of $2,000,000. The loss of the services of either Mr. Kenny, or Mr.
Lazo
could have a material adverse affect on our business and operations, including
our ability to develop and execute a long-term, profitable business plan.
Due to
inadequate working capital, we have often not paid agreed upon compensation
to
our employees and independent contractors. Due to increase in our working
capital from the offering of our preferred stock we closed in December, 2007,
we
expect to timely pay our employees and independent contractors in the future.
However, if we fail to do so, there can be no assurance they will continue
to
render services to us.
Our
management team consists of several key distribution, sales and financial
personnel who have been recruited within the past several years. Many of
these
individuals provide services to us as independent contractors. In order to
manage and operate our business successfully in the future, it will be necessary
to further strengthen our management team. The hiring of any additional
executives will increase our compensation expense. We may not have sufficient
working capital to be able to do so.
OUR
STRATEGY REQUIRES US TO DEVELOP AND MAINTAIN RELATIONSHIPS WITH OTHER
FIRMS.
Our
strategy depends on various relationships with other firms for product
development, research facilities, distilling facilities, bottling, distribution
and low-cost marketing. Because of these relationships, we do not expect
to
invest heavily in fixed assets or factories. Of particular importance to
us is
our relationship with independent producers who manufacture our products,
typically, pursuant to our specifications. We do not have our own production
capacity and rely on independent contractors to produce our products. We
will
need to maintain and develop relationships with additional manufactures as
we
add products to our product mix. It is vital to our success that our producers
deliver high quality products to us with favorable pricing terms. There can
be
no assurance, however, that we will be able to develop and maintain
relationships which provide us the services and facilities we require. If
we
fail to develop and maintain such relationships, we may be forced to change
our
strategy, which could have a material adverse effect on the results of our
operations. Further, if our relationship with a producer of any of our products
is terminated, it is likely our business will be disrupted until a replacement
producer is identified and production commences.
OUR
BUSINESS AND FINANCIAL RESULTS DEPEND ON MAINTAINING A CONSISTENT AND
COST-EFFECTIVE SUPPLY OF RAW MATERIALS.
Raw
materials for our products include concentrate, glass, labels, flavoring,
caps
and packaging materials. Currently, we purchase our flavor concentrate from
two
flavor concentrate suppliers. We believe that we have adequate sources of
raw
materials, which are available from multiple suppliers, and that in general
we
maintain good supplier relationships. The price of our concentrates is
determined through negotiation with our flavor houses, and may be subject
to
change. Prices for the remaining raw materials are generally determined by
the
market, and may change at any time. Increases in prices for any of these
raw
materials could have a material adverse impact on our ability to achieve
profitability. If we are unable to continue to find adequate suppliers for
our
raw materials on economic terms acceptable to us, it will adversely affect
our
results of operations.
WE
MAY
NOT BE ABLE TO ACQUIRE AND SUCCESSFULLY INTEGRATE ADDITIONAL PRODUCTS IN
THE
FUTURE.
We
have
grown our business primarily through acquisitions of brands and, if we have
the
working capital necessary to do so, we expect to acquire additional brands
in
the future. There can be no assurance that we will be able to acquire additional
products or assimilate all of the products we do acquire into our business
or
product mix. Acquisitions can be accompanied by risks such as potential exposure
to unknown liabilities relating to the acquired product or business. We have
entered into, and may continue to enter into, joint ventures, which may also
carry risks of liability to third parties.
OUR
INABILITY TO PROTECT OUR TRADEMARKS, PATENT AND TRADE SECRETS MAY PREVENT
US
FROM SUCCESSFULLY MARKETING OUR PRODUCTS AND COMPETING EFFECTIVELY.
Failure
to protect our intellectual property could harm our brand and our reputation,
and adversely affect our ability to compete effectively. Further, enforcing
or
defending our intellectual property rights, including our trademarks, patents,
copyrights and trade secrets, could result in the expenditure of significant
financial and managerial resources. We regard our intellectual property,
particularly our trademarks and trade
secrets
to be of considerable value and importance to our business and our success.
We
rely on a combination of trademark, patent, and trade
secrecy
laws, and contractual provisions to protect our intellectual property rights.
There can be no assurance that the steps taken by us to protect these
proprietary rights will be adequate or that third parties will not infringe
or
misappropriate our trademarks, trade secrets (including our flavor concentrate
trade secrets) or similar proprietary rights. In addition, there can be no
assurance that other parties will not assert infringement claims against
us, and
we may have to pursue litigation against other parties to assert our rights.
Any
such claim or litigation could be costly and we may lack the resources required
to defend against such claims. In addition, any event that would jeopardize
our
proprietary rights or any claims of infringement by third parties could have
a
material adverse affect on our ability to market or sell our brands, and
profitably exploit our products.
WE
HAVE
LIMITED WORKING CAPITAL AND WILL NEED ADDITIONAL FINANCING IN THE
FUTURE.
Our
working capital needs in the future will depend upon factors such as market
acceptance of our existing products and of any new products we launch, the
success of our independent distributors and our production, marketing and
sales
costs. None of these factors can be predicted with certainty.
We
have
sustained substantial operating losses since our organization. We will need
additional debt or equity financing in the future to fully implement our
business plan. We may not be able to obtain any additional financing on
acceptable terms or at all. As a result, we may not have adequate working
capital to implement future expansions, maintain sufficient levels of inventory,
maintain our current levels of operation or to pursue strategic acquisitions.
Our failure to obtain sufficient financing would likely result in the delay
or
abandonment of some or all of our development plans, any one of which would
likely harm our business and the value of our common stock.
CERTAIN
OF OUR PRODUCTS ARE CLOSELY IDENTIFIED WITH CELEBRITIES AND OUR BRAND
RECOGNITION IS SIGNIFICANTLY AFFECTED BY THEIR SUCCESS IN THEIR
PROFESSION.
Certain
of our products, including products for which we have acquired distribution
rights, adopt the name of a single personality or celebrity, or is associated
with a single personality or celebrity, such as Willie Nelson, Paul Newman,
and
Donald Trump. Therefore, any reduction of notoriety or any damage to the
reputation of any such personality will correspondingly damage the associated
product and could have a material adverse effect on the results of our
operations.
CERTAIN
FACTORS RELATING TO OUR INDUSTRY
WE
COMPETE IN AN INDUSTRY THAT IS BRAND-CONSCIOUS, SO BRAND NAME RECOGNITION
AND
ACCEPTANCE OF OUR PRODUCTS ARE CRITICAL TO OUR SUCCESS.
Our
business is substantially dependent upon awareness and market acceptance
of our
products and brands by our targeted consumers. In addition, our business
depends
on acceptance by our independent distributors of our brands as beverage brands
that have the potential to provide incremental sales growth rather than reduce
distributors' existing beverage sales. Although we believe that we have made
progress towards establishing market recognition for certain of our brands
in
both the alcoholic and non alcoholic beverage industry, it is too early in
the
product life cycle of these brands to determine whether our products and
brands
will achieve and maintain satisfactory levels of acceptance by independent
distributors and retail consumers.
COMPETITION
FROM TRADITIONAL ALCOHOLIC AND NON-ALCOHOLIC BEVERAGE MANUFACTURERS MAY
ADVERSELY AFFECT OUR DISTRIBUTION RELATIONSHIPS AND MAY HINDER DEVELOPMENT
OF
OUR EXISTING MARKETS, AS WELL AS PREVENT US FROM EXPANDING OUR
MARKETS.
The
beverage industry is highly competitive. We compete with other beverage
companies, most of which have significantly more sales and significantly
more
resources, which gives them significant advantages in gaining consumer
acceptance for their products, access to shelf space in retail outlets and
marketing focus by our distributors, all of whom also distribute other beverage
brands. Our products compete with all beverages, most of which are marketed
by
companies with greater financial resources than what we have. Some of these
competitors are or will likely in the future, place severe pressure on our
independent distributors not to carry competitive alternative brands such
as
ours. We also compete with regional beverage producers and "private label"
suppliers. Some of our alcoholic competitors are Diageo, Pernod Ricard, Castle
Brands, Brown-Furman and Bacardi & Company, Ltd. Some of our direct
competitors in the alternative beverage industry include Cadbury Schweppes
(Snapple, Stewart, Nantucket Nectar, Mystic), Thomas Kemper, Boylans and
Hansens. Competitor consolidations, market place competition, particularly
among
branded beverage products, and competitive product and pricing pressures
could
impact our earnings, market share and volume growth. If, due to such pressure
or
other competitive phenomena, we are unable to sufficiently maintain or develop
our distribution channels, or develop alternative distribution channels,
we may
be unable to achieve our financial targets. As a means of maintaining and
expanding our distribution network, we intend to expand the market for our
products, and introduce additional brands. However, we will require financing
to
do so. There can be no assurance that we will be able to secure additional
financing or that other companies will not be more successful in this regard
over the long term. Competition, particularly from companies with greater
financial and
marketing
resources than those available to us, could have a material adverse effect
on
our existing markets, as well as our ability to expand the market for our
products.
WE
COMPETE IN AN INDUSTRY CHARACTERIZED BY RAPID CHANGES IN CONSUMER PREFERENCES,
SO OUR ABILITY TO CONTINUE DEVELOPING NEW PRODUCTS TO SATISFY OUR CONSUMERS'
CHANGING PREFERENCES WILL DETERMINE OUR LONG-TERM SUCCESS.
Our
current market distribution and penetration is limited as compared with the
potential market and so our initial views as to customer acceptance of a
particular brand can be erroneous, and there can be no assurance that true
market acceptance will ultimately be achieved. In addition, customer preferences
are also affected by factors other than taste, such as the recent media focus
on
obesity in youth. If we do not adjust to respond to these and other changes
in
customer preferences, our sales may be adversely affected.
A
DECLINE
IN THE CONSUMPTION OF ALCOHOL COULD ADVERSELY AFFECT OUR BUSINESS.
There
have been periods in American history during which alcohol consumption declined
substantially. A decline in alcohol consumption could occur in the future
due to
a variety of factors including: (i) a general decline in economic conditions,
(ii) increased concern about health consequences and concerns about drinking
and
driving, (iii) a trend toward other beverages such as juices and water, (iv)
increased activity of anti-alcohol consumer groups, and (v) increases in
federal, state or foreign excise taxes. A decline in the consumption of alcohol
would likely negatively affect our business.
WE
COULD
BE EXPOSED TO PRODUCT LIABILITY CLAIMS FOR PERSONAL INJURY OR POSSIBLY
DEATH.
Although
we have product liability insurance in amounts we believe are adequate, we
cannot assure you that the coverage will be sufficient to cover any or all
product liability claims. To the extent our product liability coverage is
insufficient; a product liability claim would likely have a material adverse
affect upon our financial condition. In addition, any product liability claim
successfully brought against us may materially damage the reputation of our
products; thus adversely affecting our ability to continue to market and
sell
that or other products.
OUR
BUSINESS IS SUBJECT TO MANY REGULATIONS AND NONCOMPLIANCE IS
COSTLY.
The
production, marketing and sale of our alcoholic and non alcoholic beverages,
including contents, labels, caps and containers, are subject to the rules
and
regulations of various federal, state and local health agencies. If a regulatory
authority finds that a current or future product or production run is not
in
compliance with any of these regulations, we may be fined, or production
may be
stopped, thus adversely affecting our financial conditions and operations.
Similarly, any adverse publicity associated with any noncompliance may damage
our reputation and our ability to successfully market our products. Furthermore,
rules and regulations are subject to change from time to time and while we
monitor developments in this area, the fact that we have limited staff makes
it
difficult for us to keep up to date and we have no way of anticipating whether
changes in these rules and regulations will impact our business adversely.
Additional or revised regulatory requirements, whether regarding labeling,
the
environment, taxes or otherwise, could have a material adverse effect on
our
financial condition and results of operations.
THE
CURRENT INTERNATIONAL CONFLICTS, AND TERRORISM EVENTS ALL OR INDIVIDUALLY
MAY
HAVE AN ADVERSE IMPACT ON OUR SALES AND EARNINGS, AND OUR SHIPPING COSTS
HAVE
INCREASED.
We
cannot
predict the impact of the current economic climate in the United States,
or the
current international situation, on current and future consumer demand for
and
sales of our products. In addition, recent volatility in the global oil markets
has resulted in rising fuel and freight prices, which many shipping companies
are passing on to their customers. Our shipping costs have increased, and
these
costs may continue to increase. Due to the price sensitivity of our products,
we
do not anticipate that we will be able to pass these increased costs on to
our
customers.
CERTAIN
FACTORS RELATED TO OUR COMMON STOCK
BECAUSE
OUR COMMON STOCK IS CONSIDERED A "PENNY STOCK," A SHAREHOLDER MAY HAVE
DIFFICULTY SELLING SHARES IN THE SECONDARY TRADING MARKET.
Our
common stock is subject to certain rules and regulations relating to "penny
stock" (generally defined as any equity security that has a price less than
$5.00 per share, subject to certain exemptions). Broker-dealers who sell
penny
stocks are subject to certain "sales practice requirements" for sales in
certain
nonexempt transactions (i.e., sales to persons other than established customers
and institutional "accredited investors"), including requiring delivery of
a
risk disclosure document relating to the penny stock market and monthly
statements disclosing recent price information for the penny stocks held
in the
account, and certain other restrictions. For as long as our common stock
is
subject to
the
rules
on penny stocks, the market liquidity for such securities could be significantly
limited. This lack of liquidity may also make it more difficult for us to
raise
capital in the future through sales of equity in the public or private
markets.
THE
PRICE
OF OUR COMMON STOCK MAY BE VOLATILE, AND A SHAREHOLDER'S INVESTMENT IN OUR
COMMON STOCK COULD SUFFER A DECLINE IN VALUE.
There
could be significant volatility in the volume and market price of our common
stock, and this volatility may continue in the future. Our common stock is
listed on the over-the-counter Bulletin Board and there is a greater chance
for
market volatility for securities that trade on the OTC Bulletin Board as
opposed
to a national exchange or quotation system. This volatility may be caused
by a
variety of factors, including the lack of readily available quotations, the
absence of consistent administrative supervision of "bid" and "ask" quotations
and generally lower trading volume. In addition, factors such as quarterly
variations in our operating results, changes in financial estimates by
securities analysts or our failure to meet our or their projected financial
and
operating results, litigation involving us, general trends relating to the
beverage industry, actions by governmental agencies, national economic and
stock
market considerations as well as other events and circumstances beyond our
control could have a significant impact on the future market price of our
common
stock and the relative volatility of such market price.
A
LARGE
NUMBER OF SHARES OF COMMON STOCK WILL BE ELIGIBLE FOR FUTURE SALE AND MAY
DEPRESS OUR STOCK PRICE.
Our
shares that are eligible for future sale may have an adverse effect on
the price
of our stock. As of March 7, 2008, there were 80,842,769 shares of our
common
stock outstanding. Also, we have issued approximately over 31,000,000 shares
of
our common stock since March 2005. Furthermore, in connection with our
December
Private Placement, we issued 5,000,000 shares of common stock, 11,000 shares
of
our Series A Preferred Stock, which is convertible into 22,000,000 shares
of our
common stock and warrants to acquire 600,000 shares of our common stock.
A
significant percent of these shares either are or soon will be eligible
to be
traded. Our average daily trading volume for the previous three months
ended
December 31, 2007 was approximately 137,000 shares of our common stock.
Sales of
substantial amounts of common stock, or a perception that such sales could
occur, and the existence of options or warrants to purchase shares of common
stock at prices that may be below the then current market price of the
common
stock, could adversely affect the market price of our common stock and
could
impair our ability to raise capital through the sale of our equity
securities.
YOUR
OWNERSHIP INTEREST, VOTING POWER AND THE MARKET PRICE OF OUR COMMON STOCK
MAY
DECREASE BECAUSE WE HAVE ISSUED, AND MAY CONTINUE TO ISSUE, A SUBSTANTIAL
NUMBER
OF SECURITIES CONVERTIBLE OR EXERCISABLE INTO OUR COMMON STOCK.
We
have
issued common stock and, warrants, and convertible notes to purchase our
common
stock to satisfy our obligations and fund our operations. In the future we
may
issue additional shares of common stock, options, warrants, preferred stock
or
other securities exercisable for or convertible into our common stock to
raise
money for our continued operations. We continue to seek additional investors.
If
additional sales of equity occur, your ownership interest and voting power
in us
will be diluted and the market price of our common stock may decrease.
USE
OF PROCEEDS
We
will
not receive any of the proceeds from the selling stockholder's sale of the
shares offered under this prospectus.
DETERMINATION
OF OFFERING PRICE
We
are
not selling any of the common stock that we are registering. The common
stock
will be sold by the selling security holders listed in this prospectus.
The
selling security holders may therefore sell the common stock at the market
price
as of the date of sale or a price negotiated in a private sale. Our common
stock
is traded on the over-the-counter Bulletin Board under the symbol "DKAM".
On
March 7, 2008 the reported closing price for our common stock on the
over-the-counter Bulletin Board was $0.37.
We
have
agreed to pay certain expenses in connection with the registration of the
securities offered by the selling security holders for resale pursuant to
this
prospectus.
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
Our
disclosure and analysis in this prospectus contain some forward-looking
statements. Certain of the matters discussed concerning our operations, cash
flows, financial position, economic performance and financial condition,
including, in particular, future sales, product demand, competition and the
effect of economic conditions include forward-looking statements within the
meaning of section 27A of the Securities Act of 1933, referred to herein
as the
Securities Act, and Section 21E of the Securities Exchange Act of 1934, referred
to herein as the Exchange Act.
Statements
that are predictive in nature, that depend upon or refer to future events
or
conditions or that include words such as "expects," "anticipates," "intends,"
"plans," "believes," "estimates" and similar expressions are forward-looking
statements. Although we believe that these statements are based upon reasonable
assumptions, including projections of orders, sales, operating margins,
earnings, cash flow, research and development costs, working capital, capital
expenditures, distribution channels, profitability, new products, adequacy
of
funds from operations and other projections, and statements expressing general
optimism about future operating results, and non-historical information,
they
are subject to several risks and uncertainties, and therefore, we can give
no
assurance that these statements will be achieved.
Readers
are cautioned that our forward-looking statements are not guarantees of future
performance and the actual results or developments may differ materially
from
the expectations expressed in the forward-looking statements.
As
for
the forward-looking statements that relate to future financial results and
other
projections, actual results will be different due to the inherent uncertainty
of
estimates, forecasts and projections and may be better or worse than projected.
Given these uncertainties, you should not place any reliance on these
forward-looking statements. These forward-looking statements also represent
our
estimates and assumptions only as of the date that they were made. We expressly
disclaim a duty to provide updates to these forward-looking statements, and
the
estimates and assumptions associated with them, after the date of this
prospectus to reflect events or changes in circumstances or changes in
expectations or the occurrence of anticipated events.
We
undertake no obligation to publicly update any forward-looking statement,
whether as a result of new information, future events or otherwise. You are
advised, however, to consult any additional disclosures we make in our Forms
10-KSB, Forms 10-QSB and Forms 8-K reports to the SEC. Also note that we
provide
a cautionary discussion of risk and uncertainties under the caption "Risk
Factors" in this prospectus. These are factors that we think could cause
our
actual results to differ materially from expected results. Other factors
besides
those listed here could also adversely affect us. This discussion is provided
as
permitted by the Private Securities Litigation Reform Act of 1995.
BUSINESS
HISTORY
OF COMPANY:
As
of
March 9, 2005, the shareholders of Drinks America, Inc. ("DA"), acquired
control
of Gourmet Group, which had become a Delaware corporation and changed its
name
to Drinks Americas Holdings, Ltd. Prior to entering into this share exchange,
as
Gourmet Group, Inc. ("Gourmet Group"), we were a company pursuing the
acquisition of various operating businesses since our sale of Jardine Foods,
Inc., our previous operating entity, in May 2002. As described below, as
of
March 9, 2005, DA's shareholders acquired approximately 87% of Gourmet Group's
common stock in exchange for all of DA's outstanding common shares and DA’s
business.
As
of
March 9, 2005, we, as Gourmet Group, issued an aggregate of approximately
42,963,792 shares of our common stock (or approximately 87.28% of the
outstanding common stock on a fully-diluted basis) to DA's shareholders,
an
additional 1,800,000 total shares of our common stock (or approximately 3.66%)
to two advisors to DA and a total of 400,000 shares of our common stock (or
approximately .8%) to the four members of Maxmillian Mixers, LLC, a Delaware
limited liability company affiliated with DA ("Mixers"). Immediately prior
to
issuing such shares, the Company (which had previously been a Nevada
corporation), by way of merger into a newly formed Delaware corporation,
became
a Delaware corporation, changed its name to Drinks Americas Holdings, Ltd.,
effectively reverse split its outstanding shares one-for-ten, and authorized
up
to 1,000,000 shares of "blank check" preferred stock in its new certificate
of
incorporation. In return for such issuances of shares, we, as Gourmet Group,
received all of the outstanding shares of capital stock of DA and all of
the
membership interests in Mixers. Thus, DA and Mixers became our wholly-owned
subsidiaries and the business of those subsidiaries constitutes substantially
all of our operations at that time. Prior to the share exchange transaction
described above, Maxmillian Partners, LLC ("Partners") owned approximately
99%
of the outstanding capital stock of DA and immediately after the share exchange
became our majority shareholder. Subsequently, Partners distributed its shares
pro rata to its 21 members as part of a plan of liquidation. For financial
accounting purposes, this share exchange has been recognized as a reverse
merger, and accordingly we changed our fiscal year end from June 30 to DA's
year
end of April 30th, and all of our historical financial statements prior to
the
share exchange are those of DA.
OVERVIEW
Based
in
Wilton, Connecticut, we were founded in 2002 by an experienced team of beverage,
entertainment, retail and consumer product industry professionals, led by
J.
Patrick Kenny, a former executive at Joseph E. Seagram & Sons. We specialize
in the marketing and distribution of premium alcoholic and nonalcoholic
beverages with icon entertainers and celebrities.
We
develop, produce (primarily through contracts with independent contractors
called co-packers), market and/or distribute alcoholic and non-alcoholic
beverages for sale primarily in the continental United States and have recently
expanded our distribution network to certain international and duty free
markets. While in certain cases we own the trademarks or have developed the
formula for a product that we distribute, in other cases we only have the
right
to distribute the products and have been granted licenses of the trademark
to
allow us to do so.
We
own
certain of our products jointly with celebrities, or their affiliates. We
refer
to all of the products we distribute as "our products" throughout this
prospectus.
Over
the
past 12 months we have acquired and developed additional brands and distributed
existing products, and reallocated marketing support for certain of these
brands. Our production capacity is primarily through third party independent
contract packers known as "co-packers". The expansion of our business has
been
negatively affected by insufficient working capital. As a result, we have
regularly made judgments as to inventory levels in general and whether to
maintain inventory for any particular product based on available working
capital, rather than maintaining the optimum levels required to grow our
business. We have tried to focus on the most efficient growth opportunities.
Although our working capital position has improved as a result of our December
2007 Private Placement of our preferred stock , we will continue to carefully
manage our working capital and focus on brand and business opportunities
that we
believe offer the most strategic sense and most efficient return on investment.
We expect that business decisions will continue to be influenced by the
availability of working capital.
Our
strategy is to take advantage of icon celebrity brands and the strategic
relationships our management team has developed throughout their careers.
We
distribute our products through established distributors, virtually all of
which
are well known to our management team from prior business dealings with them
in
the beverage industry. We have expanded the number of distributors we do
business with in certain markets where we believe it is appropriate. Our
distributors buy our products from us for resale. Our products are produced
by
independent co-packers, typically, pursuant to our specifications. Our
management's relationships with manufacturers, distillers, development/research
companies, bottling concerns and certain customers provide the foundation
through which we expect to grow our business in the future.
We
have
assembled, and will attempt to continue to assemble, our premium brands,
on a
"low cost" basis. We believe acquisition of mid-sized brands and single
trademark companies can be accomplished at extremely efficient "price multiples"
in relation to their existing volume. We are willing to develop these brands
with their original owners on a cooperative economic basis and share with
them
marketing, production, distribution contacts and other relationships and
the
sophistication of our management team. We believe that the "skill-set" of
our
management team is a primary asset in the development of our acquired brands
and
trademarks. We have acquired products or trademarks from, or entered into
ventures with, partners such as Trump Marks LLC, Willie Nelson, Bo Dietl,
Wynn
Starr Flavors, Inc., Old Whiskey River, LLC, DAS Communications, Interscope
Geffen A&M, Rheingold Beer, Interamericana de Licores S.A. of Panama,
Newman's Own, Inc., Paul Newman's Beverages, Marvin Traub Associates, Cohete
Rum
S.A. and Damiana S.A.
Several
of the brands that we have acquired have the strategic advantage of association
with "icon" entertainers which provide us efficient promotion and marketing
opportunities. We believe the public relations impact of our association
with
these icons and the resulting media opportunities cuts across electronic
and
print media formats and delivers an exponential impact in building brand
awareness and consumer excitement. Moreover, our focus is primarily on premium
high margin, unique premium priced goods.
We
believe that our organizational approach will also minimize the need to invest
heavily in fixed assets or factories and will allow us to operate with modest
overhead because of the historic relationship between members of our management
team and co-packers, distilling and bottling and production firms and other
industry participants.
We
also
rely on distributors who handle direct store delivery sales, which also allows
us to control our overhead. We have formed an independent network of contract
sales and regional managers, a promotional support team and several market
segment specialists who are paid on a variable basis.
We
currently market and distribute, and in most cases also produce (through
co-packers), 8 unique beverage brands.
Our
major
alcoholic beverages are:
Trump
Super Premium Vodka, produced in Holland, a product developed by master
distiller Jacq DeLac which was recently awarded a Four Star Highly Recommended
Rating from Paul Paucult in a respected spirits journal; Old Whiskey River
Bourbon (R), an award winning small batch 6 year old bourbon (sometimes referred
to in this Prospectus as "Old Whiskey River "); Cohete Rum, an award winning
smooth sipping rum in the Cuban style, infused with Guarana (sometimes referred
to in this prospectus as "Cohete"); Aguila Tequila, a 100% tequiliana weber
blue
agave reposado tequila (sometimes referred to in this Prospectus as "Aguila");
Damiana, a Mexican liqueur made from the Damiana root and at times given
in
Mexican culture as a wedding gift because of its perceived aphrodisiac
characteristics; premium select-label wines from selected vineyards principally
in France and Italy, and Casa Bo Margo wines from selected vineyards in
Italy.
Our
major
non-alcoholic beverages are:
Newman's
Own lightly sparkling fruit juice drinks, all natural juice drink products
(sometimes referred to in this prospectus as "Newman's Own"). Newman's Own,
initially consisted of six fruit sodas and has been expanded to add one
additional flavor and three fruit flavored, lightly sparkling
waters.
Our
Company is a Delaware corporation, our principal place of business is located
at
372 Danbury Road, Suite 163, Wilton, Connecticut 06897 and our telephone
number
is (203) 762-7000.
STRATEGY
Our
long-term business strategy is to expand the sales and distribution of our
celebrity and icon alcoholic and non-alcoholic beverage portfolio and to
add
branded beverage products into the largest and most profitable beverage
categories. Our business model takes into account the limited working capital
available for expansion of our business by leveraging the impact celebrities
have in generating public relations and consumer awareness for our brands
across
all media platforms at comparatively low cost and investment. We often refer
to
entertainers and celebrities as “icons” in this report.
Key
elements of our business strategy include: creating consumer awareness and
demand for our brands utilizing our icon brand strategy and the demonstrated
ability of celebrities to generate public relations and promotional brand
marketing activity at low cost; promoting our relationships with Donald Trump,
Willie Nelson and Paul Newman as well as additional entertainers introduced
to
us through the relationship we recently developed with Interscope Geffen
A&M, of Universal Music Group; capitalizing on our distribution
relationships with Kendall Jackson Wine Company and Pheonix Beehive, which
distributes Heinken beer in metro New York and targeting
acquisitions.
Since
we
were founded in 2002, the implementation of our business plan has been
negatively effected by the limited amount of working capital available
to us.
Our working capital position has improved as a result of our December Private
Placement of our preferred stock. We will continue to carefully manage
our
working capital and focus on our celebrity and icon brand strategy relying
on
public relations and strategically leveraging our marketing and production
partners’ resources and notoriety in order to implement our growth strategy
while also focusing on our current brand portfolio.
ALCOHOLIC
BEVERAGE DISTRIBUTION
We
have a
network of approximately 50 alcohol beverage distributors covering substantially
all of the states within the United States. Our distributors buy our products
from us for resale. We believe our most important distribution relationships
include Kendall Jackson Wine Company and its subsidiary Regal Wine Distributing,
which distribute our products in 11 states, and Pheonix Beehive the metro
New
York Heiniken Beer distributor. We believe our products are given greater
priority by these distributors than they would be given by larger spirits
and
wine distributors which sell a substantially larger number of premium spirits.
Phoenix Beverages and Regal Wine Co., alcohol distributors, including
affiliates, accounted for approximately 19% and 16.6%, respectively, of our
sales in fiscal 2007. For the eight months ended December 31, 2007, Phoenix
Beverages, Regal Wine Co., and Republic Beverage Co., including affiliates,
accounted for approximately 12.6%, 10.7% and 10.2% of our sales,
respectively.
NON-ALCOHOL
BEVERAGE DISTRIBUTION
We
have a
network of approximately 20 non-alcoholic beverage distributors focused
primarily in the east and west coasts of the United States. We have recently
formed a joint venture with Tuscan Buyer Dairy for the delivery of our
non-alcoholic products focusing on the food service sector in the Metro New
York
area. This gives us access to an additional distribution network in the Metro
New York Market. We have also entered into an distribution relationship for
the
retail sector with SKI, a beverage and beer wholesaler in Metro New York,
to
assist us in expanding our non alcoholic and beer distribution access. On
a
national basis, we are expanding our distribution of Newman's Own, adding
distributors in California, Texas and Illinois, as well as other key markets,
to
our existing distribution areas of New York, Connecticut and New Jersey and
Pennsylvania.
We
have
organized a network of independent contractors who are industry veterans
and
have assigned national coverage of our distribution network to this team.
Compensation to these individuals is on a variable success basis. We believe
that we benefit from the sales and marketing relationships that this team
brings
to the organization. We have also utilized a group of per diem merchandisers
to
focus on the Metro New York market in the higher selling summer
season.
WINE
AND SPIRITS INDUSTRY OVERVIEW
The
United States beverage alcohol market consists of three distinct
segments:
beer,
wine and distilled spirits. Distilled spirits consist of three primary
categories: white goods, whiskey and specialties. White goods, consisting
of
vodka, rum, gin and tequila, represents the largest category, accounting
for
approximately 51.7% of industry sales in 2005. Vodka is the largest product
within the distilled spirits industry, accounting for 27.1% of distilled
spirits
sales in the United States in 2005. Distilled spirits sales in the United
States
increased 2.8% in 2005, marking the 8th consecutive year sales have increased
in
the United States market. Significant consolidation in the global spirits
industry has produced five primary large competitors: Diageo, Allied Domecq,
Pernod Ricard, Brown-Forman and Bacardi & Company, Ltd.
Historically,
growth in the United States spirits industry has been driven by favorable
demographic trends as the number of new young adults of legal drinking age
(21
to 24) increased. Current projections indicate an 11% increase in drinking
age
adults from 2005 to 2010.
Vodka
The
vodka
category is both the largest and fastest growing category of spirits in the
United States with sales of 46 million cases. Sales in the premium and super
premium vodka category was 41.1 million cases in 2005 and has grown at a
rate of
26.7% over the last five years. It is expected that this category, will continue
to grow at this current rate. Grey Goose, the largest selling product in
this
category, currently sells 2.1 million cases per year and is growing at the
rate
of 25% annually.
Whiskey
Whiskey
is an aged spirit generally distilled from barley, corn or rye. The whiskey
category consists of four major segments: Scotch, Irish, American and Canadian
and can be further broken down into blended and single malt subcategories.
Whiskey is the second largest spirits category in the United States accounting
for approximately 26.1% of distilled spirits sales in 2005, with 44.5 million
cases sold.
Rum
Rum
is a
distilled spirit made from sugar cane or molasses that can be bottled raw
or
aged in casks. Rum can be broken into several categories: light, dark, flavored
and aged. Sales of rum now accounts for approximately 12.9% of total U.S.
spirits sales. Case sales grew at an annual growth rate of 6% from 2004 to
2005.
Two brands, Bacardi and Captain Morgan, account for approximately 76% of
total
U.S. rum sales, with the balance split among a number of other rum
brands.
THE
NEW AGE OR ALTERNATIVE BEVERAGE INDUSTRY
Our
brands, which are classified as Alcoholic and Non-Alcoholic Ready to drink
beverages, as well as other unique brands and products that we may develop
in
the future, compete with beverage products of all types, including wines,
spirits, liqueurs, soft drinks, beer, and fruit juices.
In
its
annual beverage sale of the industry report for 2006, Beverage World magazine
estimated that 2004 New Age or alternative beverage markets was approximately
$16.5 billion in the United States marking the 7th consecutive year of double
digit growth.
New
Age
or alternative beverages are distinguishable from mainstream carbonated soft
drinks in that they tend to contain less sugar, less carbonation, and natural
ingredients. As a general rule, three criteria have been established for
such a
classification: (1) relatively new introduction to the market-place; (2)
a
perception by consumers that consumption is healthy compared to mainstream
carbonated soft drinks and (3) the use of natural ingredients and flavors
in the
products. According to Beverage Marketing Corporation, for 2003, the New
Age or
alternative beverage category consists of the following segments: premium soda,
ready-to-drink ("RTD") coffee, RTD tea, RTD waters (nutrient-enhanced),
shelf-stable dairy (regular/diet), shelf-stable dairy (nutrient-enhanced),
single-serve-fruit beverages (regular/diet), single-serve-fruit beverages
(nutrient enhanced), smoothies, sparkling water, sports drinks, vegetable/fruit
juice blends and other New Age beverages.
PRODUCTS,
ACQUISTIONS AND ALLIANCES
CELEBRITY
AND ICON BASED BRANDS
We
are
executing a "celebrity and icon" based brand strategy, which we believe will
enhance consumer acceptance, lower ongoing marketing costs and strengthen
our
access to distribution channels. We have entered into four ventures with
icon
entertainers. Our business model leverages consumer identification with these
icons, focusing on high margin premium products. We believe the public relations
impact of our association with these icons and the resulting media opportunities
cuts across electronic and print media formats and delivers an exponential
impact in building brand awareness and consumer excitement.
ALCOHOLIC
BEVERAGE PRODUCTS
The
alcoholic products distributed by the Company are Trump Super Premium Vodka,
Old
Whiskey River Bourbon, Aguila Tequila, Cohete Rum, Damiana, Casa Bo Margo
wines
and a collection of select label, super premium wines. In December 2002,
we
purchased 25% interest in Old Whiskey River Distilling Company, LLC which
owns
or licenses the related trademarks and trade names associated with the Old
Whiskey River products. We hold the exclusive worldwide distribution rights,
through December 31, 2017, subject to an indefinite number of five-year
renewals, for Old Whiskey River Bourbon which is marketed in association
with
Willie Nelson, a renowned country western entertainer. Our distribution
agreement is subject to certain minimum sales requirements. Old Whiskey River
Bourbon has been featured on Food Channel's Emeril Live as well as Celebrity
Food Finds and other television programs. This line of products is available
nationally at the Texas Roadhouse
Restaurant
chain as well as other outlets with specific Willie Nelson promotions. Old
Whiskey River is a featured item at Specs chain of liquor stores in Texas
. We
are developing a marketing plan that will focus on Florida, North and South
Carolina and Texas where Willie Nelsons’ brand image is high and bourbon
consumption is significant.
We
own a
55% interest in the trademark for Aguila Tequila, a premium 100% Blue Agave
Tequila, produced by El Viejito distillery in Mexico, which is marketed with
its
icon label, the North American Eagle. We have the exclusive distribution
rights
for this product throughout the world except for Mexico. We began distributing
this product in November, 2003. We distribute Aquila Tequila on a national
basis
in approximately 40 states. We did not produce Aguila Tequila in 2006 while
we
focused on the development of Trump Super Premium Vodka. However, we have
expanded the selections of Aguila from one sku of Repasado to Silver, Repasado
and Anejo selections with distinctive bottle designs for each price selection.
Samples have been presented to each of our distributors. Distributors in
New
York, Missouri, Texas and Florida have agreed to market these products. We
launched the new brand selections in November, 2007.
We
have
developed and own the trademark and formula for Cohete Rum, a Cuban style
rum
produced in Panama. We launched this product in September, 2004. Cohete Rum
has
been awarded silver medals from the International Beverage Tasting Institute.
We
distribute Cohete Rum in Florida with a specific focus on the hispanic
market.
In
fiscal
year 2005 we entered into a U.S. distribution contract giving us the exclusive
sales and marketing rights to Damiana a Hispanic liquor for the United States
market. We distribute this product on a national basis in approximately 35
states. We are pleased with the market reception to this product. We have
introduced point of sale marketing material aimed at expanding consumer brand
awareness for Damiana.
In
October 2005, we acquired ownership of a long-term license for (188 years)
for
the Rheingold trademark and other assets related to the Rheingold brand.
We
believe Rheingold has a significant brand identity and awareness level within
the Metro New York and east coast markets. We believe this brand has the
potential to be an integral component of our Metro New York distribution
base.
We are developing a new formula for this product with new packaging. We have
delayed the introduction of this project originally contemplated to occur
in the
fall of 2007. At this time, we have no specific launch date and the roll-out
of
this product will depend on our working capital position and the projected
return on the marketing investment required to launch this product. In May,
2006
we licensed the Rheingold trademark for use with various types of
clothing.
Also,
in
association with Bo Dietl, we have commenced the import and sale of selected
wines under the Casa Bo Margo brand in the metro New York and Connecticut
markets. We initiated the distribution of these products in November, 2006,
and
we intend to continue marketing this premium line of Italian wines with support
from Mr. Dietl a prominent radio television personality. This wine is currently
the house wine of several prominent New York City restaurants.
In
fiscal
2005, we formed Drinks Global Imports, LLC ("DGI"), a new subsidiary in which
we
own 90% of the outstanding membership units. This company imports premium
wines
from around the world, and has to date focused on wines from France and Italy.
DGI commenced operations in September, 2005 and we expect its business will
continue to grow in the future. We currently distribute these products in
the
Metro New York market New Jersey, Connecticut and other New England markets,
Kansas and Missouri.
In
November 2005, we signed a license agreement with Trump Mark, LLC to utilize
the
name Trump, until November 15, 2013, in connection with super premium vodka.
The
formula for this product was developed by master distiller Jacq DeLac. Bruni
Glass, Italy, designed a proprietary bottle for Trump Super Premium Vodka
and
Milton Glaser designed a bottle decoration. The product was unveiled at the
2006
Wine and Spirits Wholesalers convention. We launched Trump Super Premium
Vodka
on October 28, 2006 in the metro New York market. We subsequently expanded
distribution to 46 states. The product has been sold through several key
distributors including Phoenix Distribution and in 11 markets through Kendal
Jackson Wine Companies distribution organization and its affiliates. Market
reaction to this product has been excellent. Trump Super Premium Vodka was
recently awarded a Four Star Highly Recommended rating by a nationally prominent
spirits journal. Five Flavors of Trump Super Premium Vodka has been developed
and will be marketed in fiscal 2008.
NON
ALCOHOLIC PRODUCTS
Our
non-alcoholic product offerings are Newman's Own lightly sparkling fruit
juice
drinks. Newman's Own lightly sparkling fruit juice drinks are new products
developed by Paul Newman Foods in association with us. We have entered into
an
agreement to license Newman's Own name for distribution of this product in
specified markets and have no ownership or other rights to the Newman's Own
trademark. That agreement has expired and we have an oral agreement for an
extension and for expansion of distribution into new territories. We successful
test marketed Newman's Own in the New York metropolitan area during 2005.
Our
test marketing was focused on five fruit juices based on a proprietary formulas
developed in conjunction with Paul Newman Foods. As a result of the success
of
the test marketing, we have expanded the product line of Newman's Own drinks
to
include six fruit sodas and three fruit flavored, lightly sparkling waters.
Newman's Own drinks are all natural, are certified Kosher and are made with
real
fruit juice and pure sugar cane.
We
began
distributing Newman's Own in the New York metropolitan area, New Jersey and
Connecticut and have expanded distribution to the California, State of
Washington, Texas, Illinois, Alabama, Alaska, Pennsylvania and Vermont markets.
Key grocery chains in the New York metropolitan area include Key Food, ShopRite,
and Shows and numerous independent chains are selling the product. Newman's
Own
has been successful in the independent and Korean owned retail market segment.
Newman's comes in 16 oz. glass bottles in lemonade, lemon lime, orange mango,
blackberry, natural cherry, and raspberry kiwi flavors as well as three fruit
flavored waters. Based upon on the market's reaction to this product, we
hope to
distribute this product throughout the United States. Expansion of the
territories for distribution of this product is by mutual agreement of the
parties. Given the market reception to these products, we will continue to
dedicate resources to the Newman's Own products and hope to increase the
distribution area for these products in the future.
FLAVORS,
RESEARCH AND DEVELOPMENT RELATIONSHIP
We
have a
requirements contract with Wynn Starr Flavors, Inc. ("Wynn Starr"), a leading
supplier of flavors and similar product components through which, with certain
exceptions, we are required to acquire the flavors we require for our products.
Wynn Starr performs research and development for us with respect to the flavors
we need for new and/or proposed products. Wynn Starr became a DA shareholder
by
investing $250,000 in DA in 2002, and, under its agreement with us, has provided
research and development services for us thereby lessening the expenses we
would
otherwise incur. The relationship has been essential to us, and provides
a
significant research resource at relatively low cost, e.g. developing drinks
for
targeted markets. We expect that certain of our new products will utilize
patents developed and licensed by Wynn Starr. Wynn Starr has also assisted
us in
evaluating the product quality of various brands which we have considered
acquiring and/or distributing. Our incremental product development expenses
to
date have not been material.
CELEBRITY
MARKETING RESOURCES
We
intend
to continue to utilize our access to icon celebrity-based product endorsers,
through the contacts of our management and various advisors, to further promote
the branded identity of certain of the beverages we will develop or
acquire.
We
have
entered into agreements with DAS Communications, Ltd. and Shep Gordon of
Alive
Enterprises. Both David Sonenberg, who controls DAS Communications, Ltd.,
and
Shep Gordon are our shareholders. We have also entered into a joint venture
(50%
each) with Interscope Geffen A&M, of Universal Music Group, to commercialize
and market jointly owned alcoholic and non alcoholic beverage products in
collaboration with artists under contract with Interscope Geffen A&M. We
believe that these persons can provide access to entertainment personalities
and
will help us to develop and access unique marketing and promotional
opportunities in spirits and beverages. Our relationship with Shep Gordon
has
resulted in agreements with country music "icon" Willie Nelson and access
to
various culinary icons and introductions to other promotional resources.
Under
our agreement with Mr. Gordon, which we entered into in December 2002, he
will
also provide us with marketing advisory services through June 2008.
TRADEMARK
DEVELOPMENT RESOURCES
In
March
2002, we entered into a consulting agreement with Marvin Traub, former Chief
Executive Officer of the Bloomingdales' department store chain, and an expert
in
trademark development. Mr. Traub provides ongoing advice and marketing expertise
to us pursuant to us under this agreement. He also serves on our Board of
Directors.
MARKETING,
SALES AND DISTRIBUTION
MARKETING
Our
marketing plan is based upon our strategy of icon branding. We successfully
launched Trump Super Premium Vodka by using the public relations activity
across
numerous media platforms to generate a high level of brand awareness and
consumer interest. This model has also been used for Old Whisky River Bourbon
and Paul Newmans Sparkling Fruit Beverages.
Our
marketing and pricing policies and programs take into consideration competitors'
prices and our perception of what a consumer is willing to pay for the
particular brand and product in the retail environment. Our goal is to
competitively price our products with the other comparable premium brands
and
provide a higher quality product at the selected price points. We believe
our
Icon strategy supports category premium pricing.
Our
marketing for our alcoholic brands focuses on building brand recognition
with
our distributors with the goal of a regional and, if demand warrants, a national
roll-out of most of our products, focusing on population centers. Our marketing
of our non-alcoholic brands has been focused on building the brands recognition
initially in the New York metropolitan area at the retail level and generally
developing market profile through promotion tasting at retail distribution
locations. Our marketing plan contemplates expanding distribution to the
east
and west coast regions, focusing on population centers. Newman's Own has
been
promoted with consumer tastings, tee-shirt promotions and consumer trials.
Our
marketing efforts in support of our non-alcoholic brands focuses largely
on
promotion at key distribution points prior to the peak summer demand
period.
SALES
Our
products are sold in the continental United States primarily in the beverage
sections of liquor stores, grocery stores, drug stores, convenience stores,
delicatessens, sandwich shops and supermarkets. Many of our beverage products
are sold nationally and our distribution model, depending on the product,
includes several national and regional chains, for example, Trump Super Premium
Vodka is sold at Ralphs in California, and Walgreen's, ABC Liquor, Albertsons
and various other retail chains. Old Whiskey River is sold nationally at
Texas
Roadhouse and at Specs in Texas. Newmans Sparkling Fruit Beverages are currently
sold at several hundred grocery and retail chain stores including Raley’s Food
Stores, Shaws, ShopRite, Price Choppers, and Key Food.
Our
sales
efforts are supported by three independent contractors each with in excess
of 25
years experience in beverage brand building who have specific market
responsibility. These contractors manage a network of national brokers
responsible for local markets.
DISTRIBUTION
We
sell
the majority of our products through our distribution network, and we currently
have relationships with approximately 72 independent distributors throughout
North America. Our policy is to grant our distributors rights to sell particular
brands within a defined territory. Our distributors buy our products from
us for
resale. We believe that substantially all of our distributors also carry
beverage products of our competitors. Our agreements with our distributors
vary;
we have entered into written agreements with a number of our top distributors
for varying terms; most of our other distribution relationships are oral
(based
solely on purchase orders) and are terminable by either party at
will.
We
generally require our independent distributors to place purchase orders for
our
products at least 14 days in advance of requested shipping dates. To the
extent
we have product available in inventory, we will fulfill other purchase orders
when and as received. We and our distributors typically contract with
independent companies to have product shipped from our contract packers to
independent warehouses, and then on to our distributors. Distributors then
sell
and deliver our products either to sub-distributors or directly to retail
outlets, and such distributors or sub-distributors stock the retailers' shelves
with our products. We recognize revenue upon shipment to our distributors
and
customers of our products, net of anticipated discounts and allowances. All
sales are final and we have a "no return" policy, although we occasionally
accept returned products.
PRODUCTION
CONTRACT
PACKING ARRANGEMENTS
We
currently use independent contract packers known as "co-packers" to prepare,
bottle and package our products. Currently, our primary contract packers
are WV
Wanders in Holland, Heaven Hill Distilleries in Kentucky, American Beverage
Company in St. Louis, Interamericana de Licores in Panama, Tequila El Viejito
S.A. in Guadalajara, Mexico, and Damiana S.A. Mexico. We have an option to
acquire WV Wanders production facility in Holland. WV Wanders produces Trump
Super Premium Vodka. In the event our relationship with any of our co-packers
is
terminated, we believe we could replace the co-packer with another of comparable
quality. However, in such, case our business would be disrupted until a
replacement co-packer was identified and commenced production.
We
continually review our contract packing needs in light of regulatory compliance
and logistical requirements and may add or change co-packers based on those
needs. We rely on and believe our co-packers comply with applicable
environmental laws.
As
is
customary in the contract packing industry, we are expected to arrange for
our
contract packing needs sufficiently in advance of anticipated requirements.
Accordingly, it is our business practice to require our independent distributors
to place their purchase orders for our products at least 14 days in advance
of
shipping. Other than minimum case volume requirements per production run,
we do
not have any minimum production requirements.
RAW
MATERIALS
Substantially
all of the raw materials used in the preparation, bottling and packaging
of our
products are purchased by us or by our contract packers in accordance with
our
specifications. Typically, we rely on our contract packers to secure raw
materials that are not unique to us. The raw materials used in the preparation
and packaging of our products consist primarily of spirits, flavorings,
concentrate, glass, labels, caps and packaging. These raw materials are
purchased from suppliers selected by us or in concert with our co-packers
or by
the respective supplier companies. We consider Bruni Glass, which supplies
the
bottles for Trump Super Premium Vodka, and Wynn Starr to be a significant
suppliers of raw materials, because they supply specialty products. We believe
that we have adequate sources of raw materials, which are available from
multiple suppliers.
QUALITY
CONTROL
We
attempt to use quality ingredients for our products. We seek to ensure that
all
of our products satisfy our quality standards. Contract packers are selected
and
monitored by our Chief Operating Officer in an effort to assure adherence
to our
production procedures and quality standards. Samples of our products from
each
production run undertaken by each of our contract packers are analyzed and
categorized in a reference library.
For
every
run of product, our contract packers undertake extensive on-line testing
of
product quality and packaging. For our non-alcoholic products this includes
testing levels of sweetness, carbonation, taste, product integrity, packaging
and various regulatory cross checks. Similar product testing is done on our
wines and spirits. For each product, the contract packer must transmit all
quality control test results to us upon request. We believe that, working
in
concert with our internal management, the food scientist resources of Newman's
Own and Wynn Starr Flavors, and the in-house quality control mechanisms of
our
winery and distillery partners assure that our standards are at least equal
to
those established in the industry.
Testing
at each of our co-packers generally includes microbiological checks and other
tests to ensure the production facilities for our products meet the standards
and specifications of our quality assurance program. We believe the production
facilities inspection programs are at least equal to industry standards.
We
request that water quality be monitored during production and at scheduled
testing times to ensure compliance with applicable government regulatory
requirements. Flavors are sourced from only qualified manufacturers. We are
committed to an on-going program of product improvement with a view toward
ensuring high quality of our products.
We
believe we select only those suppliers that use only quality components.
We have
a full-time senior executive who oversees all production processes with respect
to product distilling. We also inspect packaging suppliers' production
facilities and monitor their product quality.
REGULATION
The
production and marketing of our licensed and proprietary alcoholic and non
alcoholic beverages are subject to the rules and regulations of various Federal,
provincial, state and local health agencies, including in particular the
U.S.
Food and Drug Administration ("FDA") and the U.S. Alcohol and Tobacco Tax
and
Trade Bureau ("TTB"). The FDA and TTB also regulate labeling of our products.
From time to time, we may receive notification of various technical labeling
or
ingredient reviews with respect to our products. We believe that we have
a
compliance program in place to ensure compliance with production, marketing
and
labeling regulations on a going-forward basis. There are no regulatory
notifications or actions currently outstanding.
We
have a
specific manager with direct responsibility to insure regulatory compliance
and
retain a regulatory law firm that oversees our submissions to various
agencies.
TRADEMARKS,
FLAVOR CONCENTRATE TRADE SECRETS AND PATENTS
We
own a
number of trademarks, including, in the United States, "Drinks Americas"
(TM),
"Cohete" (TM), "Swiss T"(TM), " "Screaming Monkey" (TM) and "Aguila" (TM),
Casa/BoMago (TM). Trademarks have been filed and pending with no opposition
for
Drinks Americas (TM), "Monte Verde"(TM) and "Corcovado"(TM). In addition,
we
have trademark protection in the United States for a number of other trademarks
for slogans and product designs, including "The Rooster Has Landed"(R), "Party
Harder"(TM), Success Distilled (TM) and The World's Finest Super Premium
Vodka
(TM).
We
also
own, indirectly as a member of a limited liability company, an interest in
the
"Old Whiskey River" trademark. We also license the Rheingold trademark. We
have
a license from Newman's Own to use the Newman's Own trademark in the marketing
and selling of Newman's Own Lightly Sparkling Fruit Juices. We also have
a
license from Trump Mark, LLC to use the Trump trademark in the marketing
and
sale of Trump Super Premium Vodka.
Our
license agreement for the Trump trademark provides for minimum royalty payments
through November 2012. The agreement provides for certain minimum royalty
payments, which if not paid, could result in termination of the license.
Under
our
license agreement for Old Whiskey River, we are obligated to pay royalties
of
between $10 and $33 per case, depending on the size of the bottle. Under
our
license agreement for Newman's Own, we are obligated to pay royalties of
$.95
per twelve bottle case. Our Rheingold license requires us to pay the licensor
$3
per barrel for domestic sales and $10.33 for foreign sales.
We
consider our trademarks, patent and trade secrets to be of considerable value
and importance to our business. No successful challenges to our registered
trademarks have arisen and we have no reason to believe that any such challenges
will arise in the future.
COMPETITION
The
beverage industry is highly competitive. We compete with other beverage
companies, most of which have significantly more sales, significantly more
resources and which have been in business for much longer than we have. We
compete with national and regional beverage producers and "private label"
suppliers. Some of our alcohol competitors are Diageo, Pernod Ricard,
Brown-Forman, Castle Brands, Allied Bomecq and Bacardi & Company, Ltd. On
the non-alcoholic front, some of our direct competitors include Cadbury
Schweppes (which produces Snapple and Mystic among other brands) Camper,
Boylands and Hansens. We believe it is a costly and difficult for large
companies to create new brands. As a result, we believe opportunities exist
for
smaller companies to develop high-quality, high-margin brands, which can
grow to
be very attractive acquisition candidates for the larger companies.
EMPLOYEES
As
of
December 31, 2007, we had thirteen full-time employees and an additional
four
persons, who were independent contractors working for us either in their
individual capacities or through professional service companies controlled
by
them. No employee is represented by a labor union. Three of the independent
contractors have executed contracts with us and are paid on a variable success
basis depending upon sales generated by them.
RECENT
DEVELOPMENTS
On
December 18, 2007, we sold to three related selling security holders
(the
"December Investors"), an aggregate of 3,000 shares of our Series A Preferred
Stock, $.001 par value (our "Preferred Stock"), at a cash purchase price
of
$1,000 per share, generating gross proceeds of $3,000,000 (the “December Private
Placement” or the "December Financing"). The Preferred Stock is convertible into
shares of our common stock at $.50 per share which, if all of the Preferred
Stock is converted, would result in the issuance of 6,000,000 shares
of our
common stock. The Preferred Stock has no voting or dividend rights. We
also
issued to the placement agent, who is a selling security holder, warrants
to
acquire 600,000 shares of our common stock for a purchase price of $.50
per
share (the "December Placement Agent Warrants"), which warrants are exercisable
for a five year period.
Five
of
the selling security holders were investors in our January 2007 Private
Placement ( the “January Investors”) and acquired an aggregate of 4,444,444
shares of common stock in such offering. These shares were subsequently
exchanged for 8,000 shares of our Preferred Stock, and are therefore
no longer
outstanding. The Preferred Stock they received in the exchange is convertible
into 16,000,000 shares of our common stock. Further, these selling security
holders were issued an aggregate of 5,000,000 shares of our common stock
(the
“Waiver Shares”) in consideration for their waiver of certain anti-dilution
provisions of warrants to acquire 3,778,778 shares of our common stock
which
they had acquired in our January Private Placement. The common stock
purchasable
on conversion of the preferred stock referred to in this and the preceding
paragraph, 22,000,000 shares in total, and the 600,000 shares of our
common
stock purchasable under the Placement Agent Warrants are the subject
of this
prospectus. For further details regarding our January and December Private
Placements, see the related discussion in the section of this prospectus
entitled Financial Liquidity and Capital Resources on page 22 of this
prospectus.
DESCRIPTION
OF PROPERTY
We
lease
2,739 square feet of office in Wilton, Connecticut under an operating sublease
which will expire July 31, 2009, with base annual rent payments of approximately
$50,000 through July 31, 2009. Under our lease, we are also responsible for
our
pro rata share of real estate tax increases. We also lease 1100 square feet
of
office space in New York City, New York, with minimum annual rent payments
of
approximately $3,500 per month. Various additional charges are passed through
to
us under this lease. This lease will expire on March 31, 2008. We are attempting
to sublease all or a portion of our New York City office space. In addition
we
have a number of agreements with independent warehousing companies providing
for
the stocking, storage and shipping of a significant amount of our products
at
their various locations. We believe our leased premise and our independent
warehouse facilities are suitable and adequate for our use and adequately
covered by insurance.
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
The
following discussion and analysis of the consolidated financial condition
and
results of operations should be read with "Selected Financial Data" and our
consolidated financial statements and related notes appearing elsewhere in
this
prospectus. This discussion and analysis contains forward-looking statements
that involve risks, uncertainties and assumptions. The actual results may
differ
materially from those anticipated in these forward-looking statements as
a
result of certain factors, including, but not limited to, those set forth
under
"Risk Factors" and elsewhere in this prospectus.
RESULTS
OF OPERATIONS
Year
ended April 30, 2007 compared to year ended April 30, 2006
Net
Sales: Net sales were $6,085,520 for the year ended April 30, 2007 compared
to
net sales of $1,608,606 for the year ended April 30, 2006, an increase of
278%.
The increase is due to our ongoing business and primarily the launch of Trump
Super Premium Vodka which occurred in the second quarter of fiscal
2007.
Trump
Super Premium Vodka sales aggregated $4,631,000 on 43,815 cases sold, which
accounted for 76.1% of total dollar sales and 39.3% of total case sales for
the
year ended April 30, 2007. Sales of all alcoholic products aggregated
approximately $5,575,000 on 52,936 cases sold for the year ended April 30,
2007
as compared to approximately $1,100,000 on 12,544 cases sold for the year
ended
April 30, 2006. As a result of limited working capital and, with respect
to
fiscal 2007, the focus of a significant portion of our available resources
to
Trump Super Premium Vodka, we did not maintain levels of inventory for certain
alcoholic brands which adversely affected sales in fiscal 2007 and 2006.
In
addition, in fiscal 2006 there was an interruption in our Norman's Wine business
due to the bankruptcy of the Norman's Wines supplier and a subsequent change
in
control and various disagreements with us resulting in our inability to source
this product. Sales of Norman's Wines were 997 cases for the year ended April
30, 2007 as compared to 2,811 cases for the prior year. The expansion of
our
wine business had a positive impact on sales for the year ended April 30,
2007
as compared to the previous year. Net sales of our non-alcoholic product,
Newman's Own sparking fruit beverages, were approximately $510,000 on 58,484
cases sold for fiscal 2007 compared to $508,000 on 57,769 cases sold for
fiscal
2006
Gross
Margin: Gross margin was $2,500,500 for the fiscal 2007 (41.1% of net sales)
an
increase of $2,047,000 compared to gross margin of $453,000 (28.2% of net
sales)
for fiscal 2006. Both the dollar increase and percentage increase in gross
profit is primarily attributed to the sale of Trump Super Premium Vodka.
Trump
Super Premium Vodka is sold at substantially higher gross margins than the
majority of our other products increasing our overall portfolio
margin.
Selling,
General and Administrative Expenses: Selling, general and administrative
expenses were approximately $9,980,000 for the year April 30, 2007 compared
to
$4,766,000 for the year ended April 30, 2006, an increase of $5,214,000.
The
increase in the current fiscal year was due to a number of positive and negative
variances. Selling and marketing expenses directly related to the Trump Super
Premium Vodka line aggregated approximately $3,100,000 for the year ended
April
30, 2007 and $0 for the previous year. A substantial portion of these expenses
was for promotions to launch the product. Total selling and marketing costs
aggregated $3,800,000 for the year ended April 30, 2007 compared to $1,200,000
for the prior year. General and administrative expenses aggregated $6,200,000
for the year ended April 30, 2007 compared to $3,600,000 for the prior year.
Wages, excluding, bonuses satisfied with the issuances of our common stock,
increased in fiscal 2007 by approximately $550,000 from the prior year. Charges
relating to our purchase order financing which commenced in fiscal 2007
aggregated approximately $245,000 for the year ended April 30, 2007. Travel
expenses have increased approximately $350,000 for the year ended April 30,
2007
compared to the prior year. The increase is due to travel expenses relating
to
Trump Super Premium Vodka. In February 2007, we paid our board of directors
for
serving on the board, an aggregate of $100,000 in cash and issued to them
66,008
shares of our common stock. The total expense recognized for the year ending
April 30, 2007, 2007 for the cash payments and the stock was $300,000. Due
to
limited working capital, the members of our Board of Directors were not
previously compensated for services rendered to us as Members of our Board
of
Directors. In addition, in February 2007 our CEO was issued 16,502 shares
of our
common stock, with an aggregate value of $50,000, as a bonus for services
he has
provided to us in his position. In December 2006, our Board of Directors
approved and we issued shares of our common stock to several of our employees
as
a bonus for their services to the Company and their role in the successful
launch of Trump Super Premium Vodka. In addition, we issued shares of our
common
stock to a Director of the Company, for his role in the launch of Trump Super
Premium Vodka. Additional shares of our common stock were issued throughout
fiscal 2007 to various distributors, consultants and professionals who
contributed to our business. In total, $1,800,000 of our SG & A expenses
were paid by the issuance of our securities to employees, directors,
distributors, professionals and consultants for the year ended April 30,
2007
compared to $570,000 paid by issuances of securities for the prior year.
Although the compensation paid with the issuances of our common stock had
a
significant affect on our income, it did not have an impact on our cash
flows.
Other
Income (Expense): Other income (expense) were ($1,908,000) net, for the year
ended April 30, 2007 compared to $(1,532,000) net, for the year ended April
30,
2006. Interest expense which was approximately $771,000 for the year ended
April
30, 2007 is expected to decrease due to the repayment of predominately all
of
our long-term debt. We incurred additional interest expense in both fiscal
2006
and 2007 due to discounts which were assigned to detachable stock warrants
and
beneficial conversion features recognized on convertible debt issuances.
The
discounts are a non-cash charge. For the year ended April 30, 2007, we
recognized a loss on extinguishment of debt (net of gains) of $1,104,000,
which
was the result of the repayment of much of our long-term debt and balances
due
to vendors with the issuances of shares of our common stock. We began
negotiations with many of our long-term debt holders and vendors to repay
amounts due them in late November and early December of 2006, but the agreements
were not finalized until late December when the market price of our common
stock
began to increase rapidly. Since we are required to record the value of the
stock issued based on the date the agreements were finalized, the value of
the
shares issued and were significantly greater than the balances paid which
negatively affected our earnings. Although the loss on extinguishment of
debt
had a significant effect on our net income, it positively effected our working
capital position by allowing us to extinguish such liabilities with equity
rather than cash. As of April 30, 2006, we recognized an impairment loss
on our
Rheingold intangible assets which were acquired in October 2005.
Income
Taxes: We have incurred substantial net losses from our inception and as
a
result, have not incurred any income tax liabilities. Our federal net operating
loss carry forward is approximately $20 million, which we can use to reduce
taxable earnings in the future. No income tax benefits were recognized in
fiscal
2007 and 2006 as we have provided valuation reserves against the full amount
of
the future carry forward tax loss benefit. We will evaluate the reserve every
reporting period and recognize the benefits when realization is reasonably
assured.
SIX
MONTH
PERIOD ENDED OCTOBER 31, 2007 COMPARED WITH THE SIX MONTH PERIOD ENDED OCTOBER
31, 2006
Net
Sales. Net sales were $2,782,971 for the six months ended October 31, 2007
compared to net sales of $2,577,450 for the six months ended October 31,
2006,
an increase of 8%. The increase is due to the growth of the Company’s overall
spirits and wine portfolio and the expansion nationally of our Newman’s Own
products.
Total
Trump Super Premium Vodka sales aggregated $1,552,000 on 16,097 cases sold,
which accounted for 55.7% of total dollar sales and 20.6% of total case sales
for the six months ended October 31, 2007. For the six months ended October
31,
2006 Trump Super Premium Vodka Sales aggregated $1,895,000 on 17,970 cases
sold,
which accounted for 73.5% of total dollar sales and 47.2% of total case sales.
Sales of all alcoholic products aggregated $2,282,000 on 22,160 cases sold
for
the six months ended October 31, 2007 as compared to $2,460,000 on 22,650
cases
sold for the six months ended October 31, 2006. Net sales of Old Whiskey
River
Bourbon aggregated $258,000 on 2,200 cases sold for the six months ended
October
31, 2007 compared to net sales of $185,000 on 1,470 cases sold for the six
months ended October 31, 2006. This represents a dollar increase of 39.5%
and a
case increase of 49.7%. Net sales of our international wines aggregated $331,000
on 2,230 cases sold for the six months ended October 31, 2007 compared to
$234,000 on 1,700 cases for the six months ended October 31, 2006. This
represents a dollar increase of 41.5% and a case increase of 31.1%. Net sales
of
our non-alcoholic product, Newman’s Own sparking fruit
beverages
and sparkling waters increased to $502,000, on 55,860 cases sold, in the
six
months ended October 31, 2007 as compared to $136,000, on 15,440 cases sold,
in
the six months ended October 31, 2006. The Company has modified the Newman’s Own
product eliminating the high fructose corn syrup and replacing it with pure
cane
sugar; Newman’s Own is now kosher certified. The Company began an expansion into
additional states of the Newman’s Own product line in the third quarter of our
2007 fiscal year. The case volume of our brands is increasing as the impact
of
the financing which occurred in January 2007 which has provided for inventory
continues to take effect.
Gross
Margin. Gross margin was $1,070,537 for the six months ended October 31,
2007
(38.5% of net sales) a decrease of $45,690 compared to gross margin of
$1,116,227 (43.3% of net sales) for the six months ended October 31, 2006.
The
percentage decrease is due to an increase in sales on a percentage basis
of our
Newman’s Own Products which is sold at a significantly lower gross margin than
our alcoholic products (19% and 20% for the six months ended October 31,
2007
and 2006, respectively). Gross profit percentage for our alcoholic brands
decreased from 45% for the six months ended October 31, 2006 to 42% for the
six
months ended October 31, 2007. The decrease is largely due to the weakening
dollar which has increased Trump Vodka component costs; the introduction
of
Trump 1.75 liters; price support for Trump Super Premium Vodka in order to
attain competitive pricing; as well as an increase in the sales of our alcoholic
products other than Trump Super Premium Vodka which is sold at a higher gross
profit than our other alcoholic products.
Selling,
General and Administrative Expenses. Selling, general and administrative
expenses were $4,004,435 for the six months ended October 31, 2007 compared
to
$2,744,326 for the six months ended October 31, 2006, an increase of $1,260,109.
The increase in the current fiscal year is predominantly due to selling expenses
and marketing expenses relating to Trump Super Premium Vodka which commenced
in
October 2006 including increased promotional support. These expenses are
expected to be reduced. Wages have increased for the six months ended October
31, 2007 by approximately $170,000 over the same period of the prior year
due to
the summer Newman’s sales staff and the addition of three people to our sales
and internal work force. In June 2007 the Company issued 40,000 shares of
our
common stock to a member of its board of directors, for serving on the board
resulting in an expense of $50,000. The Company recognized an additional
$150,000 in directors’ fees for the six months ended October 31, 2007. For the
six months ended October 31, 2006 no expense for directors’ fees were recognized
by the Company.
Other
Income (Expense). Other Income (expense), was ($116,461) in the three months
ended July 31, 2007 compared to ($375,070) for the six months ended October
31,
2006. The decrease is due to the decrease in interest expense as a result
of our
reduction of long term debt.
IMPACT
OF INFLATION
Inflation
has not had a material effect on our results of operations.
SEASONALITY
As
a
general rule, the second and third quarters of our fiscal year (August-January)
are the periods that we realize our greatest sales as a result of sales of
alcoholic beverages during the holiday season. During the fourth quarter
of our
fiscal year (February-April) we generally realize our lowest sales volume
as a
result of our distributors working off inventory which remained on hand after
the holiday season. As we increase our non-alcoholic beverage sales, as a
result
of increased distribution of Newman's Own products, we would expect sales
in
first quarter of our fiscal year (May-July), to increase since the spring
and
summer tends to be the strongest periods for sales of non-alcoholic
beverages.
FINANCIAL
LIQUIDITY AND CAPITAL RESOURCES
Although
our working capital position has been improved as a result of our December
Private Placement of our preferred stock, we will need to continue to carefully
manage our working capital and our business decisions will continue to
be
influenced by our working capital requirements.
We
have
experienced net losses and negative cash flows from operations and investing
activities from our inception in fiscal 2003. Net losses for the six months
ended October 31, 2007 and 2006 were $3,050,359 and $2,003,169, respectively.
Cash used in operating and investing activities for the six months ended
October
31, 2007 was $1,572,617 compared to $2,893,166 for the six months ended October
31, 2006. This decrease in cash used in fiscal 2008 was predominantly the
result
of collections on accounts receivable as well as costs in fiscal 2007 relating
to the launch of Trump Super Premium Vodka. We have predominantly funded
our
operations to date by bank borrowings, loans from shareholders and investors,
and the proceeds from the sale of our common stock and warrants. In fiscal
2007
we satisfied long term debt together with interest aggregating $2,907,618,
the
majority of which was evidenced by convertible promissory notes, by the issuance
and delivery of 5,864,146 shares of our common stock. Other expenses for
salary,
consulting fees and other items, in the aggregate amount of $3,053,207, were
satisfied by the issuance and delivery of 2,350,724 shares of our common
stock
in fiscal 2007. In fiscal 2007, we also raised $8,680,835 by selling 6,944,446
shares of our common stock and warrants to purchase our shares of common
stock.
On
January 30, 2007, five entities which are selling security holders (the
“January
Investors”) acquired an aggregate of 4,444,444 shares of our common stock, at a
price of $1.80 per share generating gross proceeds of $8,000,000 (the “January
Private Placement” or the "January Financing"). These entities were also issued
warrants to purchase an aggregate of 3,777,778 shares of our common stock,
at
$3.00 per share (the “January Warrants”). The warrants, which are exercisable
for a five year period commencing on the sixth month anniversary of January
30,
2007, the closing date of the transaction, contain cashless exercise provisions,
which apply in the event there is no effective registration statement
registering, or no current prospectus available for the resale of the shares
of
our common stock underlying the warrants, and full ratchet anti-dilution
provisions. In connection with this offering we also issued the placement
agent,
Midtown Partners & Co., LLC, which is also a selling security holder,
warrants to acquire 444,444 shares of the our common stock for a purchase
price
of $3.00 per share, which warrants are substantially similar to the warrants
issued to the investors, except they do not contain full ratchet anti-dilution
provisions (the "January Placement Agent Warrants"). The terms of the January
Private Placement provided certain anti-dilution and other rights to the
January
Investors which were triggered due to the December Private Placement described
below. The Placement Agent Warrants contain anti-dilution provisions which
apply
in the event of stock dividends, stock splits, rights offerings and similar
issuances with respect to our common stock. Out of the gross proceeds of
this
Offering, we paid Midtown Partners & Co., LLC, the placement agent, $180,000
in commissions and $30,000 for non-accountable expenses.
In
connection with the January Private Placement, we paid the placement agent,
$640,000 in commissions and $160,000 for non-accountable expenses. We will
also
pay the placement agent commissions equal to 10% of the purchase price
of our
common stock acquired on the exercise of the warrants, if and when that
occurs.
We also executed a Registration Rights Agreement wherein we agreed to prepare
and file at our expense, on or before 45 days after January 30, 2007, a
registration statement with the SEC covering the resale of shares of common
stock and 130% of the shares of common stock issuable upon exercise of
the
warrants issued in connection with the January Private Placement. This
agreement
provided that if this registration statement is not declared effective
by the
SEC within 90 days of January 30, 2007 (within 120 days of such date in
the
event of a full review by the SEC), then we will be subject to the payment
of
liquidated damages equal to 1% of the aggregate purchase price we received
from
the investors for each month until the registration statement is declared
effective up to maximum penalties of 20%. We filed registration statement
No.
333-141395 on March 19, 2007 (the “March Registration Statement”) to register
the common stock issued in connection with the January Private Placement,
including the shares underlying the January Warrants and the January Placement
Agent Warrants. The March Registration Statement was declared effective
on May
2, 2007. We subsequently filed a post-effective Amendment to the March
Registration Statement on January 22, 2008, which was declared effective
on
January 30, 2008. This post-effective amendment updates certain information
contained therein including certain information with respect to the selling
security holders in that offering and removed from registration the 4,444,445
shares of common stock purchased by such selling security holders in the
January
Private Placement, which shares, as described below, have been exchanged
for our
Preferred Stock and are no longer outstanding. Subject to certain exceptions,
we
are required to keep the March Registration Statement effective until the
shares
of common stock registered for resale thereunder have been sold, or may
be sold
without volume restrictions pursuant to Rule 144(k) of the Securities Act
of
1933(“Rule 144(k)”). Failure to do so will result in the imposition of the
penalties described above.
Also,
subject to certain limited exceptions, the Securities Purchase Agreement
we
signed with the January Investors (the “January SPA”) restricted our ability to
issue shares of common stock until the earlier of 90 days after the earlier
of
the effective date of the March Registration Statement or the 14
th
month
anniversary of the closing date of the January Private Placement. Also,
subject
to certain exceptions, the January SPA provided the January Investors
with the
right to exchange the common stock they acquired in the January Private
Placement for securities issued in subsequent financings occurring in
the two
year period following the closing of the January Private Placement. As
described
in greater detail below, this provision of the January SPA was triggered
by the
December Private Placement.
On
December 18, 2007 we sold to three related investors (the "December Investors")
who participated in our January Private Placement an aggregate of 3,000
shares
of our Series A Preferred Stock, $.001 par value (our "Preferred Stock"),
at a
cash purchase price of $1,000 per share, generating gross proceeds of $3,000,000
(the “December Private Placement” or the "January Financing"). Our Preferred
Stock is convertible into our common stock at $.50 per share, which if
all of
the Preferred Stock is converted, would result in the issuance of 6,000,000
shares of our common stock. The Preferred Stock has no voting or dividend
rights. We also issued to the placement pagent who is a selling security
holder,
warrants to acquire 600,000 shares of our Common Stock for a purchase price
of
$.50 per share (the "December Placement Agent Warrants"), which warrants
are
exercisable for a five year period.
The
January Private Placement provided participating investors, all of whom
are
selling security holders, with rights to exchange the common stock they
acquired
in the January Private Placement for securities issued in subsequent financings
consummated at a common stock equivalent of $2.00 per share or less. Under
this
provision, all of the January Investors including the December
Investors have exchanged 4,444,445 shares of our common stock for 8,000
shares of our Preferred Stock, which Preferred Stock is convertible into
an
aggregate of 16,000,000 shares of our common stock. Also, the January Warrants,
issued in connection with the January Private Placement, contain full ratchet
anti-dilution provisions, as to both the exercise price and the number
of shares
purchasable under the warrants, which due to the December Private Placement,
would have resulted in the January Warrants representing the right to acquire
22,666,668 shares of our common stock, i.e., an additional 18,888,890 shares
(the “Warrant Increment”) at a reduced exercise price of $.50 per share. We have
issued 5,000,000 shares of our common stock to the January Investors, in
consideration of their waiver of the Warrant Increment (the “Waiver Shares”).
This waiver will apply to future financings as well. The provisions of
the
January Warrants which result in the reduction of the exercise price remain
in
place and, as a result of the December Private Placement, the exercise
price of
the January Warrants have been reduced to $.50 per share.
Each
of
our December Investors invested in the January Private Placement but not
all of
our January Investors invested additional funds in the December Private
Placement. We have agreed to use our best efforts to file, within 45 days
of the
closing date of the December Financing (the “Closing Date”), a Registration
Statement covering the resale of the shares of our common stock issuable
on the
conversion of Preferred Stock issued to the December Investors and the
January
Investors, and the shares of our common stock issuable on exercise of the
December Placement Agent Warrants, and to cause such Registration Statement
to
be declared effective by the Securities and Exchange Commission, within
90 days
of the Closing Date subject to a thirty day extension in the event of a
full
review by the Securities and Exchange Commission(the “Required Registration
Date”). In the event we do not satisfy these requirements in a timely fashion
we
will be subject to penalties, equal to 1% of the aggregate purchase price
paid
for the Preferred Stock, on the Required Registration Date and an additional
2%
on each monthly anniversary of the Required Registration Date until the
Registration Statement is declared effective by the SEC. Notwithstanding
the
foregoing, the aggregate maximum amount of the penalties that may be imposed
for
such failure is 6% of the aggregate cash investment in the December Private
Placement, if such failure results from certain positions taken by the
SEC
during its review of our Registration Statement. Subsequent to the Required
Registration Date, subject to certain exceptions, we are required to keep
the
Registration Statement effective until the shares of common stock registered
for
resale thereunder have been sold, or may be sold without volume restrictions
pursuant to Rule 144(k). Failure to do so will result in the imposition
of the
penalties described above.
Subject
to certain limited exceptions, the Securities
Purchase Agreement we signed with the December Investors (the “December SPA")
restricts our ability to issue shares of common stock until the earlier
of 45
days after the earlier of the effective date of the Registration Statement
filed
with the SEC with respect to the December Private Placement or the date
the
shares of common stock issued or issuable upon conversion of the Preferred
Stock
and the Waiver Shares may be sold pursuant to rule 144 without volume or
manner
restrictions. Also, subject to certain limited exceptions, the December
SPA
provides the December Investors with the right to exchange the Preferred
Stock
they acquired in the December Private Placement for securities issued in
subsequent financings occurring in the one year period following the closing
of
the December Private Placement. Furthermore, under the December SPA, the
December Investors have the right until the 12 month anniversary of the
earlier
of (i) the effective date of the Registration Statement and (ii) the date
the
shares of common stock issued or issuable upon conversion of the Preferred
Stock
may be sold pursuant to Rule 144 without volume or manner restrictions,
to
subscribe for 100% of any offering of common stock or common stock equilivants
by the Company, on the same terms, conditions and price provided for in
such
subsequent financings. For a discussion of additional restrictions on the
Company resulting from the issuance of our Series A Preferred Stock, see
the
discussion of our Preferred Stock in the section of this Prospectus entitled
Description of Securities on page 34 of this Prospectus.
We
do not
have sufficient shares of common stock available to allow for the conversion
of
all of the Preferred Stock referred to in the two preceeding paragraphs
into
common stock. We have agreed to amend our Certificate of Incorporation
to
increase the number of shares of common stock we are authorized to issue
to
200,000,000 shares. Approval of our stockholders shall be required to effect
such amendment under Delaware law and we have agreed to hold a special
meeting
of our stockholders at the earliest possible date, but in any event on
or prior
to June 15, 2008 for the purpose of securing such approval. Alternatively,
we
may accomplish such approval by the written consent of our shareholders
representing over 50% of our outstanding common stock.
From
July
through October 2007, the Company borrowed an aggregate of $480,621 from
our
Chief Executive Officer for working capital purposes. The borrowings bear
interest at 12% per annum. As of October 31, 2007, $6,000 has been repaid.
In
November 2007, an additional $25,000 was advanced to the Company by our CEO
which was subsequently repaid. As of October 31, 2007 accrued interest on
amounts owed to our CEO aggregated $15,648 which is included in accrued interest
on the accompanying balance sheet.
In
October 2006, the Company borrowed $250,000 and issued a convertible promissory
note in like amount. This note is payable in October 2008 and is convertible
into shares of our common stock at $0.60 per share. The note bears interest
at
12% per annum and is payable quarterly commencing January 2007. At the option
of
the lender, interest can be paid in shares of Company common stock. During
the
six months ended
October
31, 2007 the Company issued the note holder an aggregate of 49,307 shares
of our
common stock to satisfy an aggregate of $29,583 of interest accrued through
October 10, 2007. In connection with this borrowing we issued warrants to
purchase 250,000 shares of our common stock for $0.60 per share. These warrants
are exercisable for a five-year period from the date of issuance.
In
June
2006, we entered into a $10 million, three-year, asset-based revolving credit
facility with a financial institution to be used for working capital purposes.
Under this line, we may borrow 85% of eligible accounts receivable and 30%
of
eligible inventory, as defined under the agreement. Interest on the line
will
accrue at 1.5% above the prime rate. Also, in June 2006, we entered into
a
secured purchase order financing facility with another financial institution.
The amount we are able to borrow under these facilities will depend on our
outstanding eligible accounts receivable, inventory and eligible purchase
orders, respectively. Both of these facilities are secured by our assets.
On
October 31, 2007 $430,906 and $0 was outstanding on our revolving credit
and
purchase order facilities, respectively.
In
November 2005 the Company entered into an eight-year partnership agreement
for
sales of Trump Super Premium Vodka. Under the agreement the Company is required
to pay royalties on sales of the licensed product. The agreement requires
minimal royalty payments through November 2012.
In
fiscal
2003 we entered into a consulting agreement with a company, Marvin Traub
&
Associates ("MTA"), owned 100% by Marvin Traub, a member of the Board of
Directors. Under the agreement, MTA is being compensated at the rate of $100,000
per annum. As of October 31, 2007, we were indebted to MTA in the amount
of
$106,246
In
December 2002, we entered into a consulting agreement with Mr. Shep Gordon
which
provides for payment of $120,000 per year to Mr. Gordon, payable through
June
2009. As of October 31, 2007 the aggregate amount owed to Mr. Gordon was
approximately $160,000. We have an informal understanding with Mr. Shep Gordon
pursuant to which he can convert all or a portion of the consulting fees
which
we owe to him into shares of our common stock at a conversion price negotiated
from time to time.
Under
our
license agreement for Old Whiskey River, we are obligated to pay royalties
of
between $10 and $33 per case, depending on the size of the bottle. Under
our
license agreement for Newman's Own, we are obligated to pay royalties of
$.95
per twelve bottle case.
Since
we
were founded in 2002, the implementation of our business plan has been
negatively affected by insufficient working capital. Business judgments
have
been substantially affected by the availability of working capital. Although
our
working capital position and our balance has been improved as a result
of our
December Private Placement of our Preferred Stock, we will need to continue
to
carefully manage our working capital and our business decisions will continue
to
be influenced by our working capital requirements. Therefore, our short
term
business strategy will rely heavily on our cost efficient icon brand strategy
and the resources available to us from our media and entertainment partners.
We
will continue to focus on those of our products which we believe will provide
the greatest return per dollar of investment with the expectation that
as a
result of increases in sales and the resulting improvement in our working
capital position, we will be able to focus on those products for which
market
acceptance might require greater investments of time and resources. To
that end,
our short-term focus will be, for alcoholic beverages, Trump Super Premium
Vodka, Old Whiskey River Bourbon, Damiana, Aquila Tequila, our select label
wines and, for the non-alcoholic beverages Newman's Own lightly sparkling
fruit
juice drinks and waters. In order for us to continue and grow our business,
we
will need additional financing which may take the form of equity or debt.
There
can be no assurance we will be able to secure the financing we require,
and if
we are unable to secure the financing we need, we may be unable to continue
our
operations. We anticipate that increased sales revenues will help to some
extent, but we will need to obtain funds from equity or debt offerings,
and/or
from a new or expanded credit facility. In the event we are not able to
increase
our working capital, we will not be able to implement or may be required
to
delay all or part of our business plan, and our ability to attain profitable
operations, generate positive cash flows from operating and investing activities
and materially expand the business will be materially adversely affected.
OFF
BALANCE SHEET ARRANGEMENTS
Not
applicable.
CRITICAL
ACCOUNTING POLICIES
Our
significant accounting policies are more fully described in Note 2 to the
audited financial statements. The preparation of financial statements in
conformity with accounting principles generally accepted in the United States
of
America requires management to make estimates and assumptions that affect
the
reported amounts of assets, liabilities, revenues and expenses, and the related
disclosures of contingent assets and liabilities. Actual results could differ
from those estimates under different assumptions or conditions. We believe
that
the following critical accounting policies are subject to estimates and
judgments used in the preparation of the financial statements:
The
Company recognizes revenues when title passes to the customer, which is
generally when products are shipped. The Company recognizes revenue dilution
from items such as product returns, inventory, credits, discounts and other
allowances in the period that such items are first
expected
to occur. The Company has not realized material amounts of revenue dilution
in
the periods covered by this report. In this regard, the Company does not
offer
its clients the opportunity to return products for any reason other than
manufacturing defects. No material amounts of product returns had occurred
during this fiscal year. In addition, the Company does not offer incentives
to
its customers to either acquire more products or maintain higher inventory
levels of products than they would in ordinary course of business. The Company
assesses levels of inventory maintained by its customers through telephone
communications with its customers and believes that most maintain low levels
of
inventory of its products. Furthermore, it is the Company's policy to accrue
for
material post shipment obligations and customer incentives in the period
the
related revenue is recognized.
Long
Lived Assets. Long-lived assets, including intangible assets, property,
furniture and equipment are reviewed for impairment when events or circumstances
indicate that the carrying value may not be recoverable based on certain
judgments and estimates. These judgments and estimates include the determination
of an event indicating impairment; the future undiscounted cash flows to
be
generated by the asset, including the estimated life of the asset and likelihood
of alternative courses of action; and risks associated with those cash flows.
An
impairment charge is recorded equal to the difference between the carrying
amount of the asset and its fair value.
Useful
lives of long-lived assets are based on management's estimates of the periods
that the assets will be productively utilized in the revenue-generation process.
Factors that affect the determination of lives include prior experience with
similar assets and product life expectations and management's estimate of
the
period that the assets will generate revenues.
QUANTITATIVE
AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We
do not
hold instruments that are sensitive to changes in interest rates, foreign
currency exchange rates or commodity prices. Therefore, we believe that we
are
not materially exposed to market risks resulting from fluctuations from such
rates or prices.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, DIRECTORS AND
EXECUTIVE
OFFICERS
AND RELATED SHAREHOLDER MATTERS
The
following table sets forth, as of March 7, 2008, certain information
regarding
the ownership of our voting securities by each stockholder known to our
management to be (i) the beneficial owner of more than 5% of our outstanding
common stock, (ii) our directors, (iii) our named executive officers,
and (iv)
all executive officers and directors as a group. We believe that, except
as
otherwise indicated, the beneficial owners of the Common Stock listed
below,
based on information furnished by such owners, have sole investment and
voting
power with respect to such shares. Percentage of ownership is based on
80,842,769 shares of Common Stock issued and outstanding at March 7,
2008, plus,
as to the holder thereof only and no other person, the number of shares
of
Common Stock which may be acquired on conversion of our preferred stock
or are
subject to options, warrants and convertible debentures exercisable or
convertible within 60 days of March 7, 2008 by that
person.
Name
|
|
Number
of Shares of
Common
Stock
Beneficially
Owned
|
|
Percentage
of
Outstanding
Shares
|
J.
Patrick Kenny
30
Old Wagon Road
Wilton,
CT 06877
|
|
14,562,583
(1)
|
|
18.01%
|
|
|
|
|
|
Bruce
Klein
123
Elbert Street
Ramsey,
NJ 07446
|
|
10,922,691
(2)
|
|
13.51%
|
|
|
|
|
|
Kenneth
Close
1101
30th Street, NW
Suite
200
Washington,
DC 20007
|
|
8,914,758
(3)
|
|
11.02%
|
|
|
|
|
|
Thomas
Schwalm
5983
SE Morning Dove Way
Hobe
Sound, FL 33455
|
|
3,768,073
(4)
|
|
4.64%
|
|
|
|
|
|
Jason
Lazo
144
Wire Mill Rd.
Stamford,
CT 06903
|
|
1,017,534
(5)
|
|
1.26%
|
|
|
|
|
|
Marvin
Traub
535
Fifth Avenue
New
York, NY 10022
|
|
1,672,291
(6)
|
|
2.07%
|
|
|
|
|
|
Fredrick
Schulman
241
Fifth Ave, Suite 302
New
York, NY 10016
|
|
1,073,772 (7)
|
|
1.33%
|
|
|
|
|
|
Hubert
Millet
67
N. Calibogue Cay
Hilton
Head Island, SC
|
|
80,000
(8)
|
|
0.10%
|
Brian
Kenny
30
Old Wagon Road
Wilton,
CT 06877
|
|
227,000
(9)
|
|
0.28%
|
|
|
|
|
|
Richard
Shiekman
343
Good Hill Rd
Weston,
CT 06883
|
|
50,000
(10)
|
|
0.06%
|
|
|
|
|
|
Enable
Growth Partners, LP
1
Ferry Bldg Ste 255
San
Francisco, CA 94111
|
|
8,626,315
(11)
|
|
9.99%
|
|
|
|
|
|
All
Directors, Officers
and
Management as a group (8 persons)
|
|
33,096,944
|
|
40.93%
|
(1)
Includes 10,000,000 shares owned by Kenny LLC I, and 2,000,000 shares owned
by
Kenny LLC II, entities controlled by Mr. Kenny. Does not include 227,000
shares
owned by Mr. Kenny's son and 191,263 shares owned by Mr. Kenny's brother,
as to
which shares Mr. Kenny disclaims beneficial ownership.
(2)
Includes 6,700,000 shares owned by Peter Christian and Associates, LLC, and
3,150,633 shares owned by Victory Partners, LLC, entities controlled by Mr.
Klein, 55,556, shares owned by Vigilant Investors, of which Mr. Klein is
a
partner, and 550,000 and 450,000 shares owned by the wife and sons of Mr.
Klein
respectively. Mr. Klein disclaims beneficial ownership of the shares owned
by
his wife, his son, and Vigilant Investors.
(3)
Includes 4,701,167 shares owned by Nexcomm International Beverage, LLC, an
entity controlled by Mr. Close, 211,136 shares in trusts for the benefit
of Mr.
Close’s four children of which Mr. Close is a trustee, and warrants to purchase
83,333 shares.
(4)
Includes 3,333,267 shares and warrants to purchase 322,223 shares owned by
Greenwich Beverage Group, LLC ("Greenwich"), an entity controlled by Mr.
Schwalm. Also includes 1,500 shares owned by a trust of which Mr. Schwalm
is
co-trustee, as to which shares Mr. Schwalm disclaims beneficial
ownership.
(5)
Includes 907,434 shares owned by Lazo, LLC, an entity controlled by Mr. Lazo
and
100,000 shares owned by Mr. Lazo’s daughters.
(6)
Does
not include 22,222 shares owned by Mr. Traub's son, as to which shares Mr.
Traub
disclaims beneficial ownership.
(7)
Includes 219,970 shares owned by Mr. Schulman's wife, Lois Shapiro, to which
shares Mr. Schulman disclaims beneficial ownership. Does not include 690,000
shares owned by JGS Supermarket Management Corp., an entity owned and controlled
by Mr. Schulman's sister, as to which Mr. Schulman disclaims beneficial
ownership.
(8),
(9),
and (10) All shares are owned directly by each person,
respectively.
(11)
Includes warrants to purchase 2,006,994 shares and 3,766,546 shares purchasable
on conversion of convertible preferred stock. Does not include an additional
9,833,454 shares purchasable upon conversion of convertible preferred stock
due
to provisions of the Certificate of Designation with respect to our Series
A
Preferred Stock, which generally prevent conversion of the preferred stock
if
conversion would result in beneficial ownership by the holder of greater
than
9.99% of our shares.
DIRECTORS,
EXECUTIVE OFFICERS, PROMOTERS
AND
CONTROL PERSONS AND CORPORATE GOVERANCE; COMPLIANCE WITH SECTION 16(a) OF
THE
EXCHANGE ACT
The
following are the executive officers and directors of the Company
Name
|
|
Age
|
|
Positions
and Offices
|
J.
Patrick Kenny
|
|
51
|
|
President
and Chief Executive Officer
|
Bruce
Klein
|
|
52
|
|
Chairman
of the Board of Directors
|
Jason
Lazo
|
|
41
|
|
Chief
Operating Officer
|
Jeffrey
Daub
|
|
41
|
|
Chief
Financial Officer
|
Marvin
Traub
|
|
82
|
|
Member,
Board of Directors
|
Thomas
Schwalm
|
|
63
|
|
Member,
Board of Directors
|
Fredrick
Schulman
|
|
55
|
|
Member,
Board of Directors
|
Hubert
Millet
|
|
71
|
|
Member,
Board of Directors
|
J.
Patrick Kenny has served as the Chairman and Chief Executive Officer of DA
since
it was founded in September 2002, and has been our President and Chief Executive
Officer, and a member of our Board of Directors, since March, 2005. He is
a
former Senior Vice President and General Manager of Joseph E. Seagram & Sons
("Seagram"), for which he held a variety of senior management positions over
22
years, with increasing levels of responsibility in Seagram's wine, wine cooler,
alcoholic and non-alcoholic beverage divisions.
Mr.
Kenny
managed Seagram's worldwide carbonated soft drink operations from 1992 through
March, 2000. He held the title of Senior Vice President and General Manager
when
he left Seagram in March 2000, prior to its sale to Vivendi Universal. In
April,
2000, he co-founded Sweet16 Intermedia, Inc., a trademark licensing and media
company which was sold to TEENTV Inc., a media company for chain retailers
and
mall properties. He has also acted as adviser to several Fortune 500 beverage
marketing companies, and has participated in several beverage industry
transactions. Prior to joining Seagram, Mr. Kenny was employed in a range
of
sales and sales management positions with Scott Paper Co. and then Coca Cola's
Wine Spectrum. Mr. Kenny initially attended West Point (U.S. Military Academy),
until an athletic injury required lengthy treatment. He later received a
B.A. at
Georgetown University, and an M.A. at St. Johns University in New
York.
Bruce
K.
Klein has served as the Vice Chairman of the Board of DA since it was founded
in
September 2002 and has been our Chairman of the Board since March, 2005.
Since
February, 1999, he has served as the Managing Partner of Victory Partners LLC, a
company created to fund private businesses in their early stages. In the
last
five years, Victory has funded six businesses in technology, vitamins and
internet services areas, of which three have became public companies and
three
remain private. From 1992 to 1997, Mr. Klein was a registered representative
of
the Equitable Companies, responsible for sales and services to high income
clients, acting as investment advisor and estate planner to an exclusive
client
base. From 1986 to 1991, Mr. Klein served as President of Transatlantic Exports
Corp., where his duties included purchasing and exporting of finished and
contract goods throughout Europe and Africa. From 1980 through 1991, Mr.
Klein
owned several retail businesses in lumber, hardware home centers and decorating.
He received a B.S. in Finance and an M.B.A in Marketing from Fairleigh Dickinson
University.
Jason
Lazo has served as our Chief Operating Officer since March, 2005 and the
Chief
Operating Officer of DA since May, 2003. From December, 1997 to May, 2003,
he
worked for Seagram as Director of Finance, during which he served in the
Mixers
Group of Seagram working with Mr. Kenny. From January, 1990 to December,
1997,
Mr. Lazo worked at Kraft Foods as Manager of Business Analysis, with
responsibility for the Capri Sun and Kool-Aid Koolburst, and Ready to Drink
Country Time & Crystal Lite brands. He has also worked as a Kraft Foods
Plant Controller, managing the start-up of Capri Sun and Lender's Bagels.
He has
worked in logistics and procurement for Kraft Foods central manufacturing
organization and in corporate finance for Entenmann's Bakeries, Inc. He received
a B.S. in Finance and an M.S. in Accounting from Long Island
University.
Marvin
Traub was an initial investor with Mr. Kenny in Maxmillian Partners, LLC.
He
joined our Board of Directors in March, 2005. From 1978 to 1991, he served
as
the Chief Executive Officer and Chairman of Bloomingdales. His background
is in
marketing, retail, home furnishings and apparel. Mr. Traub serves as President
of his own marketing and consulting firm, Marvin Traub Associates ("MTA")
which
he founded in 1992. MTA currently has clients in 14 countries and a team
of 18
consultants, all former principals in the retail and consumer goods sectors.
Prior to that, Mr. Traub served as Chairman of Financo Global Consulting,
the
consulting arm of Financo, Inc., where he was Senior Advisor.
Mr.
Traub
is the author of "Like No Other Store..." a combination autobiography and
history of Bloomingdale's and American retailing. It was first published
in 1993
by Random House and has since gone through three printings. Mr. Traub's
consulting clients include American Express, Ralph Lauren, Jones New York,
Saks
Fifth Avenue, Federated Department Stores, Nautica Europe, Lanvin-France,
Coin-Italy, Men's Health, Yue Sai Kan-China, Aishti-Lebonon, Quartier
206-Berlin, The Mercury Group-Moscow, Al Tayer Group-Dubai and AOL Time Warner
Center at Columbus Circle in New York. In 2005, in partnership with Mohan
Murjani, Mr. Traub created Murjani Traub India Ltd., a joint venture aimed
at
bringing global brands to India, with offices in New York and
Mumbai.
Thomas
H.
Schwalm was an initial investor in Maxmillian Partners. He joined our Board
of
Directors in March, 2005. He is a 25 year veteran of the beverage industry.
In
1995, he co-founded the South Beach Beverage Company, known as SoBe beverage,
which was acquired by PepsiCo, Inc. in 2001. From 1995 to January 2001, he
served as managing member of SoBe Beverage. Mr. Schwalm's career includes
various managerial positions with the Joseph Schlitz Brewing Company from
1968
to 1982 and as Group Marketing Director for the Stroh Brewing Company from
1982
to 1984, where he managed a $100 million marketing budget and introduced
Stroh
nationally in 1983. From 1985 to 1992 he was Vice President of Sales and
Marketing for Dribeck Importers, the US importer for Becks Beer. In 1992,
Mr.
Schwalm became President of Barton Beers, in Chicago. Barton Beers imported
and
marketed the Modelo brands - Corona, Corona Light, Pacifico, Negro Modelo
and
Modelo Especiale. Barton Beers also imported Tsingtao from China, Double
Diamond
from England, St. Pauli Girl from Germany, Peroni from Italy and Point Beer
from
the Steven Point Brewing Company. Since January, 2002, Mr. Schwalm has served
as
the Chief Executive Officer and President of the Thousand Islands Country
Club,
an exclusive golfing resort, and The Preserve, a luxury residential development,
both located in upstate NY. Mr. Schwalm graduated in 1968 from the University
of
Wisconsin.
Fredrick
Schulman served as the Chairman and President of Gourmet Group, Inc. from
September 2000 until March of 2005 and he has been a member of our Board
of
Directors since March, 2005. He has 25 years of experience in corporate and
commercial finance, venture capital, leveraged buy outs, investment banking
and
corporate and commercial law. Mr. Schulman's career includes key positions
with
RAS Securities in New York from 1994 to 1998 as General Counsel and Investment
Banker, eventually becoming Executive Vice President and Director of Investment
Banking. From 1999 to September, 2001, he was President of Morgan Kent Group,
Inc., a venture capital firm based in New York and Austin, Texas. Since
September, 2003, Mr. Schulman has served as Chairman of Skyline Multimedia
Entertainment, Inc., and, since September, 2002, he has served as President
and
Director of East Coast Venture Capital, Inc., a specialized small business
investment company and community development entity based in New York. Since
September, 2006, Mr. Schulman also has served as chairman of the board of
directors of NewBank, a New York charted commercial bank.
Jeffrey
Daub has served as the Company's Chief Financial Officer since May 22, 2007
and
its controller since November, 2006. Prior to joining the Company, from 1992
to
November, 2006, he was employed by Rosen Seymour, Shaps Martin & Company LLP
("RSSM"), a public accounting firm in New York City, where he most recently
served as an audit manager. From July, 2006 to November, 2006, while at RSSM,
Mr. Daub assisted in the Company's internal accounting functions and with
the
preparation of its periodic filings with the Securities and Exchange Commission.
At RSSM, Mr. Daub provided services to clients, both private and public,
in
various industries, including the supervision and performance of financial
audits. Mr. Daub, 41 years old, is a Certified Public Accountant as well
as an
Accredited Business Valuator. He was awarded a B.S. in Applied Mathematics
and
Statistics with a Minor in Business from SUNY Stony Brook and an M.S. in
Accounting from Long Island University.
Mr.
Millet joined our Board of Directors in March, 2007. Mr. Millet has over
40
years experience in consumer products and has spent over 20 years in senior
management positions in the beverage industry. Since 2000, Mr. Millet has
acted
as an international consultant to various clients in the beverage industry.
From
1989 through 2000, Mr. Millet worked for The Seagram Company Ltd where he
served
as a member of the Seagram Spirits & Wine Executive Council. From 1991
through 1997, he served as the President of Seagram Global Brands Division
where
he was responsible for production and business development for Martell Cognacs,
Mumm and Perrier-Jouet Champagnex and Barton & Guestier wines, as well as
scotch whiskey operations (Chivas Brothers and Glenlivet). From 1989 through
2000 Mr. Millet was the Chief Executive Officer and Chairman of Seagram's
Mumm
Martell Group. Mr. Millet has previously served as Chairman of Barton &
Guestier SA, a member of the Board of Directors of Martell Cognac, a member
of
the Board of Directors and Chief Executive Officer of G.H. Mumm, a member
of the
Board of Directors and Chief Executive Officer of Perrier-Jouet, a member
of the
Board of Directors of Tropicana Europe, and Chairman of the Board of Directors
of Herve Leger (Fashion Co.). From 1977 through 1989, Mr. Millet worked for
Groupe Cointreau where he served in various roles, including the Chief Executive
Officer of the Cointreau Group and as Cointreau's Finance & Development
Director. From 1970 through 1977 Mr. Millet worked for the British American
Tobacco Company, Cosmetics and Beauty Products Division, where he served
in
various roles including as a Vice President responsible for finance and
development with respect to the divisions of European operation.
Mr.
Millet has also served as a member of the Board of Directors of Parfums Hermes
(1982-2007), a member of the Hermes Group Strategic Committee (1982-2001),
and
serves as a member of the Board of Directors of Hermes USA, and a member
of the
Board of Directors of The Savannah College of Art and Design. Mr. Millet
has
been the recipient of various rewards, including Officier de la Legion
d'honneur, Officer dans l'Ordre National du Merite and Medaille Commemorative
d'Algerie.
AUDIT
COMMITTEE
Our
Audit
Committee consists of Fredrick Schulman as Chairman and Marvin Traub. The
Audit
Committee will assist the Board in fulfilling its oversight responsibilities
relating to the integrity of our financial statements, compliance with legal
and
regulatory requirements, the independent auditor's qualifications and
independence, and the performance of the independent auditor. It is not the
duty
of the Audit Committee to plan or conduct audits, to prepare our financial
statements or to determine that our financial statements and disclosures
are
complete and accurate and are in accordance with generally accepted accounting
principles and applicable rules and regulations. These are the responsibilities
of management and the independent auditor. In discharging its responsibilities,
the Audit Committee expects to engage our independent auditors, approve the
services performed by such auditors, review and evaluate our accounting
principles and our system of accounting controls, and review with the auditors
our quarterly unaudited and annual audited financial statements and the results
of the reviews and audit thereof.
The
Board
has determined that all current members of the Audit Committee have the ability
to read and understand fundamental financial statements. The Board has also
determined that Fredrick Schulman qualifies as "Audit Committee financial
expert" as defined under Item 410(h) of Regulation S-B of the Securities
Exchange Act of 1934 (the "Exchange Act"). Mr. Schulman, in his capacity
as
Chairman and Chief Executive Officer of Gourmet Group, Inc. for over four
years,
directly supervised the financial staff of the Company and coordinated the
preparation of the Company's financial statements with its outside auditors.
As
a result of this relationship with Gourmet Group, Inc., Mr. Schulman may
not be
viewed as an independent director.
COMPENSATION
COMMITTEE
The
Compensation Committee was recently formed and consists of Bruce Klein as
Chairman, Fredrick Schulman and Thomas Schwalm. The Compensation Committee
will
assist the Board in fulfilling its oversight responsibilities relating to
officer and director compensation, succession planning for senior management,
development and retention of senior management.
CODE
OF ETHICS
The
Company has adopted a written code of ethics that applies to the Company's
principal executive officer, principal financial officer, principal accounting
officer and any persons performing similar functions. The Company will provide
a
copy of its code of ethics to any person without charge upon written request
addressed to 372 Danbury Road, Wilton, CT 06897.
COMPENSATION
OF EXECUTIVE OFFICERS
The
following table shows for fiscal years ended April 30, 2007 and 2006,
respectively, certain compensation awarded or paid to, or earned by, the
following persons (collectively, the "Named Executive Officers"): J. Patrick
Kenny, our President and Chief Executive Officer; Bruce Klein, our Chairman
of
the Board; and Jason Lazo, our Chief Operating Officer.
Other
than the Named Executive Officers, none of our executive officers earned
more
than $100,000 in salary and bonus for the 2007 or 2006 fiscal years. We did
not
grant options to them during the period indicated but, because of inadequate
working capital, we did issue shares of restricted stock to them in partial
satisfaction of the salary indicated below. The stock we issued to our named
executive offices in satisfaction of compensation owed to them was valued
based
on the market value of the shares on the over-the-counter Bulletin Board
on the
date such individual agreed to accept such shares in lieu of a portion of
any
accrued and unpaid salary owed to him on such date. Such issuances were not
part
of a formal plan or arrangement and were negotiated individually between
the
Company and the named executive officer involved.
SUMMARY
COMPENSATION TABLE
NAME
AND
PRINCIPAL
POSITION
|
|
FISCAL
YEAR
|
|
SALARY
($)
|
|
BONUS
($)
|
|
STOCK
AWARDS
($)
|
|
ALL
OTHER
COMPENSATION
($)
|
|
TOTAL
($)
|
|
J.
Patrick Kenny
|
|
|
2007
|
|
$
|
275,000
|
|
$
|
260,000
|
|
$
|
50,000
|
|
$
|
35,994
|
|
$
|
620,994
|
|
Chief
Executive
|
|
|
2006
|
|
|
243,500
|
|
|
--
|
|
|
--
|
|
|
26,647
|
|
|
270,147
|
|
Officer
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jason
Lazo
|
|
|
2007
|
|
$
|
164,581
|
|
$
|
100,000
|
|
$
|
237,119
|
|
$
|
110,000
|
|
$
|
611,700
|
|
Chief
Operating
|
|
|
2006
|
|
|
150,000
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
150,000
|
|
Officer
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard
Shiekman
|
|
|
2007
|
|
$
|
134,169
|
|
|
--
|
|
|
--
|
|
$
|
11,000
|
|
$
|
142,250
|
|
President
|
|
|
2006
|
|
|
135,000
|
|
|
--
|
|
|
--
|
|
|
9,000
|
|
|
144,000
|
|
Drinks
Global,LLC (3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brian
Kenny
|
|
|
2007
|
|
$
|
86,336
|
|
$
|
10,000
|
|
$
|
42,660
|
|
|
--
|
|
$
|
138,996
|
|
V.P.
Marketing (4)
|
|
|
2006
|
|
$
|
75,000
|
|
|
--
|
|
|
--
|
|
|
--
|
|
$
|
75,000
|
|
(1)
Stock
awards represent the issuance of 50,000 shares of our common stock to Mr.
Kenny
in the fourth quarter of fiscal 2007 which are valued at fair market value
on
the date of grant in accordance with FAS 123R at $3.03 per share . The cash
bonus was approved by our board in consideration for the service that Mr.
Kenny
has made to our Company for the past five years from our inception. Bonuses
were
not paid in prior years due to limited capital. Other compensation of $35,994
in
fiscal 2007 and $26,647 in fiscal 2006 represents payments of personal major
medical and life insurance premiums. We currently have no corporate sponsored
employee benefit plans.
(2)
Stock
awards represent the one-time issuance of 150,075 shares of our common stock
issued to Mr. Lazo in the third quarter of fiscal 2007 for services provided
to
the Company in connection with the successful launch of Trump Super Premium
Vodka, which are valued at market value on the date of grant in accordance
with
FAS 123R at $1.58 per share. The cash bonus was approved by our board in
consideration for the service that Mr. Lazo has made to our Company for the
past
5 years from from our inception. Bonuses were not paid in prior years due
to
limited capital Other compensation of $110,000 in fiscal 2007 represents
the
gross-up amount reimbursed to Mr. Lazo for the payment of taxes on the value
of
the 150,075 shares of common stock he received.
(3)
Other
compensation of $11,000 in fiscal 2007 and $9,000 in fiscal 2006 represent
payments of personal major medical premiums.
(4)
Stock
awards represent the issuance of 27,000 shares of our common stock issued
to Mr.
Kenny in the third quarter of fiscal 2007 provided to the Company in connection
with the successful launch of Trump Super Premium Vodka which are at fair
market
value on the date of grant valued in accordance with FAS 123R at $1.58 per
share.
INCENTIVE
PLANS
In
June,
2007, our Board of Directors adopted our 2005 Stock Incentive Plan (the "Plan").
The total number of shares of our Common Stock that may be subject to awards
under the Plan 7,000,000 shares. We expect to submit the Plan to our
stockholders for approval within 12 months of the Plan's adoption by the
Board.
No awards have been issued under the Plan.
OPTION
GRANTS IN LAST FISCAL YEAR
We
did
not grant to the Named Executive Officers options to purchase shares in fiscal
2007.
Aggregated
Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
None
of
our officers held options to purchase shares of our common stock during fiscal
2007
EMPLOYMENT
AGREEMENTS
We
have
not entered into any employment agreements with our executive officers or
other
employees to date. We may enter into employment agreements with them in the
future.
DIRECTOR
COMPENSATION
The
following table represents a summary of the compensation paid to our directors
for their services on our board of directors during the fiscal year ended
April
30, 2007. Except as listed below, there were no bonuses, other annual
compensation, restricted stock awards or stock options/SARs, or any other
compensation paid to the directors listed for their services as a director
of
the Company. Except as disclosed in the table below, no compensation was
paid to
our directors for any of the last three fiscal years for their services as
directors of the Company.
Directors
Compensation for the Fiscal Year Ended April 30, 2007
Name
|
|
Cash
Fees
($)
|
|
Stock
Awards
($)
|
|
Total
($)
|
|
Bruce
Klein
|
|
$
|
25,000
|
|
$
|
50,000
|
|
$
|
75,000
|
|
Thomas
Schwalm
|
|
|
25,000
|
|
|
50,000
|
|
|
75,000
|
|
Marvin
Traub
|
|
|
25,000
|
|
|
50,000
|
|
|
75,000
|
|
Frederick
Schulman
|
|
|
25,000
|
|
|
50,000
|
|
|
75,000
|
|
Hubert
Millet
|
|
|
--
|
|
|
--
|
|
|
--
|
|
Except
for Mr. Millet, in the fourth quarter of fiscal 2007, each director of the
Company who is not an employee was paid $25,000 in cash and issued 16,502
shares
of our common stock for services rendered as a director. The common stock
was
valued at fair market value on the date of grant in accordance with FAS 123R
at
$3.03 per share. Mr. Millet joined the Board in March, 2007 and in the first
quarter of fiscal 2008 was awarded 40,000 shares of our common stock for
services he will render as a member of our Board of Directors.
In
fiscal
2007, certain directors were paid interest on loans they have made to the
Company (These payments are desorbed in the section of this prospectus entitled
“Certain Relationships and Related Party Transactions”). In addition, in fiscal
2007, a Company wholly owned by Marvin Traub earned consulting fees of $100,000
for work not related to serving on our board and was issued 365,210 shares
of
our common stock (See “Certain Relationships and Related Party
Transactions”)
.
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
Between
July 2004 and December 2004 Fredrick Schulman, one of our directors (who
was
then Gourmet Group, Inc.'s president and chairman) extended a payable on
demand
unsecured credit facility to the Company in an amount of up to $291,000.
Mr.
Schulman borrowed $172,230 of this amount from third parties and in turn
lent
this amount to us. The remaining $118,700 was from Mr. Schulman's own funds.
All
but one of the third parties from whom Mr. Schulman borrowed these funds,
comprising $157,500, in the aggregate, demanded repayment from him in December
2004, and Mr. Schulman soon thereafter demanded that we repay him a like
amount.
Since we were unable to do so we agreed in March 2005, to issue 350,000
restricted shares of our common stock (which we valued at $0.45 per share),
which shares were delivered to the third parties who demanded repayment of
their
loans of $157,500, in consideration for their forbearance with respect to
this
debt. The highest amount outstanding under this facility was $290,898, and
the
entire principal together with interest in the amount of $67,575 was repaid
over
time with the last payment made on January 31, 2007. The aggregate amount
paid
to Mr. Schulman during our fiscal year ended April 30, 2007 was
$252,473.
In
April
2005, in connection with a $1,350,000 private placement of senior convertible
promissory notes, Greenwich Beverage Group, LLC ("Greenwich"), a company
owned
by Thomas Schwalm, loaned us $100,000 and we issued to Greenwich a note in
like
amount. Interest accrued on this note aggregated $410 and $10,556 as of April
30, 2005 and 2006, respectively. During fiscal 2005 and 2006 no principal
or
interest was paid. In connection with the note, Greenwich received warrants
to
purchase 100,000 shares of our common stock at $0.45 per share. Mr. Schwalm
converted the $100,000 of the principal outstanding on this note, together
with
accrued interest of $18,222, into 262,716 shares of our common stock in January,
2007. No other payments were made on this note in our 2007 fiscal
year.
In
fiscal
2003 we entered into a consulting agreement with a company, Marvin Traub
&
Associates ("MTA"), owned 100% by Marvin Traub, a member of the Board of
Directors. Under the agreement, MTA is being compensated at the rate of $100,000
per annum. In fiscal 2006, compensation to MTA aggregated $150,000 due to
additional work performed. In January 2006, MTA converted unpaid consulting
fees
aggregating $403,329 into 896,296 shares of our restricted common stock.
As of
April 30, 2006, we were indebted to MTA in the amount of $24,999. As of April
30, 2007 and December 31, 2007, we were indebted to MTA in the amounts of
$56,248 and $122,912, respectively. In December 2006, we issued 365,210 shares
of our common stock to MTA in consideration for services rendered in connection
with the launch of Trump Super Premium Vodka. This consulting agreement is
still
in force for fiscal 2008.
During
fiscal 2005 and 2006 we modified the two borrowing agreements with one of
our
shareholders, Ken Close, and his affiliate Nexcomm, with respect to borrowings
in the original aggregate amount of $1,021,000. One of the borrowing facilities
is secured, the other unsecured. During 2006, we paid Mr. Close and Nexcomm,
in
cash, an aggregate of $128,404 in principal and interest of $19,428, During
Fiscal 2005, we also issued him 222,000 shares of our common stock in
satisfaction of $100,000 of this debt. The balance outstanding on these loans
in
the principal amount of $346,433, together with accrued interest of $117,604,
was satisfied in December 2006 by the issuance and delivery of 627,933 shares
of
our common stock. No other payments were made on this debt in our 2007 fiscal
year.
We
also
issued secured convertible promissory notes to Mr. Close in the amount of
$150,000, evidencing loans made to us in fiscal year 2006. Greenwich also
participated in the lending facility by lending us $100,000 and was issued
a
secured convertible promissory note evidencing such debt. In connection with
these loans, Mr. Close and Greenwich were issued warrants, exercisable for
a
five-year period, to purchase 83,333 and 55,556 shares of our common stock,
respectively, at a price of $.45 per share. These warrants have cashless
exercise provisions. During fiscal 2006, the interest accrued on the loans
made
by Mr. Close and Mr. Schwalm was $5,950 and $4,767, respectively. In December
2006, we satisfied the outstanding principal amount owed to Mr. Close of
$150,000, together with accrued interest of $19,700, by the issuance and
delivery of 377,111 shares of our common stock. Also in December 2006, we
satisfied the outstanding amount owed to Greenwich of $100,000, together
with
accrued interest of $13,933, by the issuance and delivery of 253,185 shares
of
our common stock. No other payments were made on these notes in our 2007
fiscal
year.
On
July
27, 2006, the Company borrowed $153,112 from an entity controlled by Mr.
Close,
which is not documented and is payable on demand. Mr. Close beneficially
owned
33 1/3 percent of the entity. In December 2006, we satisfied the outstanding
principal amount of $153,112, together with accrued interest of $7,886, by
the
issuance and delivery of $217,565 shares of our common stock. No other payments
were made on this loan in our 2007 fiscal year. Mr. Close received 72,522
shares
on the liquidation of the entity.
In
August
2006, Mr. Klein lent us $75,000 which we paid, together with interest of
$2,219
in February 2007.
In
May
2004 we entered into an unsecured $200,000 bank credit facility with interest
at
1.5% above the prime rate, and as of April 30, 2006 we owed the bank $200,000.
Fabio Berkowicz, our former Chief Financial Officer, has personally guaranteed
our obligation to the bank. We repaid this loan in February, 2007. In addition
we incurred fees to a consulting firm controlled by Mr. Berkowicz totaling
$80,666 in fiscal 2005 for services rendered to us by Mr. Berkowicz through
this
entity. In fiscal 2005, we satisfied consulting fee obligations to this entity
totaling $71,666 by issuing 159,258 restricted shares of our common stock.
In
December 2006, we issued 150,075 shares of our common stock to Mr. Lazo as
a
bonus.
Between
October and November, 2006, we sold 333,333 shares of our common stock to
Greenwich for $200,000. In connection with this investment, Greenwich was
issued
warrants, exercisable for five years from the investment, to purchase 166,667
shares of our common stock for $1.25 per share. We have the option to redeem
these warrants at any time prior to exercise for $.50 per share.
We
incurred licensing royalty expenses of approximately $73,000 and $52,000
in
fiscal 2006 and 2007, respectively, to Old Whiskey River Distilling Company,
LLC
and Y Sake, LLC in which we own 25 percent membership interests.
In
February 2007, four members of our Board of Directors, Messrs. Schulman,
Klein,
Traub and Schwalm were each paid $25,000 and issued 16,502 shares of our
common
stock as compensation for serving on our Board of Directors. In addition,
Mr.
Kenny was issued 16,502 shares of our common stock as a bonus for services
he
has provided to us in his position as our Chief Executive Officer.
In June
2007, Mr. Millet was issued 40,000 shares of our common stock as compensation
for services he will render for serving on our Board of
Directors.
From
July
through December 2007 the Company borrowed an aggregate of $514,321 from
our
Chief Executive Officer for working capital purposes. This loan bears interest
at 12% annum. As of December 31, 2007, $81,125 has been repaid and $454,000
remains outstanding, including interest.
PLAN
OF DISTRIBUTION
Each
selling security holder of the common stock and any of their pledgees, assignees
and successors-in-interest may, from time to time, sell any or all of their
shares of common stock on the OTC Bulletin Board or any other stock exchange,
market or trading facility on which the shares are traded or in private
transactions. These sales may be at fixed or negotiated prices. As selling
security holder may use any one or more of the following methods when selling
shares:
x
ordinary brokerage
transactions and transactions in which the broker-dealer solicits
purchasers;
x
block trades in which the broker-dealer
will attempt to sell the shares as agent but may position and resell a portion
of the block as principal to facilitate the transaction;
x
purchases by a broker-dealer as
principal and resale by the broker-dealer for its account;
x
an exchange distribution in accordance
with the rules of the applicable exchange;
x
privately negotiated
transactions;
x
settlement of short sales entered into
after the effective date of the registration statement of which this prospectus
is a part;
x
broker-dealers may agree with the
selling security holders to sell a specified number of such shares at a
stipulated price per share;
x
through the writing or settlement of
options or other hedging transactions, whether through an options exchange
or
otherwise;
x
a combination of any such methods of
sale; or
x
any other method permitted pursuant to
applicable law.
The
selling security holder may also sell shares under Rule 144 under the Securities
Act of 1933, as amended (the "Securities Act"), if available, rather than
under
this prospectus.
Broker-dealers
engaged by the selling security holders may arrange for other brokers-dealers
to
participate in sales. Broker-dealers may receive commissions or discounts
from
the selling security holders (or, if any broker-dealer acts as agent for
the
purchaser of shares, from the purchaser) in amounts to be negotiated, but,
except as set forth in a supplement to this prospectus, in the case of an
agency
transaction not in excess of a customary brokerage commission in compliance
with
NASDR Rule 2440; and in the case of a principal transaction a markup or markdown
in compliance with NASDR IM-2440.
In
connection with the sale of the common stock or interests therein, the selling
security holders may enter into hedging transactions with broker-dealers
or
other financial institutions, which may in turn engage in short sales of
the
common stock in the course of hedging the positions they assume. The selling
security holders may also sell shares of the common stock short and deliver
these securities to close out their short positions, or loan or pledge the
common stock to broker-dealers that in turn may sell these securities. The
selling security holders may also enter into option or other transactions
with
broker-dealers or other financial institutions or the creation of one or
more
derivative securities which require the delivery to such broker-dealer or
other
financial institution of shares offered by this prospectus, which shares
such
broker-dealer or other financial institution may resell pursuant to this
prospectus (as supplemented or amended to reflect such
transaction).
The
selling security holders and any broker-dealers or agents that are involved
in
selling the shares may be deemed to be "underwriters" within the meaning
of the
Securities Act in connection with such sales. In such event, any commissions
received by such broker-dealers or agents and any profit on the resale of
the
shares purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act. Each selling security holder has informed
the Company that it does not have any written or oral agreement or
understanding, directly or indirectly, with any person to distribute the
common
stock. In no event shall any broker-dealer receive fees, commissions and
markups
which, in the aggregate, would exceed eight percent (8%).
The
Company is required to pay certain fees and expenses incurred by the Company
incident to the registration of the shares. The Company has agreed to indemnify
the selling stockholders against certain losses, claims, damages and
liabilities, including liabilities under the Securities Act.
Because
selling security holders may be deemed to be "underwriters" within the meaning
of the Securities Act, they will be subject to the prospectus delivery
requirements of the Securities Act including Rule 172 thereunder. In addition,
any securities covered by this prospectus which qualify for sale pursuant
to
Rule 144 under the Securities Act may be sold under Rule 144 rather than
under
this prospectus. There is no underwriter or coordinating broker acting in
connection with the proposed sale of the resale shares by the selling security
holders.
We
agreed
to keep this prospectus effective until the earlier of (i) the date on which
the
shares may be resold by the selling security holders without registration
and
without regard to any volume limitations by reason of Rule 144(k) under the
Securities Act or any other rule of similar effect or (ii) all of the shares
have been sold pursuant to this prospectus or Rule 144 under the Securities
Act
or any other rule of similar effect. The resale shares will be sold only
through
registered or licensed brokers or dealers if required under applicable state
securities laws. In addition, in certain states, the resale shares may not
be
sold unless they have been registered or qualified for sale in the applicable
state or an exemption from the registration or qualification requirement
is
available and is complied with.
Under
applicable rules and regulations under the Exchange Act, any person engaged
in
the distribution of the resale shares may not simultaneously engage in market
making activities with respect to the common stock for the applicable restricted
period, as defined in Regulation M, prior to the commencement of the
distribution. In addition, the selling security holders will be subject to
applicable provisions of the Exchange Act and the rules and regulations
thereunder, including Regulation M, which may limit the timing of purchases
and
sales of shares of the common stock by the selling security holders or any
other
person. We will make copies of this prospectus available to the selling security
holders and have informed them of the need to deliver a copy of this prospectus
to each purchaser at or prior to the time of the sale (including by compliance
with Rule 172 under the Securities Act).
DESCRIPTION
OF SECURITIES
As
of
March 7, 2008, our authorized capital stock consists of 100,000,000 shares
of
common stock, par value $.001 per share, of which there are 80,842,769
shares
issued and outstanding, and 1,000,000 shares of preferred stock, par value
$.001
per share, of which 11,000 shares are issued and outstanding.
Common
Stock
Holders
of shares of common stock are entitled to one vote for each share on all
matters
to be voted on by the stockholders. Holders of common stock do not have
cumulative voting rights. Holders of common stock are entitled to share ratably
in dividends, if any, as may be declared from time to time by the Board of
Directors in its discretion from funds legally available therefore. In the
event
of a liquidation, dissolution or winding up of the Company, the holders of
our
common stock are entitled to share pro rata all assets remaining after payment
in full of all liabilities.
Holders
of our common stock have no preemptive rights. There are no conversion or
redemption rights or sinking fund provisions with respect to our common
stock.
PREFERRED
STOCK
Our
Board
of Directors is authorized to provide for the issuance of shares of preferred
stock in series and, by filing a certificate of designations, preferences
and
rights pursuant under Delaware law, to establish from time to time the number
of
shares to be included in each such series, and to fix the designation, powers,
preferences and rights of the shares of each such series and the qualifications,
limitations or restrictions thereof without any further vote or action by
the
shareholders. Any shares of preferred stock so issued are likely to have
priority over our common stock with respect to dividend or liquidation rights.
Any future issuance of preferred stock may have the effect of delaying,
deferring or preventing a change in control of the Company without further
action by the shareholders and may adversely affect the voting and other
rights
of the holders of common stock.
The
issuance of shares of preferred stock, or the issuance of rights to purchase
such shares, could be used to discourage an unsolicited acquisition proposal.
For instance, the issuance of a series of preferred stock might impede a
business combination by including class voting rights that would enable the
holder to block such a transaction, or facilitate a business combination
by
including voting rights that would provide a required percentage vote of
the
stockholders. In addition, under certain circumstances, the issuance of
preferred stock could adversely affect the voting power of the holders of
the
common stock. Although the Board of Directors is required to make any
determination to issue such stock based on its judgment as to the best interests
of our stockholders, the Board of Directors could act in a manner that would
discourage an acquisition attempt or other transaction that some, or a majority,
of the stockholders might believe to be in their best interests or in which
stockholders might receive a premium for their stock over the then market
price
of such stock. The Board of Directors does not at present intend to seek
stockholder approval prior to any issuance of currently authorized preferred
stock, unless otherwise required by law.
On
December 18, 2007, we amended our Certificate of Incorporation to establish
our
Series A Preferred Stock at $0.001 par value. We have issued 11,000 shares
of
Series A Preferred Stock (hereinafter the "Series A Preferred Stock" or
the
"Preferred Stock"). The Preferred Stock is convertible into common stock
at
$0.50 per share, which if all of the Preferred Stock is converted, would
result
in the issuance of 22,000,000 shares of our common stock. The Preferred
Stock
has no voting or divided rights and has a liquidation preference of $1,000
per
share; $11,000,000 in the aggregate.
The
Certificate of Designation of Preferences, Rights and Limitations of our
Series
A Preferred Stock (the Certificate) provide the holders thereof with numerous
rights and privileges and impose various limitations on the Company.
So
long
as any shares of our Series A Preferred Stock is outstanding, without
the
consent of the holders of at least 51% in stated value of the then outstanding
shares of the Series A Preferred Stock, subject to certain limited exceptions,
we may not (i)
enter
into, create, incur, assume, guarantee or suffer to exist any indebtedness
for
borrowed money or liens on any of our assets, (ii) amend our certificate
of
incorporation, bylaws or other charter documents so as to materially
and
adversely affect any rights of any holder of the Series A Preferred Stock,
(iii)
repurchase or offer to repay, repurchase or otherwise acquire more than
a de
minimis number of shares of our common or other securities or (iv) p
ay
cash
dividends or distributions on common stock or other securities of the
Company.
Also,
although the Series A Preferred Stock generally has no voting rights,
we may not
without, the a
ffirmative
vote of holders of 60% or more of the then outstanding shares of the
Series A
Preferred Stock, take certain actions, including (a) alter or change
adversely
the powers, preferences or rights given to the preferred stock or alter
or amend
the Certificate, (b) authorize or create any class of stock ranking as
to
redemption or distribution of assets upon a liquidation (as defined in
the
Certificate) senior to or otherwise
pari
passu
with the
Series A Preferred Stock, (c) amend its certificate of incorporation
or other
charter documents in any manner that adversely affects any rights of
the holders
of such preferred shares, or (d) increase the number of authorized shares
of the
Series A Preferred Stock.
In
addition, in the event a Triggering Event (as defined in the Certificate),
occurs we will be required to redeem the Series A Preferred Stock at
the greater
of 110% of its stated value or the value of the common stock which may
be
acquired on the conversion of the Preferred Stock, which value generally
is
determined based on the weighted average trading value of our common
stock on
the date the Triggering Event occurs. Triggering events include (i) our
failure
to deliver certificates representing shares of common stock issuable
upon
conversion of the Preferred Stock prior to the fifth trading day after
such
shares are required to be delivered, (ii) after the date that shareholder
approval is obtained to amend our charter to increase the number of shares
of
common stock we are authorized to issue to 200,000,000 shares, we fail
to have
available a sufficient number of authorized and unreserved shares of
common
stock to allow for conversion of the Preferred Stock, (iii) we materially
fail
to observe or perform any other covenant, agreement or warranty contained
in, or
otherwise commit any breach of the transaction documents we executed
in
connection with the January Private Placement, (iv) subject to certain
limited
exceptions, we redeem shares of our common stock or common stock equilivants,
(v) we are the subject of a Change in Control Transaction (as defined
in the
Certificate), which includes the acquisition of in excess of 40% or our
voting
securities (other than by conversion of the Preferred Stock and the warrants
issued to the placement agent in the December Private Placement) or,
we are a
party to a merger in which our shareholders own less than 60% of the
voting
power of the surviving entity or, we sell or transfer all or substantially
all
of our assets and our shareholders own less than 60% of the voting power
of the
transferee, or within a one year period more that one-half of the members
of our
board of directors are removed and such removal is not approved by a
majority of
the board, (vi) we are the subject of bankruptcy proceeding (in the event
of an
involuntary filing, which shall not have been dismissed within 75 days),
(viii)
our common stock shall fail to be listed or quoted for trading on a trading
market (as defined in the Certificate) for more than five trading days,
or
(viii) we shall not have amended our Certificate of Incorporation to
increase
the number of shares of common stock we are authorized to issue to 200,000,000
shares on or before June 30, 2008.
Under
certain circumstances, provided the daily dollar trading volume for our
common
stock exceeds $100,000 per trading day for 20 consecutive trading days,
we have
the right to cause each holder of our Series A Preferred Stock to convert
all or
part of such stock. Our ability to cause such conversions is subject
to numerous
material conditions including that we shall have amended our Certificate of
Incorporation as described herein and that the closing bid price per
share of
our common stock, on the trading market on which it trades, for a ten
consecutive trading day period exceeds $1.50. This provision does not
apply
until the earlier of (i) the 90
th
day
after the effective date of this registration statement or (ii) the date
that
all of the shares of common stock purchasable on conversion of the Series
A
Preferred Stock can be sold pursuant to Rule 144 without volume or manner
restrictions. Another of the conditions to a forced conversion is that
there is
an effective registration statement permitting the resell of the shares
of
common stock subject to conversion or such shares can be sold pursuant
to Rule
144 without volume or manner restrictions.
The
Certificate provides that we shall not effect any conversion of the Series
A
Preferred Stock, nor would the forced conversion provisions apply, and
the
holders shall not have the right to convert any portion of the Preferred
Stock
to the extent that, after giving effect to the conversion, such holder
(together
with its affiliates) would beneficially own in excess of 9.99% of the
number of
shares of our common stock outstanding immediately after the conversion,
with
beneficially ownership to be calculated in accordance with Section 13(d)
of the
Exchange Act. The determination of whether this limitation applies is
in the
sole discretion of the holder of the Series A Preferred stock, the conversion
of
whose preferred shares is at issue.
For a discussion of
additional restrictions on the Company resulting from our December Private
Placement, see the discussion of our December Private Placement in the
section
of this prospectus entitled Financial Liquidity and Capital Resources
on page 22
of this prospectus.
We
do not
have sufficient shares of common stock available to allow for the conversion
of
all of the Preferred Stock into common stock. We have agreed to amend our
Certificate of Incorporation to increase the number of shares of common
stock we
are authorized to issue to 200,000,000. Approval of our stockholders shall
be
required to effect such amendment under Delaware law and we have agreed
to hold
a special meeting of our stockholders at the earliest possible date, but
in any
event on or prior to June 15, 2008, for the purpose of securing such approval.
Alternatively, we may accomplish such approval by the written consent of
our
shareholders representing over 50% of our outstanding common
stock.
SELLING
SECURITY HOLDERS
Based
on
information provided by the selling security holders, the table below sets
forth
certain information, as of March 8, 2008 unless otherwise noted, regarding
the selling security holders.
The
shares being offered by the selling security holders are as set forth in
the
table below.
Percentage
ownership of common stock is based on 80,842,769 shares of our common stock
outstanding as of March 7, 2008. In addition, the table below assumes for
calculating each selling security holder's beneficial ownership following
this
offering, that options, warrants and convertible securities held by such
security holder (but not, unless otherwise noted, those held by any other
person) that are exercisable within 60 days of March 7, 2008 or, if not
exercisable within the 60-day period, the common stock purchasable thereunder
are being registered for resale under this registration statement, have
been
exercised and converted and the shares underlying them added to the number
of
shares of our common stock deemed to be outstanding. Further, the holders
of the
common stock issuable on the conversion of our Series A Preferred Stock
and on
exercise of warrants may sell pursuant to this prospectus shares of common
stock
which they may at a later date acquire pursuant to the anti-dilution provisions
of
our
preferred stock and the warrants by reason of any stock dividend, stock
split,
recapitalization or other similar transaction effected without the receipt
of
consideration that results in an increase in the number of the outstanding
shares of common stock.
These shares are not included in the table below.
For purposes of calculating the post-offering ownership of each selling
security
holder, the table also assumes the sale of all of the securities being
offered
by such selling security holder.
On
December 18, 2007, we sold to three related selling security holders,
who can be
identified by reference to footnote 8 in the chart below (the "December
Investors"), an aggregate of 3,000 shares of our Series A Preferred Stock,
$.001
par value (our "Preferred Stock"), at a cash purchase price of $1,000
per share,
generating gross proceeds of $3,000,000 (the “December Private Placement” or the
"December Financing"). The Preferred Stock is convertible into shares
of our
common stock at $.50 per share which, if all of the Preferred Stock is
converted, would result in the issuance of 6,000,000 shares of our common
stock.
The Preferred Stock has no voting or dividend rights. We also issued
to the
placement agent, who is a selling security holder, warrants to acquire
600,000
shares of our common stock for a purchase price of $.50 per share (the
"December
Placement Agent Warrants"), which warrants are exercisable for a five
year
period. The Placement Agent had previously been issued warrants to acquire
444,445 shares of our common stock in connection with our January 2007
Private
Placement described below (the "January Placement Agent
Warrants").
The
first
five of the selling security holders listed on the chart below (the “January
Investors”) were investors in our January 2007 Private Placement (the "January
Private Placement" or the "January Financing") and acquired an aggregate
of
4,444,445 shares of common stock in such offering. These shares were
subsequently exchanged for 8,000 shares of our Preferred Stock, and are
therefore no longer outstanding. The Preferred Stock they received in
the
exchange is convertible into 16,000,000 shares of our common stock. Further,
these selling security holders were issued an aggregate of 5,000,000
shares of
our common stock (the “Waiver Shares”) in consideration for their waiver of
certain anti-dilution provisions of warrants to acquire 3,778,778 shares
of our
common stock which they had acquired in our January Private Placement
(the
"January Warrants"). The common stock purchasable on conversion of the
preferred
stock referred to in this and the preceding paragraphs, 22,000,000 shares
in
total, and the 600,000 shares of our common stock purchasable under the
Placement Agent Warrants are the subject of this prospectus. For further
details
regarding our January 2007 and December 2007 Private Placements, see
the related
discussion in the section of this prospectus entitled Financial Liquidity
and
Capital Resources on page 22 of this prospectus.
NAME
OF SELLING SECURITY HOLDERS
|
|
NUMBER
OF
SHARES
OF
COMMON
STOCK
BENEFICIALLY
OWNED
PRIOR TO
THE
OFFERING
SHARES
|
|
NUMBER
OF
SHARES
BEING
OFFERED
SHARES
|
|
BENEFICIAL
OWNERSHIP
AFTER
OFFERING
IF
ALL
SHARES
ARE
SOLD
|
|
PERCENTAGE
OF
COMMON
STOCK
BENEFICIALLY
OWNED
AFTER THE
OFFERING
IF ALL
SHARES
ARE SOLD
|
|
Enable
Growth Partners LP (1)(7)
|
|
|
18,486,419
|
|
|
13,600,000
|
|
|
4,886,419
|
|
|
5.17
|
|
Enable
Opportunity Partners LP (2)(7)
|
|
|
2,148,611
|
|
|
1,600,000
|
|
|
548,611
|
|
|
*
|
|
Lyrical
Opportunity Partners II LP (3)(8)
|
|
|
3,995,417
|
|
|
2,580,000
|
|
|
1,415,417
|
|
|
1.70
|
|
Lyrical
Opportunity Partners II Ltd. (4)(8)
|
|
|
5,296,250
|
|
|
3,420,000
|
|
|
1,876,250
|
|
|
2.23
|
|
Pierce
Diversified Strategy Master Fund LLC, Ena (5)(7)
|
|
|
1,077,331
|
|
|
800,000
|
|
|
277,331
|
|
|
*
|
|
Midtown
Partners & Co.,LLC (6)
|
|
|
156,667
|
|
|
90,000
|
|
|
66,667
|
|
|
*
|
|
Bruce
Jordan (6)
|
|
|
52,222
|
|
|
30,000
|
|
|
22,222
|
|
|
*
|
|
Richard
Henri Kreger (6)
|
|
|
597,222
|
|
|
375,000
|
|
|
222,222
|
|
|
*
|
|
Ariel
Imas (6)(9)
|
|
|
35,556
|
|
|
-0-
|
|
|
35,556
|
|
|
*
|
|
Braden
Anthony Ferrai (6)(9)
|
|
|
26,667
|
|
|
-0-
|
|
|
26,667
|
|
|
*
|
|
RHK
Midtown Partners LLC (6)
|
|
|
176,111
|
|
|
105,000
|
|
|
71,111
|
|
|
*
|
|
TOTALS
|
|
|
32,048,473
|
|
|
22,600,000
|
|
|
9,448,473
|
|
|
9.10
|
%
|
(1)
Total
beneficial ownership includes: 13,600,000 shares of common stock purchasable
on
conversion of preferred stock and 2,006,944 shares of common stock issuable upon
exercise of warrants. Does not take into account provisions contained in
the
Certificate of Designation of our preferred stock which prevents conversion
of
such stock if it would result in the holder beneficially owning greater than
9.99% of our shares.
(2)
Total
beneficial ownership includes: 1,600,000 shares of common stock purchasable
on
conversion of preferred stock and 236,111 shares of common stock issuable
upon
exercise of warrants.
(3)
Total
beneficial ownership includes: 2,580,000 shares of common stock purchasable
on
conversion of preferred stock and 609,167 shares of common stock issuable
upon
exercise of warrants.
(4)
Total
beneficial ownership includes: 3,420,000 shares of common stock purchasable
on
conversion of preferred stock and 807,500 shares of common stock issuable
upon
exercise of warrants.
(5)
Total
beneficial ownership includes: 800,000 shares of common stock purchasable
on
conversion of preferred stock and 118,056 shares of common stock issuable
upon
exercise of warrants.
(6)
Total
beneficial ownership consists of an aggregate 1,044,444 shares of common
stock
issuable on the exercise of warrants which were issued to Midtown Partners
&
Co., LLC in connection with our January and December Private Placements
a
substantial portion of which were transferred to the holders who are affiliated
with Midtown Partners & Co., LLC. Midtown Partners & Co., LLC is a NASD
member, and assisted the Company in fundraising.
(7)
The
selling shareholders referenced by this footnote are under common control
and
the same person has the power to disprove of the securities.
(8)
The
selling shareholders referenced by this footnote are under common control
and
the same person has the power to disprove of the securities.
(9)
Although
not Selling Security Holders in this offering, these individuals have been
included on this chart because they are identified in charts subsequently
presented in this prospectus. These individuals were assignees of a portion
of
the warrants issued to Midtown Partners & Co., LLC in connection with the
January Financing.
*
Less
than 1%
Additional
Disclosure
Dollar
Value of Underlying Securities Registered for Resale in this Prospectus
The
total dollar value of the shares of common stock underlying the securities
issued in connection with the December Financing that we have registered
for
resale (using the number of underlying securities that we have registered
for
resale and the market price per share for those securities on December
18
,
2007,
the closing date of the December Financing) are as follows:
December
18, 2007 Financing
Shares
of Common Stock Registered for Resale Underlying Preferred
Stock and
Warrants:
|
|
$
|
22,600,000
|
|
Market
Price per Share of Common Stock on December 18, 2007:
|
|
|
0.33
|
|
Dollar
Value of Underlying Securities:
|
|
$
|
7,458,000
|
|
Payments
Made in Connection with the December Financing
The
following
tables disclose the dollar amount of each payment (including the value
of any
payments to be made in common stock) in connection with the December
Financing
that we have made or may be required to make to any selling security
holder, any
affiliate of a selling security holder, or any person with whom any selling
security holder has a contractual relationship regarding the transaction
(including any interest payments, liquidated damages, payments made to
“finders”
or “placement agents”, and any other payments or potential payments). The net
proceeds to the Company from the December Financing and except, as otherwise
provided, the total possible payments to all selling security holders
and any of
their affiliates in the first year following the December Financing are
also
provided.
NAME
OF SELLING SECURITY HOLDERS
|
|
PLACEMENT
AGENT COMMISSIONS
|
|
PLACEMENT
AGENT WARRANTS(a)
|
Enable
Growth Partners LP
|
|
__
|
|
__
|
Enable
Opportunity Partners LP
|
|
__
|
|
__
|
Lyrical
Opportunity Partners II LP
|
|
__
|
|
__
|
Lyrical
Opportunity Partners II Ltd.
|
|
__
|
|
__
|
Pierce
Diversified Strategy Master Fund LLC, Ena
|
|
__
|
|
__
|
Midtown
Partners & Co.,LLC
|
|
$
210,000
|
|
$18,000
|
TOTALS
|
|
$
210,000
|
|
$18,000
|
LEGAL
FEES TO INVESTORS COUNSEL
|
|
$
30,000
|
|
|
NET
PROCEEDS TO COMPANY
|
|
$2,760,000
|
|
|
|
(a)
|
Warrants
issued to Midtown Partners & Co., LLC to purchase 600,000 shares of
the Company’s common stock are valued using the Black-Scholes method based
on a 5 year life and a $0.50 per share purchase for common
stock.
|
We
have
agreed to use our best efforts to file, within 45 days of the closing
date of
the December Financing (the “Closing Date”), a Registration Statement covering
the resale of the shares of our common stock issuable on the conversion
of
Preferred Stock issued to the December Investors and the January Investors
and
the shares of our common stock issuable on exercise of the December Placement
Agent Warrants, and to cause such Registration Statement to be declared
effective by the Securities and Exchange Commission, within 90 days of
the
Closing Date subject to a thirty day extension in the event of a full
review by
the Securities and Exchange Commission(the “Required Registration Date”). In the
event we do not satisfy these requirements in a timely fashion we will
be
subject to penalties, equal to 1% of the aggregate purchase price paid
for the
Preferred Stock, on the Required Registration Date and an additional
2% on each
monthly anniversary of the Required Registration Date until the Registration
Statement is declared effective by the SEC. Notwithstanding the foregoing,
the
aggregate maximum amount of the penalties that may be imposed for such
failure
is 6% of the aggregate cash investment in the December 2007 Private Placement,
if such failure results from certain positions taken by the SEC during
its
review of our Registration Statement.
The
chart
presented above has been prepared on the assumption that no such penalties
will
accrue.
Potential
Profits on Conversion of Warrants and Preferred Stock
The
following table shows the total possible profit that the selling security
holders could realize as a result of the conversion discount for the
securities
underlying the December Financing.
December
18, 2007 Financing
Selling
Security Holder
|
|
Market
Price per Share of Common Stock on Closing Date of December
Financing
|
|
Conversion
Price of Warrants and Preferred Stock
|
|
Total
Possible
Shares
Underlying
Warrants
And
Preferred
Stock
|
|
Combined
Market
Price
of
Shares
Underlying
Warrants
And
Preferred
Stock
|
|
Combined
Conversion Price of Shares Underlying Warrants And Preferred
Stock
|
|
Total
Possible
Discount
to
Market
Price
|
Enable
Growth Partners LP
|
|
$ 0.33
|
|
$
0.50
|
|
13,600,000
|
|
$
4,488,000
|
|
$
6,800,000
|
|
(2,312,000)
|
Enable
Opportunity Partners LP
|
|
$ 0.33
|
|
$
0.50
|
|
1,600,000
|
|
$ 528,000
|
|
$
800,000
|
|
(272,000)
|
Lyrical
Opportunity Partners II LP
|
|
$
0.33
|
|
$
0.50
|
|
2,580,000
|
|
$ 851,400
|
|
$
1,290,000
|
|
(438,600)
|
Lyrical
Opportunity Partners II Ltd.
|
|
$
0.33
|
|
$
0.50
|
|
3,420,000
|
|
$
1,128,600
|
|
$
1,710,000
|
|
(581,400)
|
Pierce
Diversified Strategy Master Fund LLC, Ena
|
|
$
0.33
|
|
$
0.50
|
|
800,000
|
|
$
264,000
|
|
$
400,000
|
|
(136,000)
|
Midtown
Partners & Co., LLC
|
|
$
0.33
|
|
$
0.50
|
|
90,000
|
|
$
29,700
|
|
$
45,000
|
|
(
15,300)
|
Bruce
Jordan (1)
|
|
$
0.33
|
|
$
0.50
|
|
30,000
|
|
$
9,900
|
|
$
15,000
|
|
(5,100)
|
Richard
Henri Kreger (1)
|
|
$
0.33
|
|
$
0.50
|
|
375,000
|
|
$ 123,750
|
|
$
187,500
|
|
(63,750)
|
Ariel
Imas (2)
|
|
$
0.33
|
|
$
0.50
|
|
0
|
|
$
0
|
|
$
0
|
|
(0)
|
Braden
Anthony Ferrai (2)
|
|
$
0.33
|
|
$
0.50
|
|
0
|
|
$
0
|
|
$
0
|
|
(0)
|
RHK
Midtown Partners LLC (1)
|
|
$
0.33
|
|
$
0.50
|
|
105,000
|
|
$
34,650
|
|
$
52,500
|
|
(17,850)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
22,600,000
|
|
$
7,458,000
|
|
$
11,300,000
|
|
(3,842,000)
|
(1)
|
Constitutes
the portion of the December Placement Agent Warrants held by
the Selling
Security Holder by assignment from Midtown Partners &
Co., LLC.
|
(2)
|
Although
not Selling Security Holders in this offering, these individuals
have been
included on this chart because they are identified in charts
subsequently
presented in this prospectus. These individuals were assignees
of a
portion of the warrants issued to Midtown Partners & Co., LLC in
connection with the January
Financing.
|
Total
Potential Profit from Other Securities
The
following table shows the total possible profit to be realized as a result
of
any conversion discounts for securities underlying any other warrants,
options,
notes or other securities of the Company that are held by the selling
security
holders or any affiliates of the selling security holders. These securities
were
issued in the January Financing.
January
30, 2007 Financing
Selling
Security Holder
|
|
Market
Price per Share of Common Stock on Closing Date of
January
Financing
|
|
Exercise
Price of Warrants(1)
|
|
Total
Possible
Shares
Underlying
Warrants
(2)
|
|
Combined
Market
Price
of
Shares
Underlying
Warrants
|
|
Combined
Exercise
Price
of
Shares
Underlying
Warrants
|
|
Total
Possible
Discount
to
Market
Price(3)
|
Enable
Growth Partners LP
|
|
$
3.01
|
|
$
3.00
|
|
2,006,944
|
|
$
6,040,901
|
|
$
6,020,832
|
|
(20,069)
|
Enable
Opportunity Partners LP
|
|
$
3.01
|
|
$
3.00
|
|
236,111
|
|
$
710,694
|
|
$
708,333
|
|
(2,361)
|
Lyrical
Opportunity Partners II LP
|
|
$
3.01
|
|
$
3.00
|
|
609,167
|
|
$
1,833,593
|
|
$
1,827,501
|
|
(6,092)
|
Lyrical
Opportunity Partners II Ltd.
|
|
$
3.01
|
|
$
3.00
|
|
807,500
|
|
$
2,430,575
|
|
$
2,422,500
|
|
(8,075)
|
Pierce
Diversified Strategy Master Fund LLC, Ena
|
|
$
3.01
|
|
$
3.00
|
|
118,056
|
|
$
355,349
|
|
$
354,168
|
|
(1,181)
|
Midtown
Partners & Co., LLC
|
|
$
3.01
|
|
$
3.00
|
|
66,667
|
|
$
200,668
|
|
$
200,001
|
|
(667)
|
Bruce
Jordan (3)
|
|
$
3.01
|
|
$
3.00
|
|
22,222
|
|
$
66,888
|
|
$
66,666
|
|
(222)
|
Richard
Henri Kreger (3)
|
|
$
3.01
|
|
$
3.00
|
|
222,222
|
|
$
668,888
|
|
$
666,666
|
|
(2,222)
|
Ariel
Imas (3)
|
|
$
3.01
|
|
$
3.00
|
|
35,556
|
|
$
107,024
|
|
$
106,668
|
|
(356)
|
Braden
Anthony Ferrai (3)
|
|
$
3.01
|
|
$
3.00
|
|
26,667
|
|
$
80,267
|
|
$
80,001
|
|
(266)
|
RHK
Midtown Partners LLC (3)
|
|
$
3.01
|
|
$
3.00
|
|
71,111
|
|
$
214,044
|
|
$
213,333
|
|
(711)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
4,222,223
|
|
$
12,708,891
|
|
$
12,666,669
|
|
(42,222)
|
(1)
|
As
a consequence of the December Financing the exercise price
of the January
Warrants issued to the January Investors (not including the
holders of the
January Placement Agent Warrants) were reduced from $3.00 to
$0.50 per
share under the anti-dilution provisions of the such warrants.
This
reduction is not taken into account on this
chart.
|
(2)
|
This
amount reflects the total possible shares underlying the January
Warrants
and the January Placement Agent Warrants on the original date of
issuance.
|
(3)
|
Constitutes
the portion of the January Placement Agent Warrants held by
the identified
persons by assignment from Midtown Partners & Co.
|
The
amounts presented on the above chart does not include 5,000,000 shares
of common
stock which the Company issued to the January Investors in consideration
for
their waiver of the right to receive an additional 18,888,890 shares
with an
exercise price of $.50 per share under the anti-dilution provisions of
such
warrants which resulted from the consummation of the December Financing.
The
possible profit to be realized on these share of Common Stock is $1,650,000
based on a market price per share of the Common Stock of the Company
on December
18, 2007, the date the December Financing was consummated.
Payments
Received and Potential Profits as a Percentage of Net
Proceeds
The
following table shows the gross proceeds received by Company from the
December
Financing, the payments made by Company in connection with December Financing,
the net proceeds to the Company from the December Financing, the combined
total
profit from discounts to market from all securities held by Selling Security
Holders and their affiliates, the total of payments and discounts to
market as a
percentage of net proceeds and the average percent per annum thereof
amortized
over the conversion/exercise period of the Warrants and Preferred
Stock.
December
18, 2007 Financing
Gross
Proceeds Received by Company in December
Financing
|
|
Payments
Made by Company in Connection With December
Financing
|
|
Net
Proceeds to Issuer From December Financing
|
|
Combined
Total Profit From Discounts to Market from all Securities Held by
Selling Security Holders and their Affiliates
|
|
Total
of Payments and Discounts to Market as a Percentage of Net
Proceeds
|
|
Average
Percent Per Annum Amount in receding Column Over
Conversion/Exercise Period of Warrants and Preferred
Stock(a)
|
$3,000,000
|
|
$240,000
|
|
2,760,000
|
|
$42,222
|
|
10.2%
|
|
2.0%
|
(a)
|
Assumes
the conversion period with respect to the Preferred Stock is
5 years
notwithstanding that there is no stated expiration date for
the conversion
feature of the Preferred
Stock.
|
The
amounts presented on the above chart does not include 5,000,000 shares
of common
stock which the Company issued to the January Investors in consideration
for
their waiver of the right to receive an additional 18,888,890 shares
with an
exercise price of $.50 per share under the anti-dilution provisions of
such
warrants which resulted from the consummation of the December Financing.
The
possible profit to be realized on these shares of Common Stock is $1,650,000
based on a market price per share of the Common Stock of the Company
on December
18, 2007, the date the December Financing was consummated.
Prior
Security Transactions between selling security holders and the
Company
The
following table shows the number of shares of common stock outstanding
prior to
the January Financing, the number of shares of common stock outstanding
prior to
the January Financing held by person other than Selling Security Holders,
affiliates of the Company, or affiliates of selling security holders,
the number
of shares of common stock that were issued or issuable in connection
with the
January Financing, the percentage of shares of common stock that were
issued or
issuable in the connection with the January Financing, the market price
per
share of common stock immediately before the January 2007 Financing and
the
current market price per share of common stock.
January
30, 2007 Financing
Number
of Shares of Common Stock Outstanding Prior to the January
Transaction
|
|
Number
of Shares of Common Stock Outstanding Prior to January
Financing
Held
by Persons Other than Selling Security Holders, Affiliates
of the Company,
or Affiliates of Selling Security Holders
|
|
Number
of Shares of Common Stock
That
Were Issued or Issuable in Connection With
January
Financing
|
|
Percentage
of
Shares
of
Common
Stock
That
Were Issued or Issuable
in
the Connection With January
Financing(1)
|
|
The
Market Price Per Share of Common Stock Immediately Before the
January
Financing
|
|
Current
Market
Price
Per
Share
of
Common
Stock
|
71,461,342
|
|
29,000,236
|
|
8,666,668
|
|
29.9%
|
|
$3.06
|
|
$0.37
|
(1)
|
This
percentage has been calculated by taking the number of shares
of common
stock issued or issuable in connection with the January Financing
and
dividing that number by the number of shares of common stock
issued and
outstanding prior to the January Financing and held by persons
other than
the selling security holders, affiliates of the company, or
affiliates of
the selling security holders. This amount assumes the exercise
of the
warrants owned by selling security holders but does not include
shares of
common stock underlying any other outstanding convertible securities,
options, or warrants.
|
selling
security holders shares received Prior to the Preferred/Warrant
Transaction
The
following table shows the selling security holder, the number of shares
of
common stock outstanding prior to the December Financing held by persons
other
than selling security holders affiliates of the Company, or affiliates
of
selling security holders, the number of shares of common stock registered
for
resale by selling security holders or affiliates of selling security
holders
prior to the December Financing, the number of shares of common stock
registered
for resale by selling security holders or affiliates of selling security
holders
in prior registration statements still held by the same, the number of
shares of
common stock sold in registered resale transaction by selling security
holders
or affiliates of selling security holders or affiliates of selling security
holders and the number of shares of common stock registered for resale
on behalf
of selling security holders or affiliates of selling security holders
in the
December Financing.
December
18, 2007 Financing
Selling
Security Holder
|
|
Number
of Shares of Common Stock Outstanding Prior to December
Financing
Held
by Persons Other than Selling Security Holders, Affiliates
of the Company,
or Affiliates of Selling Security
Holders(1)
|
|
Number
of Shares of Common Stock Registered for Resale by Selling
Security
Holders or Affiliates of Selling Security Holders Prior to
the December
Financing
|
|
Number
of Shares of Common Stock Registered for Resale by Selling
Security
Holders or Affiliates of Selling Security Holders in Prior
Registration
Statements Still Held by the Same
|
|
Number
of Shares of Common Stock Sold in Registered Resale Transactions
by
Selling Security Holders or Affiliates of Selling Security
Holders
|
|
Number
of Shares of Common Stock Registered for Resale on behalf of
Selling
Security Holders or Affiliates of Selling Security Holders
in December
Financing
|
Enable
Growth Partners LP
|
|
__
|
|
4,368,055
|
|
2,006,944
|
|
__
|
|
13,600,000
|
Enable
Opportunity Partners LP
|
|
__
|
|
513,889
|
|
236,111
|
|
__
|
|
1,600,000
|
Lyrical
Opportunity Partners II LP
|
|
__
|
|
1,325,834
|
|
609,167
|
|
__
|
|
2,580,000
|
Lyrical
Opportunity Partners Ltd.
|
|
__
|
|
1,757,500
|
|
807,500
|
|
__
|
|
3,420,000
|
Pierce
Diversified Strategy Master Fund LLC, a
|
|
__
|
|
256,945
|
|
118,056
|
|
__
|
|
800,000
|
Midtown
Partners & Co., LLC
|
|
__
|
|
66,667
|
|
66,667
|
|
__
|
|
90,000
|
Bruce
Jordan (2)
|
|
__
|
|
22,222
|
|
22,222
|
|
__
|
|
30,000
|
Richard
Henri Kreger (2)
|
|
__
|
|
222,222
|
|
222,222
|
|
__
|
|
375,000
|
Ariel
Imas (2)
|
|
__
|
|
35,556
|
|
35,556
|
|
__
|
|
0
|
Braden
Anthony Ferrai (2)
|
|
__
|
|
26,667
|
|
26,667
|
|
__
|
|
0
|
RHK
Midtown Partners LLC (2)
|
|
__
|
|
71,111
|
|
71,111
|
|
__
|
|
105,000
|
|
|
33,906,196
|
|
8,666,668
|
|
4,222,223
|
|
0
|
|
22,600,000
|
(1)
|
The
calculation of the number of outstanding shares does not include
any
securities underlying any outstanding convertible securities,
options, or
warrants.
|
(2)
|
Constitutes
the portion of the January Placement Agent Warrants held by
the identified
persons by assignment from Midtown Partners & Co., LLC.
|
Existing
Short Positions by Selling Security Holders
Based
on
information supplied by the selling security holders on February 29,
2008, none
of the selling security holders has an existing short position in the
Company's
Common Stock.
Relationships
Between the Company and selling security holders
We
hereby
confirm that a description of the relationships between and among the
Company
and the selling security holders is presented in the prospectus and
that all
agreements between and/or among these parties are included as exhibits
to the
registration statement incorporated by reference.
Method
of
Determining the Number of Shares Registered in this
Prospectus
The
number of shares registered under this prospectus is determined by totaling
the number of shares underlying the Preferred Stock (22,000,000) plus
the number
of shares underlying the December Placement Agent Warrant
(600,000).
Information
Regarding Insitutional Security Holders
On
February 29, 2008, the selling security holders have advised the Company
that
the natural person or persons who exercise the sole or shared voting
and/or
dispositive powers with respect to the shares to be offered by each
selling
security holder that is a legal entity is as follows:
Enable
Growth Partners LP
|
Mitch
Levine and Brendan O’Neil
|
|
|
Enable
Opportunity Partners LP
|
Mitch
Levine and Brendan O’Neil
|
|
|
Pierce
Diversified Strategy Master Fund LLC, Ena
|
Mitch
Levine and Brendan O’Neil
|
|
|
Lyrical
Opportunity Partners II LP
|
Jeffrey
Keswin
|
|
|
Lyrical
Opportunity Partners II Ltd.
|
Jeffrey
Keswin
|
|
|
Midtown
Partners & Co., LLC
|
Brian
Jordan
|
|
|
RHK
Midtown Partners LLC
|
Richard
Henri Krieger
|
MARKET
FOR OUR COMMON STOCK
AND
RELATED
STOCKHOLDER
MATTERS
Our
common stock was authorized to trade on June 2, 2005 on the over-the-counter
market with quotations available on the OTC Electronic Bulletin Board under
the
symbol "DKAM" on the Over-the-Counter Bulletin Board Electronic Quotation
System
maintained by the National Association of Securities Dealers, Inc. Trading
commenced on June 3, 2005. Prior to June 3, 2005, there was no public trading
market for our Common Stock.
The
following table sets forth the range of high and low bid quotations of our
common stock for the periods indicated. The information contained in the
table
was obtained from Bloomberg Financial Services. The prices represent
inter-dealer quotations, which do not include retail markups, markdowns or
commissions, and may not represent actual transactions.
|
|
High
|
|
Low
|
|
Year
Ending, April 30, 2006
|
|
|
|
|
|
|
|
First
Quarter, July 31, 2005
|
|
$
|
1.55
|
|
$
|
1.17
|
|
Second
Quarter, October31, 2005
|
|
$
|
1.39
|
|
$
|
0.70
|
|
Third
Quarter, January 31, 2006
|
|
$
|
0.80
|
|
$
|
0.35
|
|
Fourth
Quarter, April 30, 2006
|
|
$
|
1.01
|
|
$
|
0.45
|
|
|
|
|
|
|
|
|
|
Year
Ending, April 30, 2007
|
|
|
|
|
|
|
|
First
Quarter, July 31, 2006
|
|
$
|
0.79
|
|
$
|
0.45
|
|
Second
Quarter, October 31, 2006
|
|
$
|
1.00
|
|
$
|
0.43
|
|
Third
Quarter, January 31, 2007
|
|
$
|
3.26
|
|
$
|
0.70
|
|
Fourth
Quarter, April 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ending, April 30, 2008
|
|
|
|
|
|
|
|
First
Quarter, July, 31, 2007
|
|
$
|
1.59
|
|
$
|
0.95
|
|
Second
Quarter, October 31, 2007
|
|
$
|
1.00
|
|
$
|
0.38
|
|
Third
Quarter, January 31, 2007
|
|
$
|
0.56
|
|
$
|
0.14
|
|
SECURITY
HOLDERS
At
March
7, 2008, there were 80,842,769 shares of our common stock outstanding,
which
were held of record by approximately 675 stockholders, not including
persons or
entities who hold the stock in nominee or "street" name through various
brokerage firms. On such date there were five stockholders of record
of our
Preferred Stock.
DIVIDENDS
The
payment of dividends, if any, is to be within the discretion of our Board
of
Directors. We presently intend to retain all earnings, if any, for use
in our
business operations and accordingly, the Board of Directors does not anticipate
declaring any dividends in the near future. In addition, the terms of our
Series
A Preferred Stock limit our ability to pay cash dividends to our
stockholders.
Dividends,
if any, will be contingent upon our revenues and earnings, capital requirements
and financial condition.
EQUITY
COMPENSATION PLAN INFORMATION
As
of the
date of this prospectus, we do not have any equity compensation plans.
TRANSFER
AGENT
National
Stock Transfer, Inc. with offices at 1512 South 1100 East, Suite B, Salt
Lake
City, UT 84105-2455, is the registrar and transfer agent for our common
stock.
PENNY
STOCK REGULATIONS
The
SEC
has adopted regulations which generally define "penny stock" to be an equity
security that has a market price of less than $5.00 per share. The Company's
common stock falls within the definition of penny stock and is subject to
rules
that impose additional sales practice requirements on broker-dealers who
sell
such securities to persons other than established customers and accredited
investors (generally those with assets in excess of $1,000,000, or annual
incomes exceeding $200,000 or $300,000, together with their
spouse).
For
transactions covered by these rules, the broker-dealer must make a special
suitability determination for the purchase of such securities and have received
the purchaser's prior written consent to the transaction. Additionally, for
any
transaction, other than exempt transactions, involving a penny stock, the
rules
require the delivery, prior to the transaction, of a risk disclosure document
mandated by the SEC relating to the penny stock market. The broker-dealer
also
must disclose the commissions payable to both the broker-dealer and the
registered representative, current quotations for the securities and, if
the
broker-dealer is the sole market-maker, the broker-dealer must disclose this
fact and the broker-dealer's presumed control over the market. Finally, monthly
statements must be sent disclosing recent price information for the penny
stock
held in the account and information on the limited market in penny stocks.
Consequently, the "penny stock" rules may restrict the ability of broker-dealers
to sell the Company's common stock and may affect the ability of investors
to
sell our common stock in the secondary market.
On
or
about July 19, 2006, Manhattan Beer Distributor, LLC, a wholesale distributor
of
beverages in the state of New York, initiated litigation in the Supreme Court
of
the State of New York in Bronx County (Index No. 17776-2006) against the
Company. Plaintiff sued for approximately 87,000 plus interest, for alleged
distribution services rendered both prior and subsequent to the acquisition
of
certain assets related to Rheingold Beer. We have answered the complaint
and
cross-claimed against RBCI Holdings, Inc., the entity that sold us the assets,
for the portion of the complaint related to pre-acquisition services. We
have
completed the discovery phase of the litigation. There have been continuing
settlement negotiations and a pre-trial conference in April 2008.
In
April
2007, RBCI Holdings Inc. initiated litigation against the Company in the
U.S.
District court, Southern District of N.Y. (No. 07-CV-02877). The plaintiff
seeks
$150,000 plus 525,738 shares of common stock of the Company and re-assignment
of
the Rheingold license as damages for the alleged breach of the asset purchase
agreement, related to the purchase of certain Rheingold assets. The Company
has
filed a motion to dismiss the complaint. The Company believes that plaintiff
overstated assets, understated liabilities and misrepresented revenue in
connection with the asset sale. The Company plans to vigorously defend the
suit.
In
July
2007, Michele Berg, a former employee of the Company, initiated litigation
against the Company in Superior Court of Arizona, Maricopa County (CV
2006-019515). The plaintiff seeks $8,125 of unpaid wages and $31,740 for
reimbursement of expenses and other compensation and has asked for treble
damages of the wage claim for a total of $61,133. The Company has had ongoing
settlement discussions with the plaintiff.
On
or
about June 12, 2007, Phillip Kassai, formally affiliated with Sloan Equity
Partners (“Sloan”), LLC initiated litigation in the US District Court (No. 07
CIV 5590) alleging that the Company failed to recognize the assignment to
him
and his subsequent exercise of two warrants allegedly issued by the Company
to
Sloan to purchase 300,000 shares and 67,500 shares of the Company’s common
stock. The Plaintiff has demanded that the Company affect these assignments
and
that he be awarded momentary unspecified damages for alleged breach of the
terms
of the warrants and such other relief as may be just and proper. The Company
has
filed an answer with counterclaims against the plaintiff. The Company plans
to
vigorously defend the suit.
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS
During
the fiscal years ended April 30, 2006 and April 30, 2007, and the subsequent
interim period, the principal independent accountant of the Company and its
subsidiaries has not resigned or declined to stand for re-election, and was
not
dismissed.
INDEMNIFICATION
OF DIRECTORS AND OFFICERS
Section
145 of the Delaware General Corporation Law permits a corporation to include
in
its charter documents, and in agreements between the corporation and its
directors and officers, provisions expanding the scope of indemnification
beyond
that specifically provided by the current law.
Article
Seventh of the Registrant's Certificate of Incorporation provides for the
indemnification of directors to the fullest extent permissible under Delaware
law.
Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to our Directors, officers and controlling persons, we have been
informed that in the opinion of the SEC such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
In
the event that a claim for indemnification against such liabilities (other
than
the payment by us of expenses incurred or paid by a Director, officer or
controlling person in the successful defense of any action, suit or proceeding)
is asserted by such Director, officer or controlling person in connection
with
the securities being registered, we will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it
is
against public policy as expressed in the Securities Act and will be governed
by
the final adjudication of such issue.
LEGAL
MATTERS
The
validity of the shares of common stock offered in the prospectus has been
passed
upon for us by Eaton & Van Winkle LLP, 3 Park Avenue, New York, New York
10016. A Partner of Eaton & Van Winkle LLP owns 80,000 shares of our common
stock.
EXPERTS
Bernstein
& Pinchuk LLP, an independent registered public accounting firm, located at
7 Penn Plaza, Suite 830, New York, N.Y. 10001, have audited our Financial
Statements included in this registration statement to the extent, and for
the
periods set forth in their reports. We have relied upon such reports, given
upon
the authority of such firm as experts in accounting and auditing.
WHERE
YOU CAN FIND MORE INFORMATION
We
have
filed with the U.S. Securities and Exchange Commission, 450 Fifth Street,
N.W.,
Washington, D.C. 20549, a registration statement on Form SB-2, under the
Securities Act for the common stock offered by this prospectus. We have not
included in this prospectus all the information contained in the registration
statement and you should refer to the registration statement and its exhibits
for further information.
Any
statement in this prospectus about any of our contracts or other documents
is
not necessarily complete. If the contract or document is filed as an exhibit
to
the registration statement, the contract or document is deemed to modify
the
description contained in this prospectus. You must review the exhibits
themselves for a complete description of the contract or document.
The
registration statement and other information may be read and copied at the
Commission's Public Reference Room at 450 Fifth Street N.W., Washington,
D.C.
20549. The public may obtain information on the operation of the Public
Reference Room by calling the Commission at 1-800-SEC-0330. The SEC maintains
a
web site (HTTP://WWW.SEC.GOV.) that contains the registration statements,
reports, proxy and information statements and other information regarding
registrants that file electronically with the SEC such as us.
You
may
also read and copy any reports, statements or other information that we have
filed with the SEC at the addresses indicated above and you may also access
them
electronically at the web site set forth above. These SEC filings are also
available to the public from commercial document retrieval
services.