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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 

 
FORM 10-Q
 

 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
   
 
For the quarterly period ended July 31, 2011
   
OR
   
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______________ to ____________

Commission File Number: 33-55254-10

 Drinks Americas Holdings, Ltd.
(Exact name of registrant as specified in its charter)
 
Delaware
 
87-0438825
(State or other jurisdiction of incorporation or
organization)
 
(I.R.S. Employer Identification No.)
     
372 Danbury Road
Suite 163
   
Wilton, CT
 
06897
(Address of principal executive offices)
 
(Zip Code)
 
(203) 762-7000
(Registrant’s telephone number, including area code)
 
N/A
(Former name, former address and former fiscal year, if changed since last report)
 
 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes   x   No ¨
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x   No   ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
¨   Large accelerated filer
¨    Accelerated filer
¨   Non-accelerated filer
x   Smaller reporting company
  
  
(Do not check if smaller reporting company)
  
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes   ¨           No x
 
As of September 15, 2011, the number of shares outstanding of the registrant’s common stock, $0.001 par value, was 493,456,981.
 
 
DRINKS AMERICAS HOLDINGS, LTD. AND AFFILIATES

FORM10-Q

FOR THE QUARTER ENDED JULY 31, 2011

TABLE OF CONTENTS

PART 1
FINANCIAL INFORMATION
 
3
    
   
   
Item 1.
 
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5
   
     
   
6
       
Item 2.
 
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Item 3.
 
24
       
Item 4.
 
24
       
PART II
OTHER INFORMATION
 
26
       
Item 1.
 
26
       
Item 1A
 
26
       
Item 2.
 
26
       
Item 3.
 
26
       
Item 4.
 
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Item 5.
 
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Item 6.
 
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27

 
PART I – FINANCIAL INFORMATION
 
Item 1. Financial Statements
 
DRINKS AMERICAS HOLDINGS, LTD., AND AFFILIATES
CONDENSED CONSOLIDATED BALANCE SHEETS

   
July 31,
   
April 30,
 
   
2011
   
2011
 
   
(unaudited)
       
ASSETS
           
Current assets:
           
Cash and cash equivalents
  $ -     $ 1,923  
Accounts receivable, net of allowance for doubtful accounts of $117,472 and  $170,657 as of July 31, 2011 and April 30, 2011, respectively
    51,140       68,925  
Inventory, net of allowances
    12,712       62,850  
Other current assets
    111,474       118,044  
  Total current assets
    175,326       251,742  
                 
Property and equipment, net of accumulated depreciation
    5,562       11,439  
                 
Other assets:
               
Investment in equity investees
    102,345       102,345  
Intangible assets, net of accumulated amortization
    607,073       381,776  
Deferred loan costs, net of accumulated amortization
    190,846       267,575  
Other assets
    12,601       17,936  
  Total other assets
    912,865       769,632  
                 
Total assets
  $ 1,093,753     $ 1,032,813  
                 
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
               
                 
Current liabilities:
               
Cash overdraft
  $ 8,962     $ -  
Accounts payable
    2,009,505       1,743,277  
Accrued expenses
    1,960,638       2,266,143  
Investor note payable
    439,008       380,504  
Notes and loans payable, net of long term portion
    653,630       874,414  
Derivative liability
    31,055       31,186  
Loans payable from related party
    -       657  
  Total current liabilities
    5,102,798       5,296,181  
                 
Long term debt:
               
Notes and loans payable, net of current portion
    -       200,000  
                 
  Total liabilities
    5,102,798       5,496,181  
                 
Commitments and contingencies
    -       -  
                 
Stockholders' deficiency:
               
Preferred stock, $0.001 par value; 1,000,000 shares authorized:
               
Series A Convertible: $0.001 par value; 10,544 shares issued and outstanding as of July 31, 2011 and April 30, 2011
    11       11  
Series B: $10,000 par value; 13,837 issued and outstanding as of July 31, 2011 and April 30, 2011
    138,370       138,370  
Series C: $1.00 par value; 773,197 and 635,835 issued and outstanding as of July 31, 2011 and April 30, 2011, respectively
    773,497       635,835  
Common stock, $0.001 par value; 500,000,000 shares authorized; 493,456,981 and 344,366,062 shares issued and outstanding as of July 31, 2011 and April 30, 2011, respectively
    493,455       344,364  
Treasury stock, 738,333 shares held as of July 31, 2011 and April 30, 2011 and 2010
    -       -  
Additional paid in capital
    42,735,552       42,240,584  
Accumulated deficit
    (48,149,498 )     (47,803,230 )
  Total Drinks Americas Holdings, Ltd stockholders' deficiency
    (4,008,613 )     (4,444,066 )
Equity attributable to non-controlling interests
    (432 )     (19,302 )
  Total stockholders' deficiency
    (4,009,045 )     (4,463,368 )
                 
Total Liabilities and Stockholders' Deficiency
  $ 1,093,753     $ 1,032,813  
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
 

DRINKS AMERICAS HOLDINGS, LTD., AND AFFILIATES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)

   
Three months ended July 31,
 
   
2011
   
2010
 
Sales, net
  $ 148,080     $ 102,256  
                 
Cost of sales
    132,782       97,919  
                 
Gross margin
    15,298       4,337  
                 
Selling, general and administrative expenses
    514,494       640,170  
                 
Net loss from operations
    (499,196 )     (635,833 )
                 
Other income (expense):
               
  Interest, net
    (112,188 )     (264,837 )
  Loss on change in fair value of derivative
    (29,384 )     -  
  Other expense
    (3,483 )        
  Gain on settlement of debt
    17,505       -  
  Gain on disposal of product line
    280,478       -  
Total other income (expense)
    152,928       (264,837 )
                 
Net loss before non controlling interests
    (346,268 )     (900,670 )
                 
Net loss attributable to non controlling interest
    -       2,232  
                 
Net loss
  $ (346,268 )   $ (898,438 )
                 
Net loss per common share, basic and fully diluted
  $ (0.00 )   $ (0.04 )
                 
Weighted average number of common shares outstanding, basic and fully diluted
    407,257,515       21,559,351  
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
 

DRINKS AMERICAS HOLDINGS, LTD., AND AFFILIATES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)

   
Three months ended July 31,
 
   
2011
   
2010
 
CASH FLOWS FROM OPERATING ACTIVITIES:
           
Net loss
  $ (346,268 )   $ (898,438 )
Adjustments to reconcile net loss to net cash used in operating activities:
               
Depreciation and amortization
    166,055       47,648  
Stock compensation
    20,955       123,926  
Accounts payable settlements
    -       116,013  
Issuance of common stock and warrants for deferred costs
    -       425,017  
Non-controlling interest
    -       (2,232 )
Non cash interest income
    (4,907 )     -  
Gain on sale of interest in product line
    (280,478 )     -  
Loss on change in fair value of derivative liability
    29,384       -  
Changes in operating assets and liabilities:
               
Accounts receivable
    17,785       (44,442 )
Inventories
    50,138       60,419  
Other current assets
    6,570       (31,533 )
Other assets
    -       27,025  
Accounts payable
    (56,429 )     (36,848 )
Accrued expenses
    159,492       105,796  
Deferred revenue
    -       (21,245 )
  Net cash used in operating activities
    (237,703 )     (128,894 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
    -       -  
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Net change in cash overdraft
    8,962       -  
Net repayments of related party loans
    (657 )     -  
Proceeds from issuance of notes payable
    227,475       -  
Net repayments of notes payable
    -       (71,372 )
  Net cash provided from financing activities
    235,780       (71,372 )
                 
Net (decrease) increase in cash and cash equivalents
    (1,923 )     (200,266 )
Cash and cash equivalents-beginning of the period
    1,923       203,552  
                 
Cash and cash equivalents-end of period
  $ -     $ 3,286  
                 
Supplemental disclosure of non-cash investing and financing activities:
               
Interest paid
  $ -     $ -  
Taxes paid
  $ -     $ -  
Satisfaction of note and interest payable by issuance of common stock
  $ 57,515     $ -  
Payment of accounts payable and accrued expenses with shares of common stock
  $ 463,251     $ 116,013  
Common stock issued to acquire trademark
  $ 240,000     $ -  
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
 
 
DRINKS AMERICAS HOLDINGS, LTD., AND AFFILIATES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2011

1. BASIS OF PRESENTATION AND NATURE OF BUSINESS

Basis of Presentation

On March 9, 2005 the shareholders of Drinks Americas, Inc. ("Drinks") a company engaged in the business of importing and distributing unique, premium alcoholic and non-alcoholic beverages associated with icon entertainers, sports figures, celebrities and destinations, to beverage wholesalers throughout the United States, acquired control of Drinks Americas Holdings, Ltd. ("Holdings"). Holdings and Drinks was incorporated in the state of Delaware on February 14, 2005 and September 24, 2002, respectively. On March 9, 2005 Holdings merged with Gourmet Group, Inc. ("Gourmet"), a publicly traded Nevada corporation, which resulted in Gourmet shareholders acquiring 1 share of Holdings' common stock in exchange for 10 shares of Gourmet's common stock. Both Holdings and Gourmet were considered "shell" corporations, as Gourmet had no operating business on the date of the share exchange, or for the previous three years. Pursuant to the June 9, 2004 Agreement and Plan of Share Exchange among Gourmet, Drinks and the Drinks' shareholders, Holdings, with approximately 4,058,000 shares of outstanding common stock, issued approximately 45,164,000 of additional shares of its common stock on March 9, 2005 (the "Acquisition Date") to the common shareholders of Drinks and to the members of its affiliate, Maxmillian Mixers, LLC ("Mixers"), in exchange for all of the outstanding Drinks' common shares and Mixers' membership units, respectively. As a result Maxmillian Partners, LLC ("Partners") a holding company which owned 99% of Drinks' outstanding common stock and approximately 55% of Mixers' outstanding membership units, became Holdings' controlling shareholder with approximately 87% of Holdings' outstanding common stock. For financial accounting purposes this business combination has been treated as a reverse acquisition, or a recapitalization of Partners' subsidiaries (Drinks and Mixers).
 
Subsequent to the Acquisition Date, Partners, which was organized as a Delaware limited liability company on January 1, 2002 and incorporated Drinks in Delaware on September 24, 2002, transferred all its shares of holdings to its members as part of a plan of liquidation.
 
On March 11, 2005 Holdings and an individual organized Drinks Global, LLC ("DGI"). Holdings own 90% of the membership units and the individual, who is the president of DGI, owns 10%. DGI's business is to import wines from various parts of the world and sell them to distributors throughout the United States. In May 2006 Holdings organized D.T. Drinks, LLC ("DT Drinks") a New York limited liability company for the purpose of selling certain alcoholic beverages.

On January 15, 2009 Drinks acquired 90% of Olifant U.S.A Inc. (“Olifant”), a Connecticut corporation, which owns the trademark and brand names and holds the worldwide distribution rights (excluding Europe) to Olifant Vodka and Gin.  During the three months ended July 31, 2011, the Company reduced its ownership to 48% of Olifant recognizing a gain on disposal of product line of $280,478.
 
Our license agreement with respect to Kid Rock’s BadAss Beer and related trademarks currently requires payments to Drinks Americas based upon volume through the term of the agreement.
 
Nature of Business

Through our majority-owned subsidiaries, Drinks, DGI and DT Drinks, we import, distribute and market unique premium wine and spirits and alcoholic beverages associated with icon entertainers, celebrities and destinations, to beverage wholesalers throughout the United States and internationally.

The Company began transitioning to a royalty-based revenue operation from a wholesale revenue model in 2010. 

On February 11, 2010, the Company signed an agreement with Mexcor, Inc., ("Mexcor") an importer and distributor for hundreds of high quality brands nationally and internationally. Mexcor has agreed to manage the sourcing, importing and distribution of our portfolio of brands nationally. Our Company will continue to focus its efforts on its core business of marketing and building a portfolio of iconic brands as well as developing, coordinating and executing marketing and promotional strategies for its icon brands. We anticipate that the agreement with Mexcor will rapidly drive additional royalty revenues and substantially reduce our overhead costs.
 
  
Under the terms of the agreement, the parties have agreed to a 15-year term. Additionally, the Company has agreed to issue the principal of the business 12 million shares of Company common stock in exchange for consulting services. Mexcor is eligible to receive financial incentives provided the parties deliver and attain certain minimum performance requirements.  Mexcor has agreed to deliver additional new brands to the Company’s brand portfolio, which the companies plan to jointly acquire, develop and market.

During the three months ended July 31, 2011, the Company issued 100,000,000 shares of its common stock to acquire the right to use Worldwide Beverages trademark.  The trademark was recorded at $240,000.
 
2. SIGNIFICANT ACCOUNTING POLICIES

Significant Accounting Policies

Principles of consolidation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with Rule S-X of the Securities and Exchange Commission (the “SEC”) and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. However, the results from operations for the three months ended July 31, 2011, are not necessarily indicative of the results that may be expected for the year ending April 30, 2012. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated April 30, 2011 financial statements and footnotes thereto included in the Company's Form 10-K filed with the SEC.

The condensed consolidated financial statements as of April 30, 2011 have been derived from the audited consolidated financial statements at that date but do not include all disclosures required by the accounting principles generally accepted in the United States of America.

The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries and Partners (collectively, the "Company"). All significant inter-company transactions and balances have been eliminated in consolidation.

Revenue Recognition
 
The Company recognizes revenues when title passes to the customer, which is generally when products are shipped. The Company recognizes royalty revenue based on its license agreements with its distributors which typically is the greater of either the guaranteed minimum royalties payable under our license agreement or a royalty rate computed on the net sales of the distributor shipments to its customers.
 
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 does not offer its clients the opportunity to return products for any reason other than manufacturing defects. 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 communications with them. 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.
 
 
Accounts Receivable
 
Accounts receivable are recorded at original invoice amount less an allowance for uncollectible accounts that management believes will be adequate to absorb estimated losses on existing balances. Management estimates the allowance based on collectability of accounts receivable and prior bad debt experience. Accounts receivable balances are written off upon management's determination that such accounts are uncollectible. Recoveries of accounts receivable previously written off are recorded when received. Management believes that credit risks on accounts receivable will not be material to the financial position of the Company or results of operations at July 31, 2011 and April 30, 2011, the allowance for doubtful accounts was   $117,472.
 
Inventories

Inventories are valued at the lower of cost or market, using the first-in first-out cost method. The Company assesses the valuation of its inventories and reduces the carrying value of those inventories that are obsolete or in excess of the Company’s forecasted usage to their estimated net realizable value. The Company estimates the net realizable value of such inventories based on analysis and assumptions including, but not limited to, historical usage, expected future demand and market requirements. A change to the carrying value of inventories is recorded to cost of goods sold.
 
Impairment of Long-Lived Assets

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate the carrying amounts of such assets may not be recoverable. The Company's policy is to record an impairment loss at each balance sheet date when it is determined that the carrying amount may not be recoverable. Recoverability of these assets is based on undiscounted future cash flows of the related asset. For the three months ended July 31, 2011, the Company concluded that there was no impairment.
 
Deferred Charges and Intangible Assets

The costs of intangible assets with determinable useful lives are amortized over their respectful useful lives and reviewed for impairment when circumstances warrant. Intangible assets that have an indefinite useful life are not amortized until such useful life is determined to be no longer indefinite. Evaluation of the remaining useful life of an intangible asset that is not being amortized must be completed each reporting period to determine whether events and circumstances continue to support an indefinite useful life. Indefinite-lived intangible assets must be tested for impairment at least annually, or more frequently if warranted. Intangible assets with finite lives are generally amortized on a straight line bases over the estimated period benefited. The costs of trademarks and product distribution rights are amortized over their related useful lives of between 15 to 40 years. We review our intangible assets for events or changes in circumstances that may indicate that the carrying amount of the assets may not be recoverable, in which case an impairment charge is recognized currently. 

Deferred financing costs are amortized ratably over the life of the related debt. If debt is retired early, the related unamortized deferred financing costs are written-off in the period debt is retired.

During the year ended April 30, 2011 the Company management performed an evaluation of its recorded book value of its intangible assets for purposes of determining the implied fair value of the assets at April 30, 2011. The test indicated that the recorded remaining book value of certain intangible assets exceeded its fair value for the year ended April 30, 2011.  As a result, upon completion of the assessment, management recorded a non-cash impairment charge of $1,422,440, net of tax, or $0.02 per share during the year ended April 30, 2011 to reduce the carrying value to $0. Considerable management judgment is necessary to estimate the fair value.  Accordingly, actual results could vary significantly from management’s estimates.

Income Taxes
 
The Company accounts for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis.  The effect on deferred tax assets and liabilities of a change in tax laws is recognized in the results of operations in the period the new laws are enacted.  A valuation allowance is recorded to reduce the carrying amounts of deferred tax assets unless, it is more likely than not, that such assets will be realized. The Company has recognized no adjustment for uncertain tax provisions.
 
 
Stock Based Compensation

The Company accounts for stock-based compensation using the modified prospective approach. The Company recognizes in the statement of operations the grant-date fair value of stock options and other equity based compensation issued to employees and non-employees.
 
Earnings (Loss) Per Share
 
The Company computes earnings (loss) per share whereby basic earnings (loss) per share is computed by dividing net income (loss) attributable to all classes of common shareholders by the weighted average number of shares of all classes of common stock outstanding during the applicable period. Diluted earnings (loss) per share is determined in the same manner as basic earnings (loss) per share except that the number of shares is increased to assume exercise of potentially dilutive and contingently issuable shares using the treasury stock method, unless the effect of such increase would be anti-dilutive. For the three months ended July 31 2011 and 2010, the diluted earnings per (loss) share amounts equal basic earnings (loss) per share because the Company had net losses and the impact of the assumed exercise of contingently issuable shares would have been anti-dilutive.
 
Use of Estimates
 
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. Actual results could differ from those estimates.

Fair Value

Accounting Standards Codification subtopic 825-10, Financial Instruments (“ASC 825-10”) requires disclosure of the fair value of certain financial instruments. The carrying amount reported in the consolidated balance sheets for accounts receivables, accounts payable and accrued expenses approximates fair value because of the immediate or short-term maturity of these financial instruments. The carrying amount reported in the accompanying consolidated balance sheets for notes payable approximates fair value because the actual interest rates do not significantly differ from current rates offered for instruments with similar characteristics.
 
The Company uses fair value measurements to record fair value adjustments to certain assets and to determine fair value disclosures. Derivative liabilities are recorded at fair value on a recurring basis. In accordance with Accounting Standards Codification Topic 820, Fair Value Measurements and Disclosures (“ASC 820”), the Company groups its assets at fair value in three levels, based on the markets in which the assets are traded and the reliability of the assumptions used to determine fair value.

Reclassification

Certain reclassifications have been made in prior year’s financial statements to conform to classifications used in the current year.

Recent accounting pronouncements
 
There are various updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to a have a material impact on the Company's consolidated financial position, results of operations or cash flows.
 

3. GOING CONCERN MATTERS

The accompanying consolidated financial statements have been prepared on a basis that assumes the Company will continue as a going concern.  As of July 31, 2011, the Company has a shareholders' deficiency of $4,009,045 applicable to controlling interest compared with $4,463,368 applicable to controlling interest for the year ended April 30, 2011, and has incurred significant operating losses and negative cash flows since inception. For the three months ended July 31, 2011, the Company sustained an operating loss of $499,196 compared to an operating loss of $635,833 for the three months ended July 31, 2010 and used cash of approximately $238,000 in operating activities for the three months ended July 31, 2011 compared with approximately $129,000 for the three months ended July 31, 2010. We will need additional financing which may take the form of equity or debt and we have converted certain liabilities into equity.  We anticipate that increased sales revenues will help.  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. The accompanying consolidated financial statements do not include any adjustments relating to the classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the company be unable to continue in existence.
 
4. ACCOUNTS RECEIVABLE AND DUE FROM FACTORS

Accounts Receivable and Due from Factors as of July 31, 2011 and April 30, 2011 consist of the following:
 
   
July 31,
       
   
2011
(unaudited)
   
April 30,
2011
 
Accounts receivable
 
$
216,601
   
$
234,386
 
Accounts receivable-factor
   
5,196
     
5,196
 
Allowances
   
(170,657
)
   
(170,657 
)
   
$
51,140
   
$
68,925
 
 
5. INVENTORIES
 
Inventories as of July 31, 2011 and April 30, 2011 consist of the following:
 
  
 
July 31,
2011
(unaudited)
   
April 30,
2011
 
Raw Materials
 
$
6,979
   
$
33,960
 
Finished goods
   
5,733
     
28,890
 
   
$
12,712
   
$
62,850
 
 
All raw materials used in the production of the Company's inventories are purchased by the Company and delivered to independent production contractors.
 

6. OTHER CURRENT ASSETS
 
Other Current Assets as of July 31, 2011and  April 30, 2011 consist of the following:
 
  
 
July 31, 
2011
(unaudited)
   
April 30,
 2011
 
Employee advances
 
$
101,758
   
$
81,258
 
Prepaid Other
   
9,716
     
36,786
 
   
$
111,474
   
$
118,044
 
 
Prepaid other are comprised of prepaid marketing fees, employee travel advances and expenses.
  
7. PROPERTY AND EQUIPMENT
 
Property and equipment as of July 31, 2011 and April 30, 2011consist of the following:
 
  
   
July 31,
       
  
Useful
Life
 
2011
(unaudited)
   
April 30,
2011
 
Computer equipment
5 years
 
$
23,939
   
$
23,939
 
Furniture & fixtures
5 years
   
10,654
     
10,654
 
Automobiles
5 years
   
70,975
     
70,975
 
Leasehold Improvements
5 years
   
66,259
     
66,259
 
Production molds & tools
5 years
   
122,449
     
122,449
 
       
294,276
     
294,276
 
Accumulated depreciation
     
(288,714
)
   
(282,837
)
     
$
5,562
   
$
11,439
 
 
Property and equipment are stated at cost. When retired or otherwise disposed, the related carrying value and accumulated depreciation are removed from the respective accounts and the net difference less any amount realized from disposition, is reflected in earnings. For financial statement purposes, property and equipment are recorded at cost and depreciated using the straight-line method over their estimated useful lives of 5 years.

Depreciation expense for the three months ended July 31, 2011 and 2010 was $5,877.

8. INTANGIBLE ASSETS
 
Intangible assets include the acquisition costs of trademarks, license rights and distribution rights for the Company’s alcoholic beverages.
 
 
As of July 31, 2011 and April 30, 2011, intangible assets are comprised of the following:
 
  
 
July 31,
2011
(unaudited)
   
April 30,
2011
 
Trademark and license rights of Rheingold beer
   
230,000
     
230,000
 
Worldwide Beverages agreement
   
240,000
     
-
 
Other trademark and distribution rights
   
475,000
     
475,000
 
     
945,000
     
705,000
 
Accumulated amortization
   
(337,927
)
   
(323,224
)
   
$
607,073
   
$
381,776
 
 
Amortization expense for the three months ended July 31, 2011 and 2010 was $14,703 and $41,771, respectively.
 
During the year ended April 30, 2011 the Company management performed an evaluation of its recorded book value of its intangible assets for purposes of determining the implied fair value of the assets at April 30, 2011. The test indicated that the recorded remaining book value of certain intangible assets exceeded its fair value for the year ended April 30, 2011.  As a result, upon completion of the assessment, management recorded a non-cash impairment charge relating to those certain impaired intangible assets of $1,422,440, net of tax, or $0.02 per share during the year ended April 30, 2011 to reduce the carrying value to $0. Considerable management judgment is necessary to estimate the fair value.  Accordingly, actual results could vary significantly from management’s estimates.

During the three months ended July 31, 2011, the Company issued 100,000,000 shares of its common stock to acquire trademark rights with Worldwide Beverages.  The fair value of $240,000 was determined based on the underlying fair value of the common stock issued.

Investment in equity investees represent the Company's investment in Old Whiskey Rivers and is recorded at fair value.  There were immaterial changes in valuation for the three months ended July 31, 2011.

9. NOTE RECEIVABLE
 
On June 19, 2009, (the "Closing Date") we sold to one investor (the “Investor”) a $4,000,000 non-interest bearing debenture with a 25% ($1,000,000) original issue discount, that matures in 48 months from the Closing Date (the Drink’s Debenture) for $3,000,000, consisting of $375,000 paid in cash at closing and eleven secured promissory notes, aggregating $2,625,000, bearing interest at the rate of 5% per annum, each maturing 50 months after the Closing Date (the “Investor Notes”).  The Investor Notes, the first ten of which are in the principal amount of $250,000 and the last of which is in the principal amount of $125,000, are mandatorily pre-payable, in sequence, at the rate of one note per month commencing on January 19, 2010, subject to certain contingencies.    As a practical matter, the interest rate on the Investor Notes serves to lessen the interest cost inherent in the original issue discount element of the Drinks Debenture. For the mandatory prepayment to occur no Event of Default or Triggering Event as defined under the Drinks Debenture shall have occurred and be continuing and the outstanding balance due under the Drinks Debenture must have been reduced to $3,500,000 on January 19, 2010 and be reduced at the rate of $333,334 per month thereafter. Due to the uncertainty of the mandatory prepayments by the Investor, the note receivable has been classified as a long term asset as of July 31, 2011 and April 30, 2011.
 
One of the Triggering Events includes the failure of the Company to maintain an average daily dollar volume of common stock traded per day for any consecutive 10-day period of at least $10,000 or if the average value of the shares pledged to secure the Company’s obligation under the Drinks Debenture (as subsequently described) falls below $1,600,000.
 
 
Under the Drinks Debenture, commencing six months after the Closing Date, the Investor may request the Company to repay all or a portion of the Drinks Debenture by issuing the Company’s common stock, $0.001 par value, in satisfaction of all or part of the Drinks Debenture, valued at the Market Price, (as defined in the Drinks Debenture), of Drink’s common stock at the time the request is made (collectively, the “Share Repayment Requests”).  The Investor’s may not request repayment in common stock if, at the time of the request, the amount requested would be higher than the difference between the outstanding balance owed under the Drinks Debenture and 125% of the aggregate amount owed under the Investor Note.

 The Company may prepay all or part of the Drinks Debenture upon 10-days prior written notice and are entitled to satisfy a portion of the amount outstanding under the debenture by offset of an amount equal to 125% of the amount owed under the Investor Notes, which amount will satisfy a corresponding portion of the Drinks Debenture.
  
Also as part of this financing, the Investor acquired warrants to purchase 166,667 shares of our common stock at an exercise price of $0.35 per share (the “Investor Warrants”).  The Investor Warrants contain full ratchet anti-dilution provisions, as to the exercise price and are exercisable for a five-year period. Management has determined that the aggregate value of the warrants was $142,500 based on the market price per share of the Company’s common stock on the date of the agreement.
 
In order to secure waivers which the investors in our December 2007 placement of our  Series A Preferred stock claimed were required for the Company to consummate this financing, we allowed, and the three December investors elected, to  convert an aggregate of $335,800 (335.8 shares) of our preferred stock into 223,867 shares of our common stock. In addition, in August 2009 we allowed the two other holders of our Series A Preferred Stock to convert an aggregate of $134,625 (134.6 shares) of our Series A Preferred Stock into 80,000 shares of our common stock.  The book value of the preferred stock converted exceeded the par value of the common stock received on the date of conversions. It was subsequently agreed with the lead investor that the Company would not be required to issue shares of our common stock for debt or employee compensation.
 
Out of the gross proceeds of this Offering, the Company paid the placement agent $37,500 in commissions and we are obligated to pay the placement agent 10% of the principal balance of the Investor Notes when each note is paid. We also issued to the Placement Agent (see paragraph below), warrants to acquire 5% of the shares of our Common Stock which we deliver in response to Share Repayment Requests, at an exercise price equal to the Market Price related to the shares delivered in response to the Share Repayment Request (the "Placement Agent Warrants"), which warrants are exercisable for a five year period, will contain cashless exercise provisions as well as anti-dilution provisions in the case of stock splits and similar matters.
 
In March 2010, the Company delivered to the Placement Agent, in aggregate 311,608 Placement Agent Warrants as follows: effective February 24, 2010, a warrant to purchase 28,334 shares of Company common stock at an exercise price of $0.2391; effective February 11, 2010, a warrant to purchase 1,333,334 shares of Company common stock at an exercise price of $0.015; effective January 15, 2010, a warrant to purchase 66,667 shares of Company common stock at an exercise price of $0.0938 ; effective December 30, 2009, a warrant to purchase 45,455 shares of Company common stock at an exercise price of $0.01375; effective August 28, 2009, a warrant to purchase 12,821  shares of Company common stock at an exercise price of $0.9750  $0.065; effective June 19, 2009, a warrant to purchase 16,667 shares of Company common stock at an exercise price of $1.4063 ; and, effective June 19, 2009, a warrant to purchase 8,334  shares of Company common stock at an exercise price of $6.5625 . The fair value, taken together, of the warrants determined using Black-Scholes valuation model was determined to be $101,864 at the dates of grant and is recorded as deferred financing costs a long-term asset on the balance sheet and additional paid in capital. The warrants are being amortized over 5 years. For the three months ended July 31, 2011 and 2010, the Company amortized to expense $5,135.
 
Our CEO has guaranteed our obligations under the Drinks Debenture in an amount not to exceed the lesser of (i) $375,000 or (ii) the outstanding balance owed under the Drinks Debenture.  In addition, the Company, our CEO, COO, and three other members of our Board of Directors, either directly, or through entities they control, pledged an aggregate of 800,248  shares of our common stock (of which 200,000 was pledged by the Company) to secure our obligations under the Drinks Debenture (the “Pledged Shares”). As a direct result of the guarantees and shares of common stock provided by the above individuals, the Company agreed to issue shares of common stock totaling 300,124 with an estimated fair value totaling $675,279.  The estimated fair value of the stock commitment was accounted for as a deferred loan cost and a contribution to capital (due to shareholders), with deferred loan costs being amortized ratably over 48 months.
 
On July 14, 2009, the value of the Pledged Shares fell below the required amount and consequently the Investor delivered a notice of default to the Company. On August 31, 2009, the Investor and the Company agreed to the First Amendment to the Drink’s Debenture, which waived the default. Pursuant to the First Amendment, the outstanding balance of the debenture was increased by $400,000 and the debenture will carry an interest rate of 12% per annum.  In addition, a member of the Company’s board of directors pledged 84,216 shares of our common stock as security for our obligations under the debenture, which increased the total number of shares pledged for this purpose.  In return, the investor has prepaid $200,000 of the notes it issued to the Company in partial payment for the debenture and agreed that the provisions of the debenture relating to a 10% premium and the imposition of default interest will not apply in the event a “Triggering Event”, as defined in the debenture, was to occur in the future.
 

In response to the default, the Investor transferred 168,243 shares of the non-Company Pledged Shares into its own name in order to commence sale thereof to satisfy payment of the Drinks Debenture. Accordingly and upon the Company’s request, the Investor agreed to waive its right under an Event of Default. The value of the 168,243 shares on the date transferred to the Investor aggregated $378,547 which when sold by the Investor will reduce the balance of the Drinks Debenture.  The aggregate value of $378,547 of the shares transferred has been accounted for as a reduction of the Drinks Debenture with a corresponding increase to additional paid-in capital.
 
In addition, as a result of the default, 200,000 of the Company shares having an aggregate value of $450,000 that were issued in July, 2009 were transferred to the Investor. 

On October 27, 2009, the Investor declared a second default under our $4,400,000 debenture because of the failure of the Pledged shares, to legally secure the debenture that had been acquired by St. George.  The Company has secured an agreement from the Investor not to enforce the default based on any decline in value of the pledge shares that has occurred in the past or that may occur prior to December 31, 2006.  Under the terms of such agreement, the Investor received title to 214,000 of non-Company pledged shares having a fair market value on that date of $160,500.  The fair value of these shares totaled $160,500 and has been reflected as a reduction of the Debenture payable and an addition to additional paid-in capital.
 
As a result of the depletion of the non-Company pledged shares, the Company agreed to issue and did issue in November 2009 and January 2010 an aggregate 1,200,373 shares of Company common stock to the individuals at a fair market value of $720,224.   Included in the total shares is 300,124 shares, which represent satisfaction of the original share commitment to the individuals at the inception of the Debenture agreement (see paragraph above).  The difference in the fair value of the 300,124 issued shares and the original estimated fair value of these shares in July 2009, reduced, as of November 2009 deferred loan costs as originally recorded, additional paid-in capital, and the related accumulated loan cost amortization.
 
At July 31, 2011, the drinks debenture was $1,688,813, offset by debenture debt discount of $774,496, investor notes receivable of $532,995 and deferred loan costs of $458,244 resulting in a net asset of deferred loan costs balance of $190,846, which has been reflected as a non-current asset in the accompanying consolidated balance sheet. The returned collateral is reflected separately in the consolidated balance sheet as an investor note payable in current liabilities. At April 30, 2011, offsetting of the Drinks Debenture of $1,688,813 was unamortized Debenture debt discount of $837,907 and investor notes receivable of $532,995 and deferred loan costs of $458,244 resulting in a net asset of deferred loan costs balance of $267,575, which balance is reflected as a non-current asset in the accompanying consolidated balance sheet.
 
10. NOTES AND LOANS PAYABLE
 
Notes and Loans Payable as of July 31, 2011and April 30, 2011 consisted of the following: 
 
  
 
July 31,
2011
(unaudited)
   
April 30, 
2011
 
Convertible note (a)
 
$
100,000
   
$
100,000
 
Olifant note (b)
   
-
     
620,260
 
Convertible promissory notes (c)
   
74,130
     
102,130
 
Other (d)
   
479,500
     
252,024
 
     
653,630
     
1,074,414
 
Less current portion
   
653,630
     
874,414
 
                 
Long-term portion
 
$
-
   
$
200,000
 
 
 
(a):
 
On November 9, 2009, the Company issued an unsecured $100,000 convertible note that matured on November 9, 2010. Interest accrues at a rate of 12.5% per annum and is payable quarterly. At the option of the note holder, interest can be paid in either cash or shares of Company common stock based on the convertible note’s $0.06 conversion price. As additional consideration, the Company granted the note holder 16,667 shares of the Company’s common stock and agreed to register the shares by January 8, 2010 or pay to the note holder as damages additional shares of the Company’s common stock equal to 2.0% of the common shares issuable upon conversion of the convertible note. The Company also granted the note holder piggyback registration rights.  On June 28, 2010, the Company issued the note holder 8,889 shares of common stock with a fair value of $973 as damages for failing to timely register the 16,667 common shares.

On November 9, 2009, the Company issued the 16,667 shares valued at $10,000, which the Company deemed a loan origination fee. At July 31, 2011 and  2010, $Nil and $2,667, respectively has been recorded as a deferred charge on the balance sheets and $10,000 and $4,778, respectively has been amortized to interest expense.
  
On December 10, 2010, the convertible note payable in the amount of $100,000 was amended and extended for six months, and the Company continues its discussions with the note holder regarding additional consideration to be provided for extending the term of the note.
 
(b):

On January 15, 2009, (the “Closing”), the Company acquired 90% of the capital stock of Olifant U.S.A, Inc. (“Olifant”),  pursuant to a Stock Purchase Agreement (the “Agreement. The Company has agreed to pay the sellers $1,200,000 for its 90% interest: $300,000 in cash and common stock valued at $100,000 to be paid 90 days from the Closing date. The initial cash payment of $300,000 which was due 90 days from Closing, was reduced to $149,633, which was paid to the sellers in August 2009 together with Company common stock having an aggregate value of $100,000 based on the date of the Agreement.  The Company issued a promissory note for the $800,000 balance. The promissory note is payable in four annual installments, the first payment is due one year from Closing. Each $200,000 installment is payable $100,000 in cash and Company stock valued at $100,000 with the stock value based on the 30 trading days immediately prior to the installment date. The cash portion of the note accrues interest at a rate of 5% per annum. On January 15, 2010, the Company paid the first loan installment in the amount of $200,000 and $5,000 in interest. The Company issued 330,033 shares as payment for the stock portion of the installment, and at the election of the sellers, $63,000 in cash and 138,614 in common stock as payment of the cash and interest portion on the first installment. At July 31, 2011 and April 30, 2011 interest expense of $25,555 was accrued.
 
During the three months ended July 31, 2011, the Company agreed to return 42% of the capital stock of Olifant U.S.A, Inc, reducing ownership interest to 48%, in exchange for the cancellation of the outstanding debt obligation and related accrued interest.  As such, the Company recorded a gain on disposal of a product line of $280,478 and recorded an investment of $Nil for their remaining 48% interest.

(c):

On July 12, 2010, the Company settled its lawsuit with James Sokol (“Sokol”) and in accordance with the settlement; the Company issued a 6% convertible promissory note in the amount of $47,130. Principal and interest on the note are payable upon the successful completion by the Company of a $1,000,000 financing or on January 1, 2013. In lieu of cash, Sokol may elect to receive the principal and interest due on the note for an equivalent value of common shares of the Company. 

Additionally, on November 17, 2010, the Company borrowed $55,000 from an investor under a convertible promissory note at an annual interest rate of 8%. As of July 31, 2011, the Company accrued interest payable of $4,693. The conversion features of the note require derivative accounting treatment. During the three months ended July 31, 2011, the Company issued an aggregate of 24,090,909 shares of common stock in settlement of $28,000 of the convertible promissory note with a remaining outstanding balance as of July 31, 2011 of $27,000. See note 11 - Derivative Liability.
 
 
(d):

On December 13, 2010, in connection with the settlement of accrued but unpaid salary compensation due to our former Vice President Sales, we issued a promissory note for $192,000. The note accrues interest at the annual rate of 6% and is due the earliest of thirty business days following the successful completion and receipt of a financing equal to or greater than one million dollars or January 1, 2012. At July 31, 2011, the Company accrued interest payable of $7,328.

On November 5, 2009, the Company borrowed $37,500 from an investor under an informal agreement for working capital purposes. The loan is payable on demand and is classified under notes and loans payable as a current liability on the balance sheet as of July 31, 2011 and April 30, 2011.
 
As of July 31, 2011, the Company has borrowed an aggregate of $250,000 from an investor under an informal agreement for working capital purposes.  The loan is payable on demand and is classified under notes and loans payable as a current liability as of July 31, 2011 and April 30, 2011.

11. DERIVATIVE LIABILITY
 
In June 2008, the FASB issued accounting guidance, which requires entities to evaluate whether an equity-linked financial instrument (or embedded feature) is indexed to its own stock by assessing the instrument’s contingent exercise provisions and settlement provisions.  Instruments not indexed to their own stock fail to meet the scope exception of ASC 815 “Derivative and Hedging” and should be classified as a liability and marked-to-market.  The statement was effective for fiscal years beginning after December 15, 2008 and is to be applied to outstanding instruments upon adoption with the cumulative effect of the change in accounting principle recognized as an adjustment to the opening balance of retained earnings.
 
ASC 815-40 mandates a two-step process for evaluating whether an equity-linked financial instrument or embedded feature is indexed to the entity’s own stock.  As disclosed in Note 10, during December of 2010 and January 2011, the Company entered into convertible loans which contain a variable conversion price.   In accordance with ASC 815-40, this conversion option is classified as a derivative liability. This amount was credited to conversion option liability when the note was issued.  The conversion option liability was revalued at July 31, 2011 at $31,055 with changes from the initial fair values charged to expense during the period. The estimated values of the conversion options were determined using the Binomial Lattice option pricing model and the following assumptions:  Expected volatility of 199.54%;   Expected life (years) of .10; risk free interest rate of 0.16%; and dividend rate of 0.
 
Based upon ASC 840-15-25 (EITF Issue 00-19, paragraph 11) the Company has adopted a sequencing approach regarding the application of ASC 815-40 to its outstanding convertible securities. Pursuant to the sequencing approach, the Company evaluates its contracts based upon earliest issuance date.  Accordingly, sufficient shares are deemed available to satisfy the potential conversion of the conventional convertible notes issued prior to the convertible notes issued under the SPA during the fiscal third quarter of 2011.  
 
12. ACCRUED EXPENSES
 
Accrued expenses consist of the following at July 31, 2011 and April 30, 2011:
 
  
 
July 31,
2011
(unaudited)
   
April 30, 
2011
 
Payroll, board compensation and consulting fees owed to officers, directors and shareholders
 
$
932,912
   
$
1,272,479
 
Other payroll and consulting fees
   
 127,403
     
201,054
 
Interest
   
797,553
     
730,110
 
Other
   
102,770
     
 62,500
 
   
$
1,960,638
   
$
2,266,143
 
 
 
13. STOCKHOLDERS' DEFICIENCY
 
Preferred stock

The Company is authorized to issue 1,000,000 shares of $0.001 par value preferred stock

During the three months ended July 31, 2011, the Company issued an aggregate of 137,662 shares of Series C Preferred stock in settlement of $403,251 of accrued and unpaid compensation.

Common stock

The Company is authorized to issue 500,000,000 shares of common stock with par value $.001 per share as of July 31, 2011 and April 30, 2011. As of July 31, 2011 and April 30, 2011, the Company had 493,456,981 and 344,366,062 shares of common stock issued and outstanding, respectively.

During the three months ended July 31, 2011, the Company issued an aggregate of 24,090,909 shares of its common stock in settlement of notes payable of $28,000 or approximately $0.0012 per share.

During the three months ended July 31, 2011, the Company issued an aggregate of 25,000,000 shares of its common stock in settlement of accrued liabilities of $60,000.

During the three months ended July 31, 2011, the Company issued an aggregate of 100,000,000 shares of its common stock to acquire trademark rights valued at $240,000.
 
14. WARRANTS AND OPTIONS

Warrants

The following table summarizes the warrants outstanding and related prices for the shares of the Company’s common stock issued as of July 31, 2011:
 
           
Warrants Outstanding
Weighted Average
               
Warrants Exercisable
 
           
Remaining
   
Weighted
         
Weighted
 
     
Number
   
Contractual
   
Average
   
Number
   
Average
 
Exercise Price
   
Outstanding
   
Life (years)
   
Exercise price
   
Exercisable
   
Exercise Price
 
 $
0.09
     
53,333
     
3.46
   
 $
0.09
     
53,333
   
 $
0.09
 
 
0.21
     
45,455
     
3.42
     
0.21
     
45,455
     
0.21
 
 
0.24
     
161,667
     
3.39
     
0.24
     
161,667
     
0.24
 
 
0.34
     
280,000
     
3.38
     
0.34
     
280,000
     
0.34
 
 
0.38
     
313,411
     
3.32
     
0.38
     
313,411
     
0.38
 
 
.094
     
13,333
     
3.46
     
0.94
     
13,333
     
0.94
 
 
0.98
     
12,821
     
3.08
     
0.98
     
12,821
     
3.33
 
 
1.41
     
16,667
     
5.87
     
1.41
     
16,667
     
1.41
 
 
2.25
     
655,920
     
8.75
     
2.25
     
655,920
     
2.25
 
 
5.25
     
166,667
     
2.89
     
5.25
     
166,667
     
5.25
 
 
6.56
     
8,333
     
2.89
     
6.56
     
8,333
     
6.56
 
 
7.50
     
155,000
     
1.90
     
7.50
     
155,000
     
7.50
 
 
9.00
     
23,333
     
0.07
     
9.00
     
23,333
     
9.00
 
 
18.75
     
47,222
     
0.25
     
18.75
     
47,222
     
0.50
 
 
19.26
     
53,400
     
5.87
     
19.26
     
53,400
     
19.26
 
 
45.00
     
29,630
     
.050
     
45.00
     
29,630
     
45.00
 
Total
     
2,036,192
     
4.82
             
2,036,192
         
 
 
Transactions involving the Company’s warrant issuance are summarized as follows:
 
   
Number of
Shares
   
Weighted
Average Price
Per Share
 
                 
Outstanding at April 30, 2010
   
2,157,235
   
$
3.21
 
Issued
   
-
     
-
 
Exercised
   
-
     
-
 
Canceled or expired
   
(101,043
   
(0.47
)
Outstanding at April 30, 2011
   
2,056,192
     
3.25
 
Issued
   
-
     
-
 
Expired
   
(20,000
)
   
(9.00
)
Canceled
   
-
     
-
 
Outstanding at July 31, 2011(unaudited)
   
2,036,192
   
$
3.25
 
 
Options

The following table summarizes the options outstanding and related prices for the shares of the Company’s common stock issued as of July 31, 2011:
 
           
Options Outstanding
Weighted Average
               
Warrants Exercisable
 
           
Remaining
   
Weighted
         
Weighted
 
     
Number
   
Contractual
   
Average
   
Number
   
Average
 
Exercise Price
   
Outstanding
   
Life (years)
   
Exercise price
   
Exercisable
   
Exercise Price
 
 $
2.40
     
155,000
     
2.62
   
 $
2.40
     
114,167
   
 $
0.09
 
 
2.64
     
166,667
     
2.62
     
2.64
     
83,333
     
0.24
 
 
5.25
     
33,334
     
2.62
     
5.25
     
33,334
     
0.34
 
Total
     
355,001
     
2.62
             
230,834
         
 
 
Transactions involving the Company’s options issuance are summarized as follows:
 
   
Number of
Shares
   
Weighted
Average Price
Per Share
 
                 
Outstanding at April 30, 2010
   
355,001
   
$
2.78
 
Issued
   
-
     
-
 
Exercised
   
-
     
-
 
Canceled or expired
   
-
     
-
 
Outstanding at April 30, 2011
   
355,001
     
2.78
 
Issued
   
-
     
-
 
Expired
   
-
         
Canceled
   
-
     
-
 
Outstanding at July 31, 2011(unaudited)
   
355,001
   
$
2.78
 

The Company did not issue options for theduring the three months ended July 31, 2011.

15.  RELATED PARTY TRANSACTIONS

Loan Payable
 
The Company is obligated to issue shares of its common stock to several of its shareholders in connection with its June 2009 debt financing (see Note 11).
 
From July 2007 through July 31, 2011, the Company has borrowed and our CEO has loaned various amounts up to $813,035 to the Company for working capital purposes at an annual interest rate of 12%. As of July 31, 2011 and April 30, 2011, amounts owed to our CEO on these loans including accrued and unpaid interest aggregated $Nil and $657, respectively. For the year ended April 30, 2011, interest incurred on these loans aggregated $7,884.
 
16. CUSTOMER CONCENTRATION
 
For the three months ended July 31, 2011, our largest customer accounted for 35% of our sales and for the three months ended July 31, 2011.

For the three months ended July 31, 2010, the Company earns royalty revenue under its agreement with Mexcor, Inc. which represented 100% of the Company’s accounts receivable.
 
17. COMMITMENTS AND CONTINGENCIES

Stock Purchase Agreement

On June 27, 2011, the Company executed a Stock Purchase Agreement (the “Purchase Agreement”) with Worldwide Beverage Imports, LLC, a Nevada limited liability company (“Worldwide”). Pursuant to the Purchase Agreement, the Company issued an aggregate of 100,000,000 shares of its restricted common stock of the Company (the “Initial Issuance”), of which 75,000,000 shares were issued to Worldwide, and 12,500,000 shares were issued to each of two consultants of Worldwide.  In consideration for the Initial Issuance, Worldwide will proceed to license distribution rights (the “Rights”) of up to 39 SKUs of products owned or licensed by Worldwide, and to supply all the inventory on favorable terms for the products related to the Rights (the “Inventory”) to the Company.
 

In addition to the Initial Issuance, provided that the Company has an adequate number of authorized shares of its common Stock, the Company agreed to sell additional shares (the “Additional Shares”) to Worldwide such that the sum of the Initial Issuance and the Additional Shares shall be no greater than 49% of the total number of shares of the issued and outstanding common stock of the Company for a purchase price of $200,000 or $0.002 per share. The Additional Shares shall be paid from residual cash from the sales made by the Company associated with the Rights after expenses in no more than five tranches in accordance with the terms of the Purchase Agreement.

Pursuant to the Purchase Agreement, effective on the Closing Date, the Board of Directors of the Company appointed Federico G. Cabo, Leonard Moreno, Richard F. Cabo, and Federico G. Cabo, Jr., to serve as members of the Company’s Board of Directors along with the current Board of Directors of the Company.

J. Patrick Kenny, Charles Davidson and Brian Kenny (the “Management of the Company”) will enter into employment agreements agreeable to both the Purchaser and Management of the Company with Management of the Company remaining employed with the Company for up to five years, but no less than three years.

Under the Purchase Agreement, the Company agreed to, among other things, use its best efforts to (i) increase the number of its authorized shares from 500,000,000 to 900,000,000 after the Closing Date in (the “Increase in Authorized Shares”), (ii) effect a reverse split at a ratio that is mutually agreed to by the Company and Worldwide (the “Reverse Split”), and (iii) settle outstanding liabilities (the “Debt Satisfaction”). Upon the occurrence of the Increase in Authorized Shares, the issuance of the Initial Issuance and the Additional Shares, the completion of the Debt Satisfaction and the Reverse Split, the Company agreed to issue such number of shares of its common stock required such that: (x) Worldwide shall own 49%, (y) management of the Company shall own 35%, (z) two consultants of Worldwide, or their respective designee(s), shall own 2.5% each, of the number of shares issued and outstanding of the Company at such time.

Upon the completion of the purchase of the Initial Issuance and the Additional Shares and until one (1) year from the date of the completion of the close of the transaction, the Company agreed not to issue any additional shares of the Company without prior written consent of the Purchaser, provided that the Company may issue certain exempt issuances without the prior written consent of the Purchaser in accordance with the terms of the Purchase Agreement.
 
18.  FAIR VALUE MEASUREMENT

The Company adopted the provisions of Accounting Standards Codification subtopic 825-10, Financial Instruments (“ASC 825-10”) on January 1, 2008. ASC 825-10 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance. ASC 825-10 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 825-10 establishes three levels of inputs that may be used to measure fair value:

Level 1 - Quoted prices in active markets for identical assets or liabilities.

Level 2 - Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 - Unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities.

To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement is disclosed and is determined based on the lowest level input that is significant to the fair value measurement.

Upon adoption of ASC 825-10, there was no cumulative effect adjustment to beginning retained earnings and no impact on the consolidated financial statements.
 

The carrying value of the Company’s cash and cash equivalents, accounts receivable, accounts payable, short-term borrowings (Including convertible notes payable), and other current assets and liabilities approximate fair value because of their short-term maturity.

Items recorded or measured at fair value on a recurring basis in the accompanying consolidated financial statements consisted of the warrant liability, reset and debt derivative liabilities. Convertible notes were determined at market based on their short term historical conversions
 
 
  
Quoted
Prices in
Active
Markets for
Identical
Instruments
Level 1
  
  
Significant
Other
Observable
Inputs
Level 2
  
  
Significant
Unobservable
Inputs
Level 3
  
  
Assets at
fair Value
  
Liabilities:
                               
Derivative liability
 
$
   
$
   
$
(31,055
)
 
$
(31,055
)
                                 
Total
 
$
-
   
$
-
   
$
(31,055
)
 
$
(31,055
)

The following table provides a summary of changes in fair value of the Company’s Level 3 financial liabilities as of July 31, 2011:
 
   
Derivative
Liability
 
Balance, April 30, 2011
 
$
31,186
 
Total (gains) losses
       
Initial fair value of debt derivative at note issuance
   
-
 
Mark-to-market at July 31, 2011:
       
 Embedded debt derivative
   
29,384
 
Transfers out of Level 3 upon conversion and settlement of notes
   
(29,515
         
Balance, July 31, 2011
 
$
31,055
 
         
Net Loss for the period included in earnings relating to the liabilities held at July 31, 2011
 
(29,384
 
19. SUBSEQUENT EVENTS

Subsequent events have been evaluated through September 14, 2011, a date that the financial statements were issued.

 
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 
Unless otherwise indicated or the context otherwise requires, all references in this Report on Form 10-Q to “we”, “us”, “our” and the “Company” are to Drinks Americas Holdings, Ltd., a Delaware corporation and formerly Gourmet Group, Inc., a Nevada corporation, and its majority owned subsidiaries Drinks Americas, Inc., Drinks Global Imports, LLC, D.T. Drinks, LLC,  and Maxmillian Mixers, LLC and Maxmillian Partners, LLC.

Cautionary Notice Regarding Forward Looking Statements

The disclosure and analysis in this Report contains some forward-looking statements. Certain of the matters discussed concerning our operations, cash flows, financial position, economic performance and financial condition, 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 filing 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. In addition, forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our Company's historical experience and our present expectations or projections. These risks and uncertainties include, but are not limited to, those described in Part II, "Item 1A. Risk Factors" and elsewhere in this report and in our Annual Report on Form 10-K for the year ended April 30, 2011, and those described from time to time in our future reports filed with the Securities and Exchange Commission.  This discussion is provided as permitted by the Private Securities Litigation Reform Act of 1995.
 
Introduction

The following discussion and analysis summarizes the significant factors affecting: (1) our consolidated results of operations for the three months ended July 31, 2011, compared to the three months ended July 31, 2010, and (2) our liquidity and capital resources. This discussion and analysis should be read in conjunction with the consolidated financial statements and notes included in Item 1 of this Quarterly Report on Form 10-Q, and the audited consolidated financial statements and notes included  in our Annual Report Form 10-K, filed on August 12, 2011.
 

Results of Operations

Three Months Ended July 31, 2011 Compared to Three Months Ended July 31, 2010
 
Net Sales: Net sales were approximately $148,000 under our revised royalty revenue business model for the three months ended July 31, 2011 compared to net sales of approximately $102,000 for the same period last year, an increase of 45% reflective of the transition of our business model beginning in February 2010 from a wholesale operation to a royalty based operation under our distribution and importation agreement with Mexcor, Inc.  As we announced previously, our business continues to be impacted by a shortage in working capital and a weak economy.
 
Gross Margin:  Gross margin under the royalty business model was $15,298, or 10.3% of net sales for the three months ended July 31, 2011 compared to gross margin of $4,337, or 4.2% of net sales for the three months ended July 31, 2010. This increase in gross margin is attributable to the transition of our business model to a royalty-based operation from a wholesale model.
 
Selling, General and Administrative Expenses: Selling, general and administrative expenses totaled approximately $514,000 for the three months ended July 31, 2011, compared to $640,000 for the three months ended July 31, 2010, a decrease of approximately $126,000, or 20%, attributable to our decision to reduce our operating and marketing expenses and thereby sustain our limited working capital. The overhead reductions resulted in lower payroll and payroll related and travel expenses. Additionally, our agreement with Mexcor, Inc. resulted in our ability to transfer our field sales force and its associated sales commission costs and travel expenses to Mexcor, Inc. as we restructured our business-operating model in fiscal 2010 under our distribution and importation agreement with   Mexcor, Inc.

Interest expense:  Interest expense for the three months ended July 31, 2011 was approximately $112,000 compared to $265,000 for the same period last year, a net decrease of $153,000 or 58%.  This decrease is predominantly due to a reduction in the cost of financing our outstanding liabilities as compared to prior year.

Loss on change in fair value of derivative:  As discussed in our financial statements, we are required to bifurcate the conversion option embedded in certain convertible promissory notes and record at fair value each reporting period as a liability.  During the three months ended July 31, 2011, we recorded a loss on change in fair value of $29,384 as compared to Nil the same period last year.

Gain on settlement of debt:  During the three months ended July 31, 2011, we negotiated and settled outstanding debt, primarily trade vendors, for a lower than previously recorded obligation.  As such, we recognized a gain on settlement of debt of approximately $18,000 for the three months ended July 31, 2011 compared to Nil the same period last year.

Gain on disposal of product line:  During the three months ended July 31, 2011, we exchanged 42% of our interest in Olifant U.S.A, Inc. for the cancellation of our remaining outstanding debt obligation and related accrued interest.  With the exchange, we reduced our ownership to 48% and realized a gain on sale of the product line of approximately $280,478 compared to Nil for the three months ended July 31, 2010.

Other income (expense): For the three months ended July 31, 2011, other income (expense) of $(3,483) is predominately comprised financing costs associated with certain issued notes payable compared to Nil for the three months ended July 31, 2010.
 
Financial Liquidity and Capital Resources
 
Our accompanying consolidated financial statements have been prepared on a basis that assumes the Company will continue as a going concern. As of July 31, 2011, the Company has a shareholders' deficiency of approximately $4,009,000 applicable to controlling interests compared with $4,463,000 applicable to controlling interests at April 30, 2011, and working capital deficiency of $4,927,472 as of July 31, 2011 and has incurred significant operating losses and negative cash flows since inception. For the three months ended July 31, 2011, the Company sustained an operating loss of approximately $499,000 compared to an operating loss of $636,000 for the three months ended July 31, 2010 and used cash of approximately $238,000 in operating activities for the three months ended July 31, 2011 compared with approximately $129,000 for the three months ended July 31, 2010. We will need additional financing which may take the form of equity or debt and we have converted certain liabilities into equity.  We anticipate that increased sales revenues from our newly launched Rheingold Beer product line and our Mexcor Agreement will contribute to improving our cash flow and provide additional liquidity from operations.  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. The accompanying consolidated financial statements do not include any adjustments relating to the classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the company be unable to continue in existence.
 
 
We will need to continue to manage carefully our working capital and our business decisions will continue to be influenced by our working capital requirements. Lack of liquidity continued to negatively affect our business and curtail the execution of our business plan.
 
Net Cash Used in Operating Activities: Net cash used in operating activities for the three months ended July 31, 2011 was approximately $238,000, primarily from our loss of approximately $24,000 net with non cash activities of $166,000 depreciation and amortization, $346,000 loss on change in fair value of derivative, $21,000 stock based compensation, $(280,000) gain on sale of product line, $173,000 changes in operating assets and sundry other non cash activities.. We have to date funded our operations predominantly through loans from shareholders, officers and investors and additionally through the issuance of our common stock as payment for outstanding obligations.

Net Cash provided by Financing Activities: Net cash provided by  financing activities for the three months ended July 31, 2011 was $236,000 primarily from net proceeds from debt and notes payable.
 
Based on our current operating activities and plans, we believe our existing financings will enable us to meet our anticipated cash requirements for at least the next three months.
 
Impact of Inflation

Although management expects that our operations will be influenced by general economic conditions, we do not believe that inflation has had a material effect on our results of operations.

Seasonality

Generally, 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 decreasing their inventory levels, which typically remain on hand after the holiday season. Given our lack of working capital, the effects of seasonality on our sales have been lessened.
 
Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Not applicable to smaller reporting companies
 
Item 4. Controls and Procedures.

Disclosure Controls and Procedures  

We have adopted and maintain disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to provide reasonable assurance that information required to be disclosed in our reports under the Exchange Act, is recorded, processed, summarized and reported within the time periods required under the SEC's rules and forms and that the information is gathered and communicated to our management, including our Chief Executive Officer (Principal Executive Officer) who is also our Chief Financial Officer (Principal Financial Officer), as appropriate, to allow for timely decisions regarding required disclosure.
 

Our Chief Executive Officer and our Chief Financial Officer evaluated the effectiveness of our disclosure controls and procedures as of July 31, 2011, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of July 31, 2011, our Chief Executive Officer and our Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be declared by us in reports that we file with or submit to the Securities and Exchange Commission (the “SEC”) is (1) recorded, processed, summarized, and reported within the periods specified in the SEC’s rules and forms and (2) accumulated and communicated to our management, including our Chief Executive Officer, to allow timely decisions regarding required disclosure.  

 Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting as defined in Rule 13a-15 under the Exchange Act that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
 
PART II – OTHER INFORMATION
 
Legal Proceedings.

There have been no material changes since previously disclosed in our Annual Report on Form 10-K for the year ended April 30, 2011.
 
Risk Factors.

There  have been no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended April 30, 2011.

Unregistered Sales of Equity Securities and Use of Proceeds.
 
None.
  
Defaults Upon Senior Securities.
 
None.
 
(Removed and Reserved).

Item 5.
Other Information.
 
None.
 
Exhibits.
 
31.1
   
31.2
 
 
32.1
 
 
101 INS
XBRL Instance Document*
   
101 SCH
XBRL Taxonomy Extension Schema Document*
   
101 CAL
XBRL Taxonomy Extension Calculation Linkbase Document*
   
101 DEF XBRL Taxonomy Extension Definition Linkbase Document*
   
101 LAB
XBRL Taxonomy Extension Label Linkbase Document*
   
101 PRE
XBRL Taxonomy Extension Presentation Linkbase Document*
 
*Attached as Exhibit 101 to this report are the following financial statements for the Company's Quarterly Report on Form 10-Q for the quarter ended July 31, 2011 formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss), (iii) the Condensed Consolidated Statements of Cash Flows, and (iv) related notes to these financial statements tagged as blocks of text. The XBRL-related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall not be deemed "filed" or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, and is not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of those sections.
 
 
SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
DRINKS AMERICAS HOLDINGS, LTD.
     
September 15, 2011
By:
/s/ J. Patrick Kenny
   
J. Patrick Kenny
President and Chief Executive Officer and Chief Accounting Officer