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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 January 31, 2012
   
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:  000-19086
 

 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.)
     
424 R Main Street
   
Ridgefield, CT
 
06877
(Address of principal executive offices)
 
(Zip Code)
 
(203) 762-7000
(Registrant’s telephone number, including area code)
 
372 Danbury Road, Suite 163, Wilton, Connecticut 06897
(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 March 12, 2012, the number of shares outstanding of the registrant’s common stock, $0.001 par value, was 21,279,339.
 
 
DRINKS AMERICAS HOLDINGS, LTD. AND AFFILIATES

FORM 10-Q

FOR THE QUARTER ENDED JANUARY 31, 2012

TABLE OF CONTENTS

     
Page
PART 1     FINANCIAL INFORMATION  
3
    
   
   
Item 1.
 
3
       
   
3
    
     
   
4
       
   
5
   
     
   
6
       
Item 2.
 
24
       
Item 3.
 
27
       
Item 4.
 
27
       
PART II   OTHER INFORMATION  
28
       
Item 1.
 
28
       
Item 1A
 
28
       
Item 2.
 
28
       
Item 3.
 
28
       
Item 4.
 
28
       
Item 5.
 
29
       
Item 6.
 
29
       
 
30

 
 
PART I – FINANCIAL INFORMATION
Item 1.   Financial Statements
 
DRINKS AMERICAS HOLDINGS, LTD., AND AFFILIATES
CONDENSED CONSOLIDATED BALANCE SHEETS
 
   
January 31,
   
April 30,
 
   
2012
   
2011
 
   
(unaudited)
       
ASSETS
           
Current assets:
           
Cash and cash equivalents
  $ 230,709     $ 1,923  
Accounts receivable, net of allowance for doubtful accounts of $126,781 and $170,657
    473,862       68,925  
Inventory
    494,934       62,850  
Other current assets
    9,715       118,044  
  Total current assets
    1,209,220       251,742  
                 
Property and equipment, net of accumulated depreciation
    2,543       11,439  
                 
Other assets:
               
Investment in equity investees
    102,345       102,345  
Intangible assets, net of accumulated amortization
    5,208,058       381,776  
Deferred loan costs, net of accumulated amortization
    168,388       267,575  
Security deposit
    6,225       -  
Other assets
    49,137       17,936  
  Total other assets
    5,534,153       769,632  
                 
Total assets
  $ 6,745,916     $ 1,032,813  
                 
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
               
                 
Current liabilities:
               
Accounts payable
  $ 2,110,236     $ 1,743,277  
Accrued expenses
    854,701       2,266,143  
Operating line of credit, related party
    219,891       -  
Investor note payable
    843,000       380,504  
Notes and loans payable, net of long term portion
    368,447       874,414  
Derivative liability
    -       31,186  
Loans payable from related party
    -       657  
  Total current liabilities
    4,396,275       5,296,181  
                 
Long term debt:
               
Notes and loans payable, net of current portion
    -       200,000  
                 
  Total liabilities
    4,396,275       5,496,181  
                 
Commitments and contingencies
    -       -  
                 
Stockholders' equity (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 January 31, 2012 and April 30, 2011
    11       11  
Series B: $10,000 par value; 13,837 issued and outstanding as of January 31, 2012 and April 30, 2011
    138,370       138,370  
Series C: $1.00 par value; Nil and 635,835 issued and outstanding as of January 31, 2012 and April 30, 2011, respectively
    -       635,835  
Common stock, $0.001 par value; 900,000,000 and 500,000,000 shares authorized as of January 31, 2012 and April 30, 2011,
respectively; 21,279,339 and 1,377,464 shares issued and outstanding as of January 31, 2012 and April 30, 2011, respectively
    21,279       1,377  
Additional paid in capital
    50,541,122       42,583,571  
Accumulated deficit
    (48,350,709 )     (47,803,230 )
  Total Drinks Americas Holdings, Ltd stockholders' equity (deficiency)
    2,350,073       (4,444,066 )
Equity attributable to non-controlling interests
    (432 )     (19,302 )
  Total stockholders' equity (deficiency)
    2,349,641       (4,463,368 )
                 
Total Liabilities and Stockholders' Equity (Deficiency)
  $ 6,745,916     $ 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 January 31,
   
Nine months ended January 31,
 
   
2012
   
2011
   
2012
   
2011
 
Sales, net
  $ 1,117,000     $ 141,883     $ 2,535,669     $ 387,781  
                                 
Cost of sales
    884,659       133,797       1,985,653       345,750  
                                 
Gross margin
    232,341       8,086       550,016       42,031  
                                 
Selling, general and administrative expenses
    345,365       661,767       1,591,027       1,987,877  
Loss on settlement of royalty agreement
    -       -       250,000       -  
  Total operating expenses
    345,365       661,767       1,841,027       1,987,877  
                                 
Net loss from operations
    (113,024 )     (653,681 )     (1,291,011 )     (1,945,846 )
                                 
Other income (expense):
                               
  Interest, net
    11,332       (264,527 )     (157,342 )     (733,576 )
  Gain on change in fair value of derivative
    -       -       1,671       -  
  Other expense
    (3,488 )             (8,884 )     -  
  Gain on settlement of accounts payable
    288,172       412,822       627,609       412,822  
  (Loss) gain on disposal of product line
    -       -       280,478       -  
Total other income (expense)
    296,016       148,295       743,532       (320,754 )
                                 
Net income (loss) before non controlling interests
    182,992       (505,386 )     (547,479 )     (2,266,600 )
                                 
Net loss attributable to non controlling interest
    -       (26,438 )     -       (14,077 )
                                 
Net income (loss)
  $ 182,992     $ (531,824 )   $ (547,479 )   $ (2,280,677 )
                                 
Net income (loss) per common share, basic
  $ 0.04     $ (2.22 )   $ (0.19 )   $ (15.98 )
                                 
Net income (loss) per common share, fully diluted
  $ 0.04     $ (2.22 )   $ (0.19 )   $ (15.98 )
                                 
Weighted average number of common shares outstanding, basic
    5,175,777       239,523       2,954,563       142,736  
                                 
Weighted average number of common shares outstanding , fully diluted
    5,175,777       239,523       2,954,563       142,736  
 
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)
   
Nine months ended January 31,
 
   
2012
   
2011
 
CASH FLOWS FROM OPERATING ACTIVITIES:
           
Net loss
  $ (547,479 )   $ (2,280,677 )
Adjustments to reconcile net loss to net cash used in operating activities:
               
Depreciation and amortization
    223,402       142,944  
Bad debt expense
    9,709          
Stock compensation
    190,778       163,926  
Gain on settlement of accounts payable
    (627,609 )     (420,205 )
Issuance of common stock and warrants for deferred costs
    -       915,991  
Investor return of collateral
    -       450,000  
Non-controlling interest
    -       14,077  
Non cash interest paid
    54,541       -  
Non cash interest income
    (9,876 )     -  
Gain on sale of interest in product line
    (280,478 )     -  
Gain on change in fair value of derivative liability
    (1,671 )     40,375  
Changes in operating assets and liabilities:
               
Accounts receivable
    (414,646 )     (52,518 )
Inventories
    (432,084 )     101,317  
Other current assets
    (3,692 )     (73,176 )
Other assets
    -       60,837  
Accounts payable
    682,823       778,016  
Accrued expenses
    33,497       (46,734 )
Deferred revenue
    -       (63,730 )
  Net cash used in operating activities
    (1,122,785 )     (269,557 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Payment of security deposit
    (6,225 )     -  
Purchase of investments
    -       (28,752 )
  Net cash used in investing activities
    (6,225 )     (28,752 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Proceeds from line of credit
    219,891       -  
Proceeds from the sale of common stock
    1,440,000       -  
Net repayments of related party loans
    (657 )     -  
Proceeds from issuance of notes payable
    227,475       294,130  
Net repayments of notes payable
    (528,913 )     (128,953 )
  Net cash provided from financing activities
    1,357,796       165,177  
                 
Net increase (decrease)  in cash and cash equivalents
    228,786       (133,132 )
Cash and cash equivalents-beginning of the period
    1,923       203,552  
                 
Cash and cash equivalents-end of period
  $ 230,709     $ 70,420  
                 
Supplemental disclosure of non-cash investing and financing activities:
               
Interest paid
  $ 8,005     $ 6,061  
Taxes paid
  $ -     $ -  
Satisfaction of note and interest payable by issuance of common stock
  $ 150,756     $ -  
Accrued interest in debt principal
  $ -     $ 5,075  
Payment of accounts payable and accrued expenses with shares of common stock
  $ 337,922     $ 1,624,666  
Increase in deferred charges equal to decrease in note receivable, net
  $ -     $ 915,991  
Issuance of note payable in exchange for return and cancellation of common stock
  $ -     $ 450,000  
Common stock issued to acquire investment
  $ 39,000     $ -  
Common stock issued to acquire trademark
  $ 4,870,391     $ -  
 
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
JANUARY 31, 2012
 
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" or the "Company "). 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 16,232 shares of outstanding common stock, issued approximately 180,656 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 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 nine months ended January 31, 2012, the Company reduced its ownership to 48% of Olifant recognizing a gain on disposal of product line of $280,478. In conjunction with the ownership reduction to 48%, the Company eliminated the remaining outstanding debt obligation of $600,000
 
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 imports, distributes and markets unique premium wine and spirits and alcoholic beverages to beverage wholesalers throughout the United States and internationally.

On June of 2011 the company entered into an agreement to license and distribute the brands of Worldwide Beverage Imports in the eastern United States with brands to include KAH Tequila, Agave 99, Ed Hardy Tequila, Mexicali Beer, Chili Beer and Red Pig ale as well as various other products produced and imported by Worldwide Beverage Imports in return for the shares that would be no greater than 49% of the Company.
 
On November 1, 2011, the Company amended its agreement with Worldwide Beverage Imports. The company was granted worldwide distribution rights on both the spirits and beer products of WBI.  In connection with the agreement, the Company agreed to issue $1,500,000 in additional restricted shares of common stock (the “Additional Shares”) to Worldwide at a purchase price of $0.50 per share in exchange for Worldwide forgiving a $300,000 loan owed by the Company to Worldwide and Worldwide delivering $1,200,000 in Inventory to the Company, the sale proceeds of which are to be contributed to the capital of the Company.


DRINKS AMERICAS HOLDINGS, LTD., AND AFFILIATES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2012
 
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.

During the nine months ended January 31, 2012, the Company issued an additional aggregate of 10,329,602 shares of its common stock to acquire the right to sell and distribute the products that Worldwide Beverages licensed to the company.   The trademarks were recorded at the fair value of the issued underlying common stock of $4,870,391.  In addition, the Company received $1.5 million in product at no cost to be sold with a wholesale markup of 40% for a revenue value of $2,100,000, as capital contribution for 49% of the Company and additional forward going inventory at substantially reduced pricing with ongoing and extended credit terms.  The inventory is credited as a payment towards WBI acquiring up to 49% ownership of the Company's common stock.  The fair value of the product received is recorded as inventory with the offset recorded as a common stock subscription.
 
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 nine months ended January 31, 2012, 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.
 

DRINKS AMERICAS HOLDINGS, LTD., AND AFFILIATES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2012

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 January 31, 2012 and April 30, 2011, the allowance for doubtful accounts was $126,781 and $170,657, respectively.
 
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 nine months ended January 31, 2012, 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.

 
DRINKS AMERICAS HOLDINGS, LTD., AND AFFILIATES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2012
 
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 $5.00 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 and nine months ended January 31, 2012 and 2011, the diluted earnings per (loss) share amounts equal basic earnings (loss) per share because the Company had net losses orthe 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.
 
 
DRINKS AMERICAS HOLDINGS, LTD., AND AFFILIATES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2012

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. The Company reclassified capitalized financing costs as other assets in the Company's balance sheet previously recorded as an offset to related notes payable.  In addition, as described below, the equity accounts were adjusted to reflect a reverse stock split in December 2011.

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 January 31, 2012, the Company has a shareholders' equity of $2,350,073 applicable to controlling interest compared with $4,444,066 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 nine months ended January 31, 2012, the Company sustained a net loss of $547,479 compared to a net loss of $2,280,677 for the nine months ended January 31, 2011 and used cash of approximately $1,123,000 in operating activities for the nine months ended January 31, 2012 compared with approximately $270,000 for the nine months ended January 31, 2011. With our relationship with WBI, we believe our liquidity will improve.  In addition, the increased sales revenues have helped.  In the event, if 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 January 31, 2012 and April 30, 2011 consist of the following:
 
   
January 31,
2012
    April 30,
2011
 
   
(unaudited)
       
Accounts receivable
 
$
600,643
   
$
234,386
 
Accounts receivable-factor
   
-
     
5,196
 
Allowances
   
(126,781
)
   
(170,657 
)
   
$
473,862
   
$
68,925
 
 

DRINKS AMERICAS HOLDINGS, LTD., AND AFFILIATES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2012
5. INVENTORIES
 
Inventories as of January 31, 2012 and April 30, 2011 consist of the following:
 
  
 
January 31,
2012
   
April 30,
2011
 
    (unaudited)          
Raw Materials
 
$
8,067
   
$
33,960
 
Finished goods
   
486,867
     
28,890
 
   
$
494,934
   
$
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 January 31, 2012 and April 30, 2011 consist of the following:
 
  
 
January 31, 
2012
   
April 30,
 2011
 
    (unaudited)        
Employee advances
 
$
-
   
$
81,258
 
Prepaid Other
   
9,715
     
36,786
 
   
$
9,715
   
$
118,044
 
 
Prepaid other are comprised of prepaid marketing fees, employee travel advances and expenses.
  
7. PROPERTY AND EQUIPMENT
 
Property and equipment as of January 31, 2012 and April 30, 2011consist of the following:
 
  
  Useful
Life
 
January 31,
2012
    April 30,
2011
 
  
     
(unaudited)
       
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
       
(291,733
)
   
(282,837
)
       
$
2,543
   
$
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 and nine months ended January 31, 2012 was $1,252 and $8,896, respectively and $5,877 and $17,631 for the three and nine months ended January 31, 2011, respectively.

 
DRINKS AMERICAS HOLDINGS, LTD., AND AFFILIATES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2012
 
8. INTANGIBLE ASSETS
 
Intangible assets include the acquisition costs of trademarks, license rights and distribution rights for the Company’s alcoholic beverages.
 
As of January 31, 2012 and April 30, 2011, intangible assets are comprised of the following:

  
 
January 31,
2012
   
April 30,
2011
 
    (unaudited)        
Trademark and license rights of Rheingold beer
   
230,000
     
230,000
 
Worldwide Beverages agreement
   
4,870,391
     
-
 
Other trademark and distribution rights
   
475,000
     
475,000
 
     
5,575,391
     
705,000
 
Accumulated amortization
   
(367,333
)
   
(323,224
)
   
$
5,208,058
   
$
381,776
 
 
Amortization expense for the three and nine months ended January 31, 2012 $14,703 and $44,109, respectively and $41,771and $125,313 for the three and nine months ended January 31, 2011, 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 $5.00 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 nine months ended January 31, 2012, the Company issued an aggregate of 8,818,893 shares of its common stock to acquire trademark rights with Worldwide Beverages.  The fair value of $4,870,391 was determined based on the underlying fair value of the common stock issued.

Investment in equity investees represents the Company's investment in Old Whiskey Rivers and is recorded at fair value.  There were immaterial changes in valuation for the nine months ended January 31, 2012.

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 April 30, 2011.  See the forbearance agreement entered into in December 2011 below.
 
 
DRINKS AMERICAS HOLDINGS, LTD., AND AFFILIATES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2012

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 667 shares of our common stock at an exercise price of $87.50 per share (the “Investor Warrants”).  The Investor Warrants 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.
 
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 1,246 Placement Agent Warrants as follows: effective February 24, 2010, a warrant to purchase 113 shares of Company common stock at an exercise price of $59.78; effective February 11, 2010, a warrant to purchase 5,333 shares of Company common stock at an exercise price of $3.75; effective January 15, 2010, a warrant to purchase 267 shares of Company common stock at an exercise price of $23.45; effective December 30, 2009, a warrant to purchase 182 shares of Company common stock at an exercise price of $3.44; effective August 28, 2009, a warrant to purchase 52  shares of Company common stock at an exercise price of $16.25; effective June 19, 2009, a warrant to purchase 67 shares of Company common stock at an exercise price of $351.58 ; and, effective June 19, 2009, a warrant to purchase 33  shares f Company common stock at an exercise price of $1,640.63. 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 and nine months ended January 31, 2012 and 2011, the Company amortized to expense $5,135 and $15,405, respectively.

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 3,201 shares of our common stock (of which 800 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 1,201 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.
 
 
DRINKS AMERICAS HOLDINGS, LTD., AND AFFILIATES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2012
 
On December 13, 2011, the Company and the Investor entered into a Forbearance Agreement (the “Forbearance Agreement”) whereby the Investor agreed to forbear from enforcing the Investor’s remedial rights under the Loan Documents until January 1, 2013 (the “Forbearance Agreement”).  Pursuant to the Forbearance Agreement, the Debenture will remain in full force and effect and, as a result of certain defaults under the Loan Documents, the outstanding amount owed under the Debenture, including interest, fees, penalties and legal fees, was agreed to be no less than $2,000,000, with interest, fees and penalties continuing to accrue (the “Debenture Balance”).  Notwithstanding the Debenture Balance, the Company and the Investor agreed to a payoff balance of $1,126,360 (the “Forbearance Amount”), which Forbearance Amount shall accrue interest at a rate of 8% per annum, commencing on December 13, 2011.  So long as the Company complies with the terms of the Forbearance Agreement and no further defaults occur under the Loan Documents, the Company’s obligation will be entirely satisfied upon due payment of the Forbearance Amount in accordance with the following schedule of fixed cash payments:

§  
$285,360 upon execution of the Forbearance Agreement, which payment was made on December 13, 2011;
§  
$50,000 to be paid on or before March 1, 2012, which payment was made on February 27, 2012;
§  
$283,000 to be paid on or before June 1, 2012;
§  
$50,000 to be paid on or before September 1, 2012;
§  
$50,000 to be paid on or before November 1, 2012; and
§  
$408,000 plus all accrued and unpaid interest to be paid on or before January 1, 2013.

Furthermore, in the event the Company is able to pay the entire Forbearance Amount, less $100,000, on or before June 30, 2012, the remaining $100,000 will be discounted from the Forbearance Amount due.  On October 5, 2011 the Company paid the Investor $50,000 and shortly thereafter a final issuance of 77,280 shares of Common Stock which payment and issuance were credited to the Debenture Balance and the Forbearance Amount and were reflected in the amounts owed under the Debenture Balance and the Forbearance Amount.
 
In the event that the Company does not comply with all of its obligations or a default occurs under the Forbearance Agreement or the Loan Documents (a “Future Default”), the outstanding balance under the Debenture will be deemed to be the Debenture Balance with all accrued interest, fees and penalties, less any payments made in accordance with the payment schedule.  In the event of a Future Default, the Investor will have a right to convert all or part of the Debenture Balance for shares of Common Stock.  Accordingly, the Company agreed to reserve 400,000 shares of Common Stock for issuance to the lender upon such conversion.  In addition, the Company entered into an Escrow Agreement whereby the Company agreed to deliver 400,000 shares (the “Forbearance Conversion Shares”) to be held in escrow.  In the event of certain defaults under the Forbearance Agreement or the Debenture, the Investor will have the right to receive the Forbearance Conversion Shares, which right was memorialized in that certain letter containing Irrevocable Instructions to Transfer Agent, dated December 13, 2011.  Pursuant to the Forbearance Agreement, the Company also consented to a Judgment by Confession whereby the Company agreed to allow a court of proper jurisdiction to enter a Judgment against the Company in favor of the Investor.

10. LINE OF CREDIT, RELATED PARTY

As of January 31, 2012, the Company has outstanding $219,891 on a $400,000 line of credit, unsecured at 15% per annum, due upon demand.  The line of credit is provided by a current note holder and board member of the Company.  For the nine months ended January 31, 2012, the Company paid $12,019 as interest expense.

 
DRINKS AMERICAS HOLDINGS, LTD., AND AFFILIATES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2012

11. NOTES AND LOANS PAYABLE
 
Notes and Loans Payable as of January 31, 2012 and April 30, 2011 consisted of the following: 
 
  
 
January 31,
2012
   
April 30, 
2011
 
    (unaudited)        
Convertible note (a)
 
$
-
   
$
100,000
 
Olifant note (b)
   
-
     
620,260
 
Convertible promissory notes (c)
   
-
     
102,130
 
Other (d)
   
368,447
     
252,024
 
     
368,447
     
1,074,414
 
Less current portion
   
368,447
     
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 $15.00 conversion price. As additional consideration, the Company granted the note holder 67 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 36 shares of common stock with a fair value of $973 as a penalty for failing to timely register the 67 common shares.

On November 9, 2009, the Company issued the 67 shares valued at $10,000, which the Company deemed a loan origination fee. At January 31, 2012 and 2011, $Nil has been recorded as a deferred charge on the balance sheets and $10,000 had been amortized to interest expense.
  
This note was retired for stock that had been issued previously for interest, therefore the Company recorded a gain on settlement of debt of $100,000 for the nine months ended January 31, 2012.
 
 (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 1,320 shares as payment for the stock portion of the installment, and at the election of the sellers, $63,000 in cash and 554 in common stock as payment of the cash and interest portion on the first installment.
 
 
DRINKS AMERICAS HOLDINGS, LTD., AND AFFILIATES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2012
 
During the nine months ended January 31, 2012, the Company agreed to return 42% of the capital stock of Olifant 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%. During the nine months ended January 31, 2012, the Company issued an aggregate of 96,364 shares of common stock in settlement of $28,000 of the convertible promissory note.  As of January 31, 2012, the Company had paid off the unconverted portion of $27,000 and related accrued interest of $16,428.

The company filed litigation for a payment of $75,000 that was made for equity not delivered along with stock. The litigation is pending.
  
(d):

On December 13, 2010, in connection with the settlement of accrued but unpaid salary compensation due to our former Vice President of 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 January 31, 2012, the Company accrued interest payable of $13,056.

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.  During the nine months ended January 31, 2012 the Company issued 70,000 in full settlement of the note and related accrued interest.
 
As of January 31, 2012, the Company has borrowed an aggregate of $250,000 net of 158,553 of repayments, 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 of $91,447 as of January 31, 2012 and $250,000 as of April 30, 2011.  Interest is paid on a monthly basis.

12. 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.

 
DRINKS AMERICAS HOLDINGS, LTD., AND AFFILIATES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2012

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 11, 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.  

As of January 31, 2011, the Company had paid the remaining equity-linked financial instruments with embedded conversion features indexed to the Company's own stock.  Therefore the derivative liability was reduced to Nil.

13. ACCRUED EXPENSES
 
Accrued expenses consist of the following at January 31, 2012 and April 30, 2011:
 
  
 
January 31,
2012
   
April 30, 
2011
 
    (unaudited)        
Payroll, board compensation and consulting fees owed to officers, directors and shareholders
 
$
797,277
   
$
1,272,479
 
Other payroll and consulting fees
   
 30,884
     
201,054
 
Interest
   
26,540
     
730,110
 
Other
   
-
     
 62,500
 
   
$
854,701
   
$
2,266,143
 
 
14. STOCKHOLDERS' DEFICIENCY
 
Preferred stock

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

During the nine months ended January 31, 2012, the Company issued an aggregate of 137,662 shares of Series C Preferred stock in settlement of $403,251 of accrued and unpaid compensation.

On January 18, 2012, the Company issued an aggregate of 7,306,859 shares of common stock in exchange for 773,497 shares of Series C Preferred stock.

Common stock

On September 14, 2011, the Company amended its Certificate of Incorporation with the state of Delaware to increase the number of authorized shares of common stock from 500,000,000 to 900,000,000 shares with par value $.001 per share. As of January 31, 2012 and April 30, 2011, the Company had 21,279,339 and 1,377,464 shares of common stock issued and outstanding, respectively.

On December 27, 2011, the Company affected a one-for-two hundred and fifty (1 to 250) reverse stock split of its issued and outstanding shares of common stock, $0.001 par value. All references in the consolidated financial statements and the notes to consolidated financial statements, number of shares, and share amounts have been retroactively restated to reflect the reverse split. The Company has restated from 344,366,062 to 1,377,464 shares of common stock issued and outstanding as of April 30, 2011 to reflect the reverse split.

During the nine months ended January 31, 2012, the Company issued an aggregate of 243,644 shares of its common stock in settlement of notes payable and accrued interest of $150,756 or approximately $0.62 per share.
 
 
DRINKS AMERICAS HOLDINGS, LTD., AND AFFILIATES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2012

During the nine months ended January 31, 2012, the Company issued an aggregate of 233,333 shares of its common stock in settlement of accrued liabilities of $210,002.

During the nine months ended January 31, 2012, the Company issued an aggregate of 8,818,893 shares of its common stock to acquire trademark and distribution rights valued at $4,870,391.

During the nine months ended January 31, 2012, the Company issued an aggregate of 164,000 shares of its common stock for services rendered valued at $127,920.

During the nine months ended January 31, 2012, the Company issued an aggregate of 48,000 shares of its common stock in settlement of accrued interest valued at $37,440.

During the nine months ended January 31, 2012, the Company issued 50,000 shares of its common stock to acquire an investment valued at $39,000.
 
15. 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 January 31, 2012:
 
           
Warrants Outstanding
Weighted Average
               
Warrants Exercisable
 
           
Remaining
   
Weighted
         
Weighted
 
     
Number
   
Contractual
   
Average
   
Number
   
Average
 
Exercise Price
   
Outstanding
   
Life (years)
   
Exercise price
   
Exercisable
   
Exercise Price
 
 $
23.44
     
213
     
2.96
   
 $
23.44
     
213
   
 $
23.44
 
 
51.56
     
182
     
2.92
     
51.56
     
182
     
51.56
 
 
59.78
     
647
     
2.89
     
59.78
     
647
     
59.78
 
 
84.38
     
1,120
     
2.88
     
84.38
     
1,120
     
84.38
 
 
93.75
     
1,254
     
2.82
     
93.75
     
1,254
     
93.75
 
 
234.38
     
53
     
2.58
     
234.38
     
53
     
234.38
 
 
243.75
     
51
     
2.58
     
243.75
     
51
     
243.75
 
 
351.56
     
67
     
5.37
     
351.56
     
67
     
351.56
 
 
562.50
     
2,624
     
8.25
     
562.50
     
2,624
     
562.50
 
 
1,312.50
     
667
     
2.39
     
1,312.50
     
667
     
1,312.50
 
 
1,640.00
     
33
     
2.39
     
1,640.00
     
33
     
1,640.00
 
 
1,875.00
     
620
     
1.40
     
1,875.00
     
620
     
1,875.00
 
 
4,815.00
     
213
     
5.37
     
4,815.00
     
213
     
4,815.00
 
Total
     
7,744
     
4.32
             
7,744
         
 

DRINKS AMERICAS HOLDINGS, LTD., AND AFFILIATES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2012

Transactions involving the Company’s warrant issuance are summarized as follows:
 
   
Number of
Shares
   
Weighted
Average Price
Per Share
 
Outstanding at April 30, 2010
   
8,629
   
$
802.50
 
Issued
   
-
     
-
 
Exercised
   
-
     
-
 
Canceled or expired
   
(404
   
(117.50
)
Outstanding at April 30, 2011
   
8,225
     
812.50
 
Issued
   
-
     
-
 
Expired
   
(81
)
   
(697.50
)
Canceled
   
-
     
-
 
Outstanding at January 31, 2012 (unaudited)
   
7,744
   
$
812.50
 

Options

The following table summarizes the options outstanding and related prices for the shares of the Company’s common stock issued as of January 31, 2012:
 
           
Options Outstanding
Weighted Average
               
Warrants Exercisable
 
           
Remaining
   
Weighted
         
Weighted
 
     
Number
   
Contractual
   
Average
   
Number
   
Average
 
Exercise Price
   
Outstanding
   
Life (years)
   
Exercise price
   
Exercisable
   
Exercise Price
 
 $
600.00
     
620
     
2.12
   
 $
600.00
     
457
   
 $
600.00
 
 
660.00
     
667
     
2.12
     
660.00
     
333
     
660.00
 
 
1,312.50
     
133
     
2.12
     
1,312.50
     
133
     
1,312.50
 
Total
     
1,420
     
2.12
             
923
         
 
Transactions involving the Company’s options issuance are summarized as follows:
 
   
Number of
Shares
   
Weighted
Average Price
Per Share
 
Outstanding at April 30, 2010
   
1,420
   
$
695.00
 
Issued
   
-
     
-
 
Exercised
   
-
     
-
 
Canceled or expired
   
-
     
-
 
Outstanding at April 30, 2011
   
1,420
     
695.00
 
Issued
   
-
     
-
 
Expired
   
-
         
Canceled
   
-
     
-
 
Outstanding at January 31, 2012 (unaudited)
   
1,420
   
$
695.00
 

The Company did not issue options during the nine months ended January 31, 2012.

 
DRINKS AMERICAS HOLDINGS, LTD., AND AFFILIATES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2012
16.  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 January 31, 2012, 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 January 31, 2012 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.
 
As described in Note 10 above, a note holder and board member provides a $400,000 line of credit, of which $219,891 is being utilized. For the nine months ended January 31, 2012, the Company has paid $12,019 of interest on the credit line.

Please refer to the Company's filed 10-K for the year ended April 30, 2011 for additional related party transactions.
 
17. CUSTOMER CONCENTRATION
 
For the three and nine months ended January 31, 2012, five of our largest customers accounted for 55% and 50%, of the Company's sales, respectively, and five and three customers accounted for 65% and 94%, respectively of the Company's accounts receivable as of January 31, 2012 and April 30, 2011, respectively. The company’s national spirits sales are generally done through the top five spirits and wine distributing companies in the nation, Glazers, Southern Wine and Spirits, Republic National Distributing Company, Johnson Brothers Distributing Company and Youngs Market. The company’s beer business is done primarily through a network of Anhueser Busch and Miller and Coors Brewing company distributors in 15 states.

18. COMMITMENTS AND CONTINGENCIES

Operating lease

On December 21, 2011, the Company entered into a five-year lease for office space in Ridgefield, CT.  The monthly base lease payments are $2,565 for year one and two, $2,782, $2,853 and $2,967 for years three, four and five, respectively.

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 400,000 shares of its restricted common stock of the Company (the “Initial Issuance”), of which 300,000 shares were issued to Worldwide, and 100,000 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 $0.50 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.

 
DRINKS AMERICAS HOLDINGS, LTD., AND AFFILIATES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2012
 
On November 1, 2011, the Company amended the Purchase Agreement with Worldwide (the “Amendment Agreement”). The company was granted worldwide distribution rights on both the spirits and beer products of WBI.  In connection with the amended agreement, the Company and Worldwide agreed to amend the terms of the Additional Shares issuances such that the Company shall issue $1,500,000 in additional restricted shares of common stock to Worldwide at a purchase price of $0.50 per share in exchange for Worldwide forgiving a $300,000 loan owed by the Company to Worldwide and Worldwide delivering $1,200,00 in Inventory to the Company, the sale proceeds of which are to be contributed to the capital of the Company.

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, or their respective designee(s), shall own 2.5% each, of the number of shares issued and outstanding of the Company at such time.
 
Under the Amendment Agreement the terms of the Resulting Ownership were amended such that the 35% ownership by the Company’s management shall include an exchange of all outstanding Series C Preferred Stock of the Company to common stock and the allocation of the 35% common stock ownership shall be determined by J. Patrick Kenny, the Company’s President and Chief Executive Officer.  Furthermore, the Amendment Agreement provides that, upon the completion of the Debt Satisfaction and Reverse Split, the Company shall pay to J. Patrick Kenny, Charles Davidson, and Brian Kenny a bonus in an amount to be agreed upon by Richard Cabo and J. Patrick Kenny, which bonuses shall be paid at such time as Company’s Compensation Committee shall determine.

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.

As of January 31, 2012, the Company has completed the requirements of the stock purchase agreement, as amended, as outlined above.

19.  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:
 

DRINKS AMERICAS HOLDINGS, LTD., AND AFFILIATES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2012

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.

As of January 31, 2012, the Company does not have items recorded or measured at fair value on a recurring basis in the accompanying consolidated financial statements. Convertible notes were determined at market based on their short term historical conversions.
 
The following table provides a summary of changes in fair value of the Company’s Level 3 financial liabilities as of January 31, 2012:
 
   
Derivative
Liability
 
Balance, April 30, 2011
 
$
31,186
 
Total (gains) losses
       
Initial fair value of debt derivative at note issuance
   
-
 
Mark-to-market at January 31, 2012:
       
 Embedded debt derivative
   
(1,671
)
Transfers out of Level 3 upon conversion and settlement of notes
   
(29,515
         
Balance, January 31, 2012
 
$
-
 
         
Net Gain for the period included in earnings relating to the liabilities
 
1,671
 
 

 
DRINKS AMERICAS HOLDINGS, LTD., AND AFFILIATES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2012
 
During the nine months ended January 31, 2012, the Company paid off the remaining convertible notes with embedded derivatives that required the bifurcation and marking to fair value the derivative conversion option.

20. SUBSEQUENT EVENTS

Subsequent events have been evaluated through March 14, 2012, a date that the financial statements were issued.

On February 28, 2012, the Company reached a settlement with Socius CG II Ltd, a creditor of the Company, for an aggregate of $137,111 and the surrender of 13.837 shares of the Company's Series B Preferred Stock and warrants to purchase 35,605 shares of the Company's common stock by Socius CG II Ltd.


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 Beers, 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 and nine months ended January 31, 2012, compared to the three and nine months ended January 31, 2011, 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 January 31, 2012 Compared to Three Months Ended January 31, 2011
 
Net Sales: Net sales were approximately $1,117,000 for the three months ended January 31, 2012 compared to net sales of approximately $142,000 for the same period last year, an increase of 687% as a result of the Company’s sales of products from the Drinks WBI transaction and the companies access to production credit that arises from the deal whereby the company is no longer impeded from production limited by access to capital. The company’s KAH Tequila is the primary driver of revenue growth for the company.

Gross Margin:  Gross margin was $232,341, or 20.8% of net sales for the three months ended January 31, 2012 compared to gross margin of $8,086, or 5.7% of net sales for the three months ended January 31, 2011. 
 
Selling, General and Administrative Expenses: Selling, general and administrative expenses totaled approximately $345,0000 for the three months ended January 31, 2012, compared to $662,000 for the three months ended January 31, 2011, a decrease of approximately $317,000, or 47.9%, attributable to reduced overhead and personnel costs.

Interest expense:  Interest income (expense) for the three months ended January 31, 2012 was approximately $11,000 compared to $(265,000) for the same period last year, a net decrease of $276,000 or 104%.  This decrease is predominantly due to our access to production through our WBI transaction and a reduction in the cost of financing our outstanding liabilities as compared to prior year.

Gain on settlement of debt:  During the three months ended January 31, 2012, we negotiated and settled outstanding debt, primarily trade vendors and two note holders.  As such, we recognized a gain on settlement of debt of approximately $288,000 for the three months ended January 31, 2012 compared to a gain of approximately $413,000 the same period last year.

Nine Months Ended January 31, 2012 Compared to Nine Months Ended January 31, 2010
 
Net Sales: Net sales were approximately $2,536,000 for the nine months ended January 31, 2012 compared to net sales of approximately $388,000 for the same period last year, an increase of 554% as a result of the elimination of our shortfall of working capital, access to production credit and product additions arising from our transaction with WBI and the sales rate of the products added to the Drinks portfolio from that transaction.
 
Gross Margin:  Gross margin was $550,016, or 21.7% of net sales for the nine months ended January 31, 2012 compared to gross margin of $42,031, or 10.8% of net sales for the nine months ended January 31, 2011. This increase in gross margin is attributable to a higher premium product mix in the current period as compared to same period last year.

Selling, General and Administrative Expenses: Selling, general and administrative expenses totaled approximately $1,591,000 for the nine months ended January 31, 2012, compared to $1,988,000 for the nine months ended January 31, 2011, a decrease of approximately $397,000, or 20.0%, attributable to our cost containment while we increase in business and growth activity.  Increased sales commissions on growing KAH Tequila and other product sales offset additional reductions or SGA.

Loss on settlement of royalty agreement: During the nine months ended January 31, 2012, we made certain one time only royalty and royalty termination payments of $250,000.

 
Interest expense:  Interest expense for the nine months ended January 31, 2012 was approximately $157,000 compared to $734,000 for the same period last year, a net decrease of $577,000 or 79%.  This decrease is predominantly due to a reduction in the cost of financing our outstanding liabilities as compared to prior year.

Gain on change in fair value of derivative:  During the nine months ended January 31, 2012, we settled promissory notes eliminating the derivative liability and accordingly recorded a gain on change in fair value of $1,671 as compared to Nil the same period last year. As discussed in our financial statements, we were required to bifurcate the conversion option embedded in certain convertible promissory notes and record at fair value each reporting period as a liability. 

Gain on settlement of debt:  During the nine months ended January 31, 2012, we negotiated and settled outstanding debt, primarily trade vendors and note holders, for a lower than previously recorded obligation.  As such, we recognized a gain on settlement of debt of approximately $628,000 for the nine months ended January 31, 2012 compared to approximately $413,000 the same period last year.

Gain on disposal of product line:  During the nine months ended January 31, 2012, we exchanged 42% of our interest in Olifant U.S.A, Inc. for the cancellation of our remaining outstanding debt obligation of $600,000 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 $280,000 compared to Nil for the nine months ended January 31, 2011.

Other income (expense): For the nine months ended January 31, 2012, other income (expense) of $(8,884) is predominately comprised financing costs associated with certain issued notes payable compared to Nil for the nine months ended January 31, 2011.
 
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 January 31, 2012, the Company has shareholders' equity of approximately $2,350,000 applicable to controlling interests compared with $4,444,000 deficit applicable to controlling interests at April 30, 2011, and working capital deficiency of approximately $3,187,000 as of January 31, 2012 and has incurred significant operating losses and negative cash flows since inception. For the nine months ended January 31, 2012, the Company sustained an operating loss of approximately $547,000 compared to an operating loss of $2,281,000 for the nine months ended January 31, 2011 and used cash of approximately $1,123,000 in operating activities for the nine months ended January 31, 2012 compared with approximately $270,000 for the nine months ended January 31, 2011. We have converted certain liabilities into equity.   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.

 Net Cash Used in Operating Activities: Net cash used in operating activities for the nine months ended January 31, 2012 was approximately $547,000, primarily from our loss of approximately $861,000 net with non cash activities of approximately $223,000 depreciation and amortization, $245,000 stock based compensation, $(280,000) gain on sale of product line, $(628,000) gain on settlement of debt, $(134,000) changes in operating assets and sundry other non cash activities (primarily increases in our accounts receivable and inventory). We have to date funded some of our operations predominantly through loans from shareholders, officers and investors.

Net Cash provided by Investing Activities: Net cash used in investing activities for the nine months ended January 31, 2012 was approximately $6,000 from the payment of a security deposit on an operating lease.

Net Cash provided by Financing Activities: Net cash provided by financing activities for the nine months ended January 31, 2012 was approximately $1,358,000 primarily from sale of common stock of $1,440,000 and $447,000 from net proceeds from debt and notes payable and credit line, net with repayments of $529,000.


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 six 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.
 
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 January 31, 2012, 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 January 31, 2012, 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
Item 1.    Legal Proceedings.
 
As previously reported, on June 18, 2010, Socius CG II, Ltd., (“Socius”), a creditor of the Company due to its purchase of various claims from other various creditors of the Company (“Creditor Claims”), filed a Complaint against the Company in the Supreme Court of the State of New York (the “Court”) for breach of contract to recover on the Creditor Claims (the “Socius Action”). On July 29, 2010, the Company entered into a settlement agreement with Socius pursuant to which the Company issued approximately 10,350 shares of the Company’s common stock (the “Settlement Shares”) in exchange for satisfaction of the Creditor Claims totaling $334,006 (the “Settlement”).  In November 2011, Socius moved the Court for a Preliminary Injunction and Contempt Order (the “Socius Motion”) alleging that the Company had failed to comply the terms of the Settlement when, in sum, the Company had issued an insufficient number of Settlement Shares.  Through Company and non-party affidavits and Memorandum of Law, the Company vigorously opposed the facts and legal arguments set forth in the Socius Motion (collectively, the “Opposition”).  On February 28, 2012, the parties entered into a Stipulation of Settlement, which the Court “so Ordered” (the “Stipulation”).  Pursuant to the Stipulation, the Company paid Socius $27,635.87 and agreed to satisfy all unpaid Creditor Claims in the aggregate amount of $109,474.77.  Additionally, pursuant to the Stipulation, Socius surrendered for cancellation 13.837 shares of the Company’s Series B Preferred Stock, representing all issued and outstanding Series B Preferred Stock of the Company, and warrants to purchase 35,605 shares of the Company’s common stock, representing all warrants issued to Socius’ affiliate pursuant to that certain Preferred Stock Purchase Agreement, dated August 17, 2009.

Item 1A.  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.
 
Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds.
 
During the nine months ended January 31, 2012, the Company issued an aggregate of 180,000 shares of its common stock for a purchase price of $0.50 per share.

During the nine months ended January 31, 2012, the Company issued an aggregate of 118,000 shares of its common stock in repayment of a $35,000 loan and in settlement of accrued interest valued at $37,440.

During the nine months ended January 31, 2012, the Company issued 50,000 shares of its common stock to acquire an investment valued at $39,000.

In connection with the share issuances reported in this Item, the Company relied upon the exemption from securities registration afforded by Rule 506 of Regulation D as promulgated by the United States Securities and Exchange Commission under the Securities Act of 1933, as amended (the “Securities Act”) and/or Section 4(2) of the Securities Act.  No advertising or general solicitation was employed in offering any securities.
 
Item 3.    Defaults Upon Senior Securities.
 
None.
 
Item 4.    Mine Safety Disclosures.
  
None.
 
 
Item 5.    Other Information.
 
None.

Item 6.    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 January 31, 2012 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.
 
 
 
 
 
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.
 
       
March 14, 2012
By:
/s/ J. Patrick Kenny
 
   
J. Patrick Kenny
President and Chief Executive Officer and Chief Accounting Officer