Montalvo Spirits, Inc. - FORM 10-Q

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EXCEL - IDEA: XBRL DOCUMENT - Montalvo Spirits, Inc.	Financial_Report.xls
EX-31.1 - RULE 13(A)-14(A)/15(D)-14(A) CERTIFICATION OF CHIEF EXECUTIVE OFFICER - Montalvo Spirits, Inc.	ex31-1.htm
EX-32.1 - SECTION 1350 CERTIFICATION OF CHIEF EXECUTIVE OFFICER - Montalvo Spirits, Inc.	ex32-1.htm
EX-31.2 - RULE 13(A)-14(A)/15(D)-14(A) CERTIFICATION OF CHIEF FINANCIAL OFFICER - Montalvo Spirits, Inc.	ex31-2.htm
EX-32.2 - SECTION 1350 CERTIFICATION OF CHIEF FINANCIAL OFFICER - Montalvo Spirits, Inc.	ex32-2.htm

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: June 30, 2014

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-36546

MONTALVO SPIRITS, INC.

(Exact name of registrant as specified in its charter)

Nevada		27-4004890
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

5301 N. Commerce Ave, Suite F, Moorpark, California		93021
(Address of principal executive offices)		(Zip Code)

(818) 266-9286

(Registrant’s telephone number, including area code)

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.

[x] Yes [ ] 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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). [x] Yes [ ] 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	[ ]	Smaller reporting company	[x]

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 August 13, 2014, the registrant had 70,257,511 shares of common stock issued and outstanding.

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION

Item 1.	Financial Statements.	F-1

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	1

Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	2

Item 4.	Controls and Procedures.	2

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings.	3

Item 1A.	Risk Factors.	3

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds.	3

Item 3	Defaults Upon Senior Securities.	3

Item 4.	Mine Safety Disclosures.	3

Item 5.	Other Information.	4

Item 6.	Exhibits.	4

Signatures		5

-i-

Table of Contents

Montalvo Spirits, Inc.

June 30, 2014 and 2013

Index to the Consolidated Financial Statements

Contents		Page(s)

Consolidated Balance Sheets at June 30, 2014 (Unaudited) and March 31, 2014		F-2

Consolidated Statements of Operations for the Three Months ended June 30, 2014 and 2014 (Unaudited)		F-3

Consolidated Statement of Stockholders’ Deficit for the Interim Period Ended March 31, 2013 through June 30, 2014 (Unaudited)		F-4

Consolidated Statements of Cash Flows for the Three Months ended June 30, 2014 and 2013		F-5

Notes to the Consolidated Financial Statements (Unaudited)		F-6

F-1

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Montalvo Spirits, Inc.

Consolidated Balance Sheets

	June 30, 2014			March 31, 2014
	(Unaudited)
ASSETS
CURRENT ASSETS
Cash	$	26,981		$	20,143
Accounts receivable		57,481			35,171
Inventories		306,667			308,213

Total Current Assets		391,129			363,527

TOTAL ASSETS	$	391,129		$	363,527

LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable and accrued liabilites	$	561,745		$	619,909
Advance from stockholder		8,700			8,700
Note payable		71,600			11,900
Current maturities of notes payable - related parties		26,000			26,000

Total Current Liabilities		668,045			666,509

LONG-TERM LIABILITIES
Notes payable - related parties, net of current maturities		320,000			320,000

Total Liabilities		988,045			986,509

STOCKHOLDERS' DEFICIT
Preferred stock par value $0.001: 10,000,000 shares authirozied; none issued or outstanding		-			-
Common stock par value $0.001: 300,000,000 shares authorized; 70,190,845 and 70,157,512 shares issued and outstanding, respectively		70,191			70,158
Additional paid-in capital		2,109,372			2,106,072
Accumulated deficit		(2,776,479	)		(2,799,212	)

Total Stockholders' Deficit		(596,916	)		(622,982	)

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT	$	391,129		$	363,527

See accompanying notes to the consolidated financials statements.

F-2

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Montalvo Spirits, Inc.

Consolidated Statements of Operations

	For the Three Months Ended June 30, 2014		For the Three Months Ended June 30, 2013
	(Unaudited)		(Unaudited)

SALES	$	79,923	$	43,474

COST OF GOODS SOLD		22,528		16,399

GROSS MARGIN		57,395		27,075

OPERATING EXPENSES
Selling expense		12,144		23,911
Salaries and wages		-		59,000
Consulting fees		-		21,745
General and administrative		19,333		8,525

Total Operating Expenses		31,477		113,181

INCOME (LOSS) FROM OPERATIONS		25,918		(86,106	)

OTHER (INCOME) EXPENSE
Interest expense		3,185		820

Other (Income) Expense, net		3,185		820

INCOME (LOSS) BEFORE INCOME TAX PROVISION		22,733		(86,926	)

Income tax provision		-		-

NET INCOME (LOSS)	$	22,733	$	(86,926	)

Net Income (Loss) per Common Share
- Basic and diluted	$	0.00	$	(0.00	)

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
- Basic and diluted		70,160,075		67,114,160

See accompanying notes to the consolidated financials statements.

F-3

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Montalvo Spirits, Inc.
Consolidated Statement of Stockholders' Deficit
For the Period from March 31, 2013 through June 30, 2014
(Unaudited)
					Additional Paid-In Capital
	Common stock par value $0.001						Accumulated Deficit			Total Stockholders' Deficit
	Number of Shares		Amount				Accumulated Deficit			Total Stockholders' Deficit

Balance, March 31, 2013		67,112,512	$	67,113	$	1,358,352	$	(1,754,397	)	$	(328,932	)

Common stock issued for cash
at $0.50 per share on June 15, 2013		10,000		10		4,990					5,000

Common stock issued for cash
at $0.50 per share from July 5, 2013 to August 29, 2013		146,000		146		72,854					73,000

Common stock issued for services on July 15, 2013,
valued at $0.50 per share		111,000		111		55,389					55,500

Common stock issued for notes payable and
accrued interest on July 15, 2013, valued at $0.50 per share		32,500		32		16,218					16,250

Common stock issued for commitment shares
on August 29, 2013, valued at $0.50 per share		603,000		603		300,897					301,500

Common stock issued for cash
at $0.20 per share on September 3, 2013		10,000		10		1,990					2,000

Common stock issued for cash
at $0.20 per share on Novmber 13, 2013		20,000		20		4,980					5,000

Common stock issued for cash
at $0.242 per share on Novmber 13, 2013		100,000		100		24,140					24,240

Common stock issued for cash
at $0.234 per share on Novmber 15, 2013		100,000		100		23,300					23,400

Common stock issued for cash
at $0.20 per share on December 3, 2013		100,000		100		17,900					18,000

Common stock issued for cash
at $0.15 per share on February 27, 2014		166,667		167		24,833					25,000

Common stock issued for services
vauled at $0.15 per share on February 28, 2014		145,833		146		21,729					21,875

Common stock issued for services,
valued at $0.12 per share on March 28, 2014		1,500,000		1,500		178,500					180,000

Net loss								(1,044,815	)		(1,044,815	)

Balance, March 31, 2014		70,157,512		70,158		2,106,072		(2,799,212	)		(622,982	)

Common stock issued for services valued
at $0.10 per share in June, 2014		33,333		33		3,300					3,333

Net income								22,733			22,733

Balance, June 30, 2014		70,190,845	$	70,191	$	2,109,372	$	(2,776,479	)	$	(596,916	)

See accompanying notes to the consolidated financials statements.

F-4

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Montalvo Spirits, Inc.

Consolidated Statements of Cash Flows


	For the Three Months Ended			For the Three Months Ended
	June 30, 2014			June 30, 2013
	(Unaudited)			(Unaudited)

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	22,733		$	(86,926	)
Adjustments to reconcile net Income (loss) to net cash used in operating activities:
Stock based compensation		3,333			-
Changes in operating assets and liabilities:
Accounts receivable		(22,310	)		(24,343	)
Inventories		1,546			16,399
Accounts payable and accrued liabilites		(58,164	)		56,885

Net Cash Used in Operating Activities		(52,862	)		(37,985	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from subscription receivable		-			16,500
Proceeds from notes payable		83,100			-
Repayment of notes payable		(23,400	)		-

Net Cash Provided by Financing Activities		59,700			16,500

NET CHANGE IN CASH		6,838			(21,485	)

CASH AT BEGINNING OF PERIOD		20,143			23,291

CASH AT END OF PERIOD	$	26,981		$	1,806

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

Interest paid	$	3,185		$	820
Income tax paid	$	-		$	-

NON CASH FINANCING AND INVESTING ACTIVITIES:
Common stock issued for a stock subscription receivable	$	-		$	5,000

See accompanying notes to the consolidated financials statements.

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Montalvo Spirits, Inc.

June 30, 2014 and 2013

Notes to the Consolidated Financial Statements

(Unaudited)

Note 1 – Organization and Operations

Montalvo Spirits, Inc. (formerly Advanced Cloud Storage, Inc.)

Montalvo Spirits, Inc. (the “Company”) was incorporated on November 18, 2010, under the laws of the State of Nevada under the name of Advanced Cloud Storage, Inc. The Company originally intended to market and sell its planned secure online data storage through its intended website.

Amendment to the Certificate of Incorporation

On December 21, 2012, holders of a majority of the Company’s outstanding Common Stock voted to amend the Company’s Articles of Incorporation to: (i) change its name to “Montalvo Spirits, Inc.”, (ii) increase the number of its authorized shares of capital stock from 75,000,000 shares to 310,000,000 consisting of (a) 300,000,000 shares designated as common stock and (b) 10,000,000 shares designated as blank check preferred stock and (iii) effectuate a forward split on a 1:32.4552 basis (“the Amendment”).

CASA Montalvo Holdings, Inc.

CASA Montalvo Holdings, Inc. (“Casa Montalvo”) was incorporated under the laws of the State of California on April 4, 2011. Casa Montalvo develops markets and/or distributes alcoholic beverages, primarily in the United States.

Formation of Montalvo Imports LLC

On August 9, 2012, the Company formed Montalvo Imports LLC (“LLC” or “Imports”) under the laws of the State of Delaware. The LLC, of which the Company is the sole member, was formed to provide similar services as that of the Company.

Acquisition of CASA Montalvo Treated as a Reverse Acquisition

On December 21, 2012, the Company entered into and consummated that certain Agreement and Plan of Share Exchange (the “Exchange Agreement”) with Casa Montalvo and the shareholders of Casa Montalvo (the “Exchange”). Upon consummation of the transactions set forth in the Exchange Agreement (the “Closing”), the Company adopted the business plan of Casa Montalvo.

Pursuant to the Exchange Agreement, the Company agreed to acquire all of the issued and outstanding capital stock of Casa Montalvo in exchange for the issuance of an aggregate for 59,000,016 shares of the Company’s common stock, par value $0.001 per share. As a result of the Exchange, Casa Montalvo became a wholly-owned subsidiary of the Company. The shareholders of Casa Montalvo beneficially owned approximately eighty-eight and one half percent (88.5%) of the issued and outstanding common stock of the Company immediately after the consummation of the Exchange. Pursuant to the terms of the Exchange Agreement, the Company’s principal shareholder agreed to retire 10,000,000 shares of the Company’s common stock.

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As a result of the controlling financial interest of the former stockholder of Casa Montalvo, for financial statement reporting purposes, the merger between the Company and Casa Montalvo has been treated as a reverse acquisition with Casa Montalvo deemed the accounting acquirer and the Company deemed the accounting acquiree under the acquisition method of accounting in accordance with section 805-10-55 of the FASB Accounting Standards Codification. The reverse acquisition is deemed a capital transaction and the net assets of Casa Montalvo (the accounting acquirer) are carried forward to the Company (the legal acquirer and the reporting entity) at their carrying value before the acquisition. The acquisition process utilizes the capital structure of the Company and the assets and liabilities of Casa Montalvo which are recorded at their historical cost. The equity of the Company is the historical equity of Casa Montalvo retroactively restated to reflect the number of shares issued by the Company in the transaction.

Formation of Cannabis Beverage Group, Inc.

On March 27, 2014, the Company formed Cannabis Beverage Group, Inc. (“CBG”) under the laws of the State of Colorado. CBG, of which the Company is the sole shareholder, was formed to explore entry into the cannabis based beverage industry. CBG is currently inactive.

Note 2 – Summary of Significant Accounting Policies

The management of the Company is responsible for the selection and use of appropriate accounting policies and the appropriateness of accounting policies and their application. Critical accounting policies and practices are those that are both most important to the portrayal of the Company’s financial condition and results and require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effects of matters that are inherently uncertain. The Company’s significant and critical accounting policies and practices are disclosed below as required by generally accepted accounting principles.

Basis of Presentation

The Company’s consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).

Fiscal Year-End

The Company elected March 31st as its fiscal year ending date.

Principles of Consolidation

The Company applies the guidance of Topic 810 “Consolidation” of the FASB Accounting Standards Codification to determine whether and how to consolidate another entity. Pursuant to ASC Paragraph 810-10-15-10 all majority-owned subsidiaries—all entities in which a parent has a controlling financial interest—shall be consolidated except (1) when control does not rest with the parent, the majority owner; (2) if the parent is a broker-dealer within the scope of Topic 940 and control is likely to be temporary; (3) consolidation by an investment company within the scope of Topic 946 of a non-investment-company investee. Pursuant to ASC Paragraph 810-10-15-8 the usual condition for a controlling financial interest is ownership of a majority voting interest, and, therefore, as a general rule ownership by one reporting entity, directly or indirectly, of more than 50 percent of the outstanding voting shares of another entity is a condition pointing toward consolidation. The power to control may also exist with a lesser percentage of ownership, for example, by contract, lease, agreement with other stockholders, or by court decree. The Company consolidates all less-than-majority-owned subsidiaries, in which the parent’s power to control exists.

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The Company’s consolidated subsidiary and/or entity is as follows:

Name of consolidated subsidiary or entity	State or other jurisdiction of incorporation or organization	Date of incorporation or formation (date of acquisition, if applicable)	Attributable interest

CASA Montalvo Holdings, Inc.	The State of California	April 4, 2011	100%

Montalvo Imports LLC	The State of Delaware	August 9, 2012	100%

Cannabis Beverage Group, Inc.	The State of Colorado	March 27, 2014	100%

The consolidated financial statements include all accounts of the Company as of June 30, 2014 and 2013, and for the interim periods then ended. All inter-company balances and transactions have been eliminated.

Reclassification

Certain amounts in the prior period financial statements have been reclassified to conform to the current period presentation. These reclassifications had no effect on reported losses.

Use of Estimates and Assumptions and Critical Accounting Estimates and Assumptions

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reporting amounts of revenues and expenses during the reporting period.

Critical accounting estimates are estimates for which (a) the nature of the estimate is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change and (b) the impact of the estimate on financial condition or operating performance is material. The Company’s critical accounting estimate(s) and assumption(s) affecting the financial statements were:

(i)	Assumption as a going concern: Management assumes that the Company will continue as a going concern, which contemplates continuity of operations, realization of assets and liquidation of liabilities in the normal course of business.

(ii)

Valuation allowance for deferred tax assets: Management assumes that the realization of the Company’s net deferred tax assets resulting from its net operating loss (“NOL”) carry–forwards for Federal income tax purposes that may be offset against future taxable income was not considered more likely than not and accordingly, the potential tax benefits of the net loss carry-forwards are offset by a full valuation allowance. Management made this assumption based on (a) the Company has incurred recurring losses, (b) general economic conditions and (c) its ability to raise additional funds to support its daily operations by way of a public or private offering, among other factors.

(iii)

Allowance for doubtful accounts: Management’s estimate of the allowance for doubtful accounts is based on historical sales, historical loss levels, and an analysis of the collectability of individual accounts; and general economic conditions that may affect a client’s ability to pay. The Company evaluated the key factors and assumptions used to develop the allowance in determining that it is reasonable in relation to the financial statements taken as a whole.

These significant accounting estimates or assumptions bear the risk of change due to the fact that there are uncertainties attached to these estimates or assumptions, and certain estimates or assumptions are difficult to measure or value.

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Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable in relation to the financial statements taken as a whole under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

Management regularly evaluates the key factors and assumptions used to develop the estimates utilizing currently available information, changes in facts and circumstances, historical experience and reasonable assumptions. After such evaluations, if deemed appropriate, those estimates are adjusted accordingly.

Actual results could differ from those estimates.

Fair Value of Financial Instruments

The Company follows paragraph 825-10-50-10 of the FASB Accounting Standards Codification for disclosures about fair value of its financial instruments and has adopted paragraph 820-10-35-37 of the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”) to measure the fair value of its financial instruments. Paragraph 820-10-35-37 of the FASB Accounting Standards Codification establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, paragraph 820-10-35-37 of the FASB Accounting Standards Codification establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three (3) levels of fair value hierarchy defined by paragraph 820-10-35-37 of the FASB Accounting Standards Codification are described below:

·	Level 1 – Quoted market prices available in active markets for identical assets or liabilities as of the reporting date.

·	Level 2 – Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.

·	Level 3 – Pricing inputs that are generally observable inputs and not corroborated by market data.

Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable.

The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.

The carrying amounts of the Company’s financial assets and liabilities, such as cash, accounts receivable, accounts payable and accrued liabilities, approximate their fair values because of the short maturity of these instruments.

The Company’s note payable approximates the fair value of such instrument based upon management’s best estimate of interest rates that would be available to the Company for similar financial arrangements at June 30, 2014 and 2013, respectively.

Transactions involving related parties cannot be presumed to be carried out on an arm’s-length basis, as the requisite conditions of competitive, free-market dealings may not exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions were consummated on terms equivalent to those that prevail in arm’s-length transactions unless such representations can be substantiated.

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Fair Value of Non-Financial Assets or Liabilities Measured on a Recurring Basis

The Company’s non-financial assets include inventories. The Company identifies potentially excess and slow-moving inventories by evaluating turn rates, inventory levels and other factors. Excess quantities are identified through evaluation of inventory aging, review of inventory turns and historical sales experiences. The Company provides lower of cost or market reserves for such identified excess and slow-moving inventories. The Company establishes a reserve for inventory shrinkage, if any, based on the historical results of physical inventory cycle counts.

Cash Equivalents

The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are recorded at the invoiced amount, net of an allowance for doubtful accounts. The Company follows paragraph 310-10-50-9 of the FASB Accounting Standards Codification to estimate the allowance for doubtful accounts. The Company performs on-going credit evaluations of its customers and adjusts credit limits based upon payment history and the customer’s current credit worthiness, as determined by the review of their current credit information; and determines the allowance for doubtful accounts based on historical write-off experience, customer specific facts and economic conditions.

Pursuant to paragraph 310-10-50-2 of the FASB Accounting Standards Codification account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company has adopted paragraph 310-10-50-6 of the FASB Accounting Standards Codification and determine when receivables are past due or delinquent based on how recently payments have been received.

Outstanding account balances are reviewed individually for collectability. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the Company’s existing accounts receivable. Bad debt expense is included in general and administrative expenses, if any.

The Company had no bad debt expense for the reporting periods ended June 30, 2014 or 2013.

The Company does not have any off-balance-sheet credit exposure to its customers.

Inventories

Inventory Valuation

We record inventory on the first-in, first-out (“FIFO”) method. In accordance with generally recognized trade practice, maturing spirits inventories are classified as current assets, although the majority of these inventories ordinarily will not be sold within one year, due to the duration of aging processes. Maturing spirits inventory includes costs of production such as warehousing and insurance. Inventory provisions are recorded to reduce inventory to the lower of cost or market value for obsolete or slow moving inventory based on assumptions about future demand and marketability of products, the impact of new product introductions, inventory turns, product spoilage and specific identification of items, such as product discontinuance, material changes, or regulatory-related changes.

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Inventory Obsolescence and Markdowns

The Company evaluates its current level of inventory considering historical sales and other factors and, based on this evaluation, classify inventory markdowns in the income statement as a component of cost of goods sold pursuant to Paragraph 420-10-S99 of the FASB Accounting Standards Codification to adjust inventory to net realizable value. These markdowns are estimates, which could vary significantly from actual requirements if future economic conditions, customer demand or competition differ from expectations.

There was no inventory obsolescence for the reporting periods ended June 30, 2014 or 2013, respectively.

There was no lower of cost or market adjustments for the reporting periods ended June 30, 2014 or 2013, respectively.

Related Parties

The Company follows subtopic 850-10 of the FASB Accounting Standards Codification for the identification of related parties and disclosure of related party transactions.

Pursuant to section 850-10-20 the related parties include (a) affiliates of the Company; (b) entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of section 825–10–15, to be accounted for by the equity method by the investing entity; (c) trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; (d) principal owners of the Company; (e) management of the Company; (f) other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and (g) other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.

The financial statements shall include disclosures of material related party transactions, other than compensation arrangements, expense allowances and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of consolidated or combined financial statements is not required in those statements. The disclosures shall include: (a) the nature of the relationship(s) involved; (b) a description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements; (c) the dollar amounts of transactions for each of the periods for which income statements are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and (d) amounts due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.

Commitments and Contingencies

The Company follows subtopic 450-20 of the FASB Accounting Standards Codification to report accounting for contingencies. Certain conditions may exist as of the date the consolidated financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.

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If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s consolidated financial statements. If the assessment indicates that a potentially material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed.

Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed. Management does not believe, based upon information available at this time, that these matters will have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows. However, there is no assurance that such matters will not materially and adversely affect the Company’s business, financial position and results of operations or cash flows.

Revenue Recognition

The Company applies paragraph 605-10-S99-1 of the FASB Accounting Standards Codification for revenue recognition. The Company recognizes revenue when it is realized or realizable and earned. The Company considers revenue realized or realizable and earned when all of the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the product has been shipped or the services have been rendered to the customer, (iii) the sales price is fixed or determinable and (iv) collectability is reasonably assured.

Shipping and Handling Costs

The Company accounts for shipping and handling fees in accordance with paragraph 605-45-45-19 of the FASB Accounting Standards Codification. While amounts charged to customers for shipping products are included in revenues, the related costs are classified in cost of goods sold as incurred.

Stock-Based Compensation for Obtaining Employee Services

The Company accounts for its stock based compensation in which the Company obtains employee services in share-based payment transactions under the recognition and measurement principles of the fair value recognition provisions of section 718-10-30 of the FASB Accounting Standards Codification. Pursuant to paragraph 718-10-30-6 of the FASB Accounting Standards Codification, all transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. The measurement date used to determine the fair value of the equity instrument issued is the earlier of the date on which the performance is complete or the date on which it is probable that performance will occur. If shares of the Company are thinly traded the use of share prices established in the Company’s most recent private placement memorandum (“PPM”), or weekly or monthly price observations would generally be more appropriate than the use of daily price observations as such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market.

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The fair value of share options and similar instruments is estimated on the date of grant using a Black-Scholes option-pricing valuation model. The ranges of assumptions for inputs are as follows:

Expected term of share options and similar instruments: The expected life of options and similar instruments represents the period of time the option and/or warrant are expected to be outstanding. Pursuant to Paragraph 718-10-50-2(f)(2)(i) of the FASB Accounting Standards Codification the expected term of share options and similar instruments represents the period of time the options and similar instruments are expected to be outstanding taking into consideration of the contractual term of the instruments and employees’ expected exercise and post-vesting employment termination behavior into the fair value (or calculated value) of the instruments. Pursuant to paragraph 718-10-S99-1, it may be appropriate to use the simplified method, i.e., expected term = ((vesting term + original contractual term) / 2), if (i) A company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term due to the limited period of time its equity shares have been publicly traded; (ii) A company significantly changes the terms of its share option grants or the types of employees that receive share option grants such that its historical exercise data may no longer provide a reasonable basis upon which to estimate expected term; or (iii) A company has or expects to have significant structural changes in its business such that its historical exercise data may no longer provide a reasonable basis upon which to estimate expected term. The Company uses the simplified method to calculate expected term of share options and similar instruments as the company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term.

Expected volatility of the entity’s shares and the method used to estimate it. Pursuant to ASC Paragraph 718-10-50-2(f)(2)(ii) a thinly-traded or nonpublic entity that uses the calculated value method shall disclose the reasons why it is not practicable for the Company to estimate the expected volatility of its share price, the appropriate industry sector index that it has selected, the reasons for selecting that particular index, and how it has calculated historical volatility using that index. The Company uses the average historical volatility of the comparable companies over the expected contractual life of the share options or similar instruments as its expected volatility. If shares of a company are thinly traded the use of weekly or monthly price observations would generally be more appropriate than the use of daily price observations as the volatility calculation using daily observations for such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market.

Expected annual rate of quarterly dividends. An entity that uses a method that employs different dividend rates during the contractual term shall disclose the range of expected dividends used and the weighted-average expected dividends. The expected dividend yield is based on the Company’s current dividend yield as the best estimate of projected dividend yield for periods within the expected term of the share options and similar instruments.

Risk-free rate(s). An entity that uses a method that employs different risk-free rates shall disclose the range of risk-free rates used. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods within the expected term of the share options and similar instruments.

The Company’s policy is to recognize compensation cost for awards with only service conditions and a graded vesting schedule on a straight-line basis over the requisite service period for the entire award.

Equity Instruments Issued to Parties Other Than Employees for Acquiring Goods or Services

The Company accounts for equity instruments issued to parties other than employees for acquiring goods or services under guidance of Sub-topic 505-50 of the FASB Accounting Standards Codification (“Sub-topic 505-50”).

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Pursuant to ASC Section 505-50-30, all transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. The measurement date used to determine the fair value of the equity instrument issued is the earlier of the date on which the performance is complete or the date on which it is probable that performance will occur. If shares of the Company are thinly traded the use of share prices established in the Company’s most recent private placement memorandum (“PPM”), or weekly or monthly price observations would generally be more appropriate than the use of daily price observations as such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market.

The fair value of share options and similar instruments is estimated on the date of grant using a Black-Scholes option-pricing valuation model. The ranges of assumptions for inputs are as follows:

Expected term of share options and similar instruments: Pursuant to Paragraph 718-10-50-2(f)(2)(i) of the FASB Accounting Standards Codification the expected term of share options and similar instruments represents the period of time the options and similar instruments are expected to be outstanding taking into consideration of the contractual term of the instruments and holder’s expected exercise behavior into the fair value (or calculated value) of the instruments. The Company uses historical data to estimate holder’s expected exercise behavior. If the Company is a newly formed corporation or shares of the Company are thinly traded the contractual term of the share options and similar instruments is used as the expected term of share options and similar instruments as the Company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term.

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Pursuant to ASC paragraph 505-50-25-7, if fully vested, non-forfeitable equity instruments are issued at the date the grantor and grantee enter into an agreement for goods or services (no specific performance is required by the grantee to retain those equity instruments), then, because of the elimination of any obligation on the part of the counterparty to earn the equity instruments, a measurement date has been reached. A grantor shall recognize the equity instruments when they are issued (in most cases, when the agreement is entered into). Whether the corresponding cost is an immediate expense or a prepaid asset (or whether the debit should be characterized as contra-equity under the requirements of paragraph 505-50-45-1) depends on the specific facts and circumstances. Pursuant to ASC paragraph 505-50-45-1, a grantor may conclude that an asset (other than a note or a receivable) has been received in return for fully vested, non-forfeitable equity instruments that are issued at the date the grantor and grantee enter into an agreement for goods or services (and no specific performance is required by the grantee in order to retain those equity instruments). Such an asset shall not be displayed as contra-equity by the grantor of the equity instruments. The transferability (or lack thereof) of the equity instruments shall not affect the balance sheet display of the asset. This guidance is limited to transactions in which equity instruments are transferred to other than employees in exchange for goods or services. Section 505-50-30 provides guidance on the determination of the measurement date for transactions that are within the scope of this Subtopic.

Pursuant to Paragraphs 505-50-25-8 and 505-50-25-9, an entity may grant fully vested, non-forfeitable equity instruments that are exercisable by the grantee only after a specified period of time if the terms of the agreement provide for earlier exercisability if the grantee achieves specified performance conditions. Any measured cost of the transaction shall be recognized in the same period(s) and in the same manner as if the entity had paid cash for the goods or services or used cash rebates as a sales discount instead of paying with, or using, the equity instruments. A recognized asset, expense, or sales discount shall not be reversed if a stock option that the counterparty has the right to exercise expires unexercised.

Pursuant to ASC paragraph 505-50-30-S99-1, if the Company receives a right to receive future services in exchange for unvested, forfeitable equity instruments, those equity instruments are treated as unissued for accounting purposes until the future services are received (that is, the instruments are not considered issued until they vest). Consequently, there would be no recognition at the measurement date and no entry should be recorded.

Income Taxes Provision

The Company adopted the provisions of paragraph 740-10-25-13 of the FASB Accounting Standards Codification. Paragraph 740-10-25-13.addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under paragraph 740-10-25-13, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent (50%) likelihood of being realized upon ultimate settlement. Paragraph 740-10-25-13 also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures. The Company had no material adjustments to its liabilities for unrecognized income tax benefits according to the provisions of paragraph 740-10-25-13.

The estimated future tax effects of temporary differences between the tax basis of assets and liabilities are reported in the accompanying consolidated balance sheets, as well as tax credit carry-backs and carry-forwards. The Company periodically reviews the recoverability of deferred tax assets recorded on its consolidated balance sheets and provides valuation allowances as management deems necessary.

Management makes judgments as to the interpretation of the tax laws that might be challenged upon an audit and cause changes to previous estimates of tax liability. In addition, the Company operates within multiple taxing jurisdictions and is subject to audit in these jurisdictions. In management’s opinion, adequate provisions for income taxes have been made for all years. If actual taxable income by tax jurisdiction varies from estimates, additional allowances or reversals of reserves may be necessary.

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Uncertain Tax Positions

The Company did not take any uncertain tax positions and had no adjustments to unrecognized income tax liabilities or benefits pursuant to the provisions of Section 740-10-25 for the reporting period ended June 30, 2014 or 2013.

Net Income (Loss) per Common Share

Net income (loss) per common share is computed pursuant to section 260-10-45 of the FASB Accounting Standards Codification. Basic net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period. Diluted net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock and potentially outstanding shares of common stock during the period to reflect the potential dilution that could occur from common shares issuable through contingent shares issuance arrangement, stock options or warrants.

There were no potentially outstanding dilutive shares for the reporting periods ended June 30, 2014 or 2013, respectively.

Cash Flows Reporting

The Company adopted paragraph 230-10-45-24 of the FASB Accounting Standards Codification for cash flows reporting, classifies cash receipts and payments according to whether they stem from operating, investing, or financing activities and provides definitions of each category, and uses the indirect or reconciliation method (“Indirect method”) as defined by paragraph 230-10-45-25 of the FASB Accounting Standards Codification to report net cash flow from operating activities by adjusting net income to reconcile it to net cash flow from operating activities by removing the effects of (a) all deferrals of past operating cash receipts and payments and all accruals of expected future operating cash receipts and payments and (b) all items that are included in net income that do not affect operating cash receipts and payments. The Company reports the reporting currency equivalent of foreign currency cash flows, using the current exchange rate at the time of the cash flows and the effect of exchange rate changes on cash held in foreign currencies is reported as a separate item in the reconciliation of beginning and ending balances of cash and cash equivalents and separately provides information about investing and financing activities not resulting in cash receipts or payments in the period pursuant to paragraph 830-230-45-1 of the FASB Accounting Standards Codification.

Subsequent Events

The Company follows the guidance in Section 855-10-50 of the FASB Accounting Standards Codification for the disclosure of subsequent events. The Company will evaluate subsequent events through the date when the financial statements were issued. Pursuant to ASU 2010-09 of the FASB Accounting Standards Codification, the Company as an SEC filer considers its financial statements issued when they are widely distributed to users, such as through filing them on EDGAR.

Recently Issued Accounting Pronouncements

In April 2014, the FASB issued ASU No. 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. The amendments in this update change the requirements for reporting discontinued operations in Subtopic 205-20.

Under the new guidance, a discontinued operation is defined as a disposal of a component or group of components that is disposed of or is classified as held for sale and “represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results.” The ASU states that a strategic shift could include a disposal of (i) a major geographical area of operations, (ii) a major line of business, (iii) a major equity method investment or (iv) other major parts of an entity. Although “major” is not defined, the standard provides examples of when a disposal qualifies as a discontinued operation.

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The ASU also requires additional disclosures about discontinued operations that will provide more information about the assets, liabilities, income and expenses of discontinued operations. In addition, the ASU requires disclosure of the pre-tax profit or loss attributable to a disposal of an individually significant component of an entity that does not qualify for discontinued operations presentation in the financial statements.

The ASU is effective for public business entities for annual periods beginning on or after December 15, 2014, and interim periods within those years.

In June 2014, the FASB issued ASU No. 2014-10, Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation.

The amendments in this Update remove the definition of a development stage entity from the Master Glossary of the Accounting Standards Codification, thereby removing the financial reporting distinction between development stage entities and other reporting entities from U.S. GAAP. In addition, the amendments eliminate the requirements for development stage entities to (1) present inception-to-date information in the statements of income, cash flows, and shareholder equity, (2) label the financial statements as those of a development stage entity, (3) disclose a description of the development stage activities in which the entity is engaged, and (4) disclose in the first year in which the entity is no longer a development stage entity that in prior years it had been in the development stage.

The amendments also clarify that the guidance in Topic 275, Risks and Uncertainties, is applicable to entities that have not commenced planned principal operations.

Finally, the amendments remove paragraph 810-10-15-16. Paragraph 810-10-15-16 states that a development stage entity does not meet the condition in paragraph 810-10-15-14(a) to be a variable interest entity if (1) the entity can demonstrate that the equity invested in the legal entity is sufficient to permit it to finance the activities that it is currently engaged in and (2) the entity’s governing documents and contractual arrangements allow additional equity investments.

The amendments in this Update also eliminate an exception provided to development stage entities in Topic 810, Consolidation, for determining whether an entity is a variable interest entity on the basis of the amount of investment equity that is at risk. The amendments to eliminate that exception simplify U.S. GAAP by reducing avoidable complexity in existing accounting literature and improve the relevance of information provided to financial statement users by requiring the application of the same consolidation guidance by all reporting entities. The elimination of the exception may change the consolidation analysis, consolidation decision, and disclosure requirements for a reporting entity that has an interest in an entity in the development stage.

The amendments related to the elimination of inception-to-date information and the other remaining disclosure requirements of Topic 915 should be applied retrospectively except for the clarification to Topic 275, which shall be applied prospectively. For public business entities, those amendments are effective for annual reporting periods beginning after December 15, 2014, and interim periods therein.

Early application of each of the amendments is permitted for any annual reporting period or interim period for which the entity’s financial statements have not yet been issued (public business entities) or made available for issuance (other entities). Upon adoption, entities will no longer present or disclose any information required by Topic 915.

Management does not believe that any recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying consolidated financial statements.

Note 3 – Going Concern

The consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates continuity of operations, realization of assets and liquidation of liabilities in the normal course of business.

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As reflected in the consolidated financial statements, the Company had an accumulated deficit at June 30, 2014, a net loss and net cash used in operating activities for the reporting period then ended. These factors raise substantial doubt about the Company’s ability to continue as a going concern.

The Company is attempting to further implement its business plan and generate sufficient revenue; however, the Company’s cash position may not be sufficient to support the Company’s daily operations. While the Company believes in the viability of its strategy to further implement its business plan and generate sufficient revenue and in its ability to raise additional funds by way of a public or private offering, there can be no assurances to that effect. The ability of the Company to continue as a going concern is dependent upon the Company’s ability to further implement its business plan and generate sufficient revenue and its ability to raise additional funds by way of a public or private offering.

The consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

Note 4 – Note Payable

Note payable consisted of the following:

	June 30, 2014			March 31, 2014
Note payable, issued May 30, 2014, in the principal amount of $8,100 with six minimum monthly payments of $9,072 in aggregate.		8,100

Note payable, issued June 10, 2014, in the principal amount of $75,000 with eighteen weekly payments of $5,000. The Company has repaid $15,000 towards the note.		60,000

Note payable, issued February 13, 2014, in the principal amount of $15,000 with six minimum monthly payments of $16,800 in aggregate. The Company has repaid $11,500 towards the note.		3,500			11,900

		71,600			11,900

Current maturities of notes payable		(71,600	)		(11,900	)

Notes payable, net of current maturities	$	-		$	-

Note 5 – Related Party Transactions

Related Parties

Related parties with whom the Company had transactions are:

Related Parties		Relationship

Alex Viecco		Chief Executive Officer and significant stockholder of the Company

Point Loma Capital, Inc.		An entity owned and controlled by a significant stockholder of the Company

CMFD Group LLC		An entity owned and controlled by a significant stockholder of the Company

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Notes Payable - Related Parties

Notes payable – related parties consisted of the following:

	June 30, 2014			March 31, 2014
Note payable to Chief Executive Officer, issued on June 6, 2011, with interest at 8% per annum, with principal and interest due on June 6, 2013, The note is currently past due.	$	1,000		$	1,000

Note payable to stockholder, issued on June 21, 2011, with interest at 8% per annum, with principal and interest due on June 21, 2013, The note is currently past due.		10,000			10,000

Note payable to stockholder, issued on January 3, 2012, with interest at 8% per annum, with principal and interest due on January 20, 2013, The note is currently past due		2,000			2,000

Note payable to stockholder, issued on January 20, 2012, with interest at 8% per annum, with principal and interest due on January 20, 2014, The note is currently past due		2,000			2,000

Note payable to stockholder, issued on March 1, 2012, with interest at 8% per annum, with principal and interest due on March 31, 2013, The note is currently past due		2,000			2,000

Note payable to stockholder, issued on April 1, 2012, with interest at 8% per annum, with principal and interest due on March 31, 2013, The note is currently past due		2,000			2,000

Note payable to stockholder, issued on March 23, 2012, with interest at 8% per annum, with principal and interest due on March 23, 2014, The note is currently past due		6,000			6,000

Note payable to a relative of the Chief Executive Officer, issued November 20, 2012, with interest at 8% per annum, with principal and interest due on November 20, 2013, The note is currently past due		1,000			1,000

Note payable to Destiladora Huerta Real, S.A. de C.V., an entity controlled by the President and Chief Operating Officer, with interest at 5% per annum, with principal and interest due on August 23, 2015		320,000			320,000

		346,000			346,000

Current maturities of notes payable – related parties		(26,000	)		(26,000	)

Notes payable – related parties, net of current maturities	$	320,000		$	320,000

Advances from Stockholder

From time to time, stockholders of the Company advance funds to the Company for working capital purposes. Those advances are unsecured, non-interest bearing and due on demand.

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Note 6 – Commitments and Contingencies

Financial Advisory Agreement

On January 1, 2012, the Company entered into a financial advisory services agreement (the “FA Agreement”) with CMFD Group, LLC (“CMFD”) for consulting services to be provided as required by the Company. The FA Agreement requires that CMFD be paid $6,000 per month for one (1) year from the date of signing. The sole officer and shareholder of CMFD is a significant stockholder of the Company. The FA Agreement was automatically extended for one (1) year on January 1, 2013.

Employment with the Chief Operating Officer and Chief Financial Officer

On January 1, 2012, the Company and Carlos Gonzalez (“CG”) entered into an employment agreement (the “CG Employment Agreement”) to employ CG as the Company’s Chief Operating Officer and Chief Financial Officer. The initial term of employment under the CG Employment Agreement is from January 1, 2012 (the “CG Effective Date”) until December 31, 2014, unless sooner terminated in accordance with the terms and conditions of the CG Employment Agreement. Pursuant to the terms of the CG Employment Agreement, CG is entitled to a salary of $72,000 per annum for the period beginning on the CG Effective Date through December 31, 2012. The CG Employment Agreement was extended for one (1) year on January 1, 2013.

Employment with the President

On January 1, 2012, the Company and Sergio Gonzalez (“SG”) entered into an employment agreement (the “SG Employment Agreement”) to employ SG as the Company’s President. The initial term of employment under the SG Employment Agreement is from January 1, 2012 (the “SG Effective Date”) until December 31, 2014, unless sooner terminated in accordance with the terms of the SG Employment Agreement. Pursuant to the SG Employment Agreement, SG is entitled to a salary of $72,000 per annum for the period beginning on the SG Effective Date through December 31, 2012. The SG Employment Agreement was extended for one (1) year on January 1, 2013.

Employment with the Chief Executive Officer

On January 1, 2012, the Company and Alex Viecco (“AV”) entered into an employment agreement (the “AV Employment Agreement”) to employ AV as the Company’s Chief Executive Officer. The initial term of employment under the AV Employment Agreement is from January 1, 2012 (the “AV Effective Date”) until December 31, 2014, unless sooner terminated in accordance with the terms of the AV Employment Agreement. Pursuant to the AV Employment Agreement, AV is entitled to a salary of $72,000 per annum for the period beginning on the AV Effective Date through December 31, 2012. The AV Employment Agreement was extended for one (1) year on January 1, 2013.

Note 7 – Stockholders’ Deficit

Shares Authorized

Upon formation the total number of shares of common stock which the Company is authorized to issue is Seventy Five Million (75,000,000) shares, par value $0.001 per share.

Common Stock

Immediately prior to the consummation of the Exchange Agreement on December 21, 2012, the Company had 332,251,996 common shares issued and outstanding.

Upon consummation of the Exchange Agreement on December 21, 2012, the then majority stockholders of the Company surrendered 324,552,000 shares of the Company’s common stock which was cancelled upon receipt and the Company issued 59,000,016 shares of its common stock pursuant to the terms and conditions of the Exchange Agreement.

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Sale of Common Stock

On December 21, 2012, the Company issued 200,000 shares of its common stock at $0.50 per share for $100,000, $83,500 of which was received and the remaining $16,500 was recorded as stock subscription receivable and subsequently received by the Company on April 30, 2013.

On February 12, 2013, the Company sold 12,500 shares of its common stock to one investor at $0.40 per share or $5,000.

On June 15, 2013, the Company sold 10,000 shares of its common stock to one investor at $0.05 per share or $5,000. Payment was received by the Company on July 2, 2013.

From July 1, 2013 to August 1, 2013, the Company issued 46,000 shares of its common stock at $0.50 per share, or $23,000, to five (5) individuals.

On July 15, 2013, the Company entered into a Conversion and Release Agreement, whereby the Company issued 32,500 shares of its common stock in exchange for the cancellation of $16,250 in notes payable, including $15,000 in principal plus accrued interest of $1,250, at $0.50 per share.

On August 29, 2013, the Company sold 100,000 shares of its common stock to an institutional investor at $0.50 per share or $50,000.

On September 3, 2013, the Company issued 10,000 shares of its common stock to one investor at $0.20, or $2,000.

On November 13, 2013, the Company issued 20,000 shares of its common stock to one investor at $0.20, or $5,000.

On November 13, 2013, the Company sold 100,000 shares of its common stock to an institutional investor at $0.242 per share or $24,200.

On November 15, 2013, the Company sold 100,000 shares of its common stock to an institutional investor at $0.234 per share or $23,400

On December 3, 2013, the Company sold 100,000 shares of its common stock to an institutional investor at $0.180 per share or $18,000.

On February 27, 2014, the Company issued 166,667 shares of its common stock to two investors at $0.15, or $25,000.

Common Shares Issued for Obtaining Employee Services

On March 29, 2013, the Company issued 200,000 shares to a newly appointed member of the Company’s Board of Advisors. These shares are fully vested and non-forfeitable. These shares were valued at $0.50 per share, the most recent volume PPM price of the Company’s common stock, or $100,000 on the date of grant and were expensed upon issuance.

On March 28, 2014, the Company issued 250,000 shares to each of its four board members in exchange for their services on the Company’s Board of Directors. These shares are fully vested and non-forfeitable. These shares were valued at $0.12 per share, the closing price of the Company’s common stock on the date of issuance, or $120,000 on the date of grant and were expensed upon issuance.

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Equity Instruments Issued to Parties Other Than Employees for Acquiring Goods or Services

On July 15, 2013, the Company entered into a Contribution Agreement with an individual to provide marketing services for a period of one (1) year from the date of signing in exchange for 111,000 shares of the Company’s common stock. These shares are fully vested and non-forfeitable. These shares were valued at $0.50 per share, the most recent PPM price of the Company’s common stock or $55,000 on the date of grant and were expensed upon issuance.

On February 27, 2014, the Company entered into a Contribution Agreement with an individual to provide marketing services for a period of one (1) year from the date of signing in exchange for 145,833 shares of the Company’s common stock. These shares are fully vested and non-forfeitable. These shares were valued at $0.15 per share, the closing price of the Company’s common stock on the date of issuance, or $21,875 on the date of grant and were expensed upon issuance.

On March 28, 2014, the Company entered into a Contribution Agreement with five individuals to provide marketing services for a period of one (1) year from the date of signing in exchange for an aggregate of 500,000 shares of the Company’s common stock. These shares are fully vested and non-forfeitable. These shares were valued at $0.12 per share, the close price of the Company’s common stock on the date of issuance, or $60,000 on the date of grant and were expensed upon issuance.

On each of June 16, 2014, June 23, 2014 and June 30, 2014, the Company issued 11,111 shares of the Company’s common stock to a consultant in exchange for services to be provided. These shares are fully vested and non-forfeitable. These shares were valued at $0.10 per share, the closing price of the Company’s common stock on the date of issuance, or $1,111 on the date of grant and were expensed upon issuance.

Note 8 – Lincoln Park Purchase Agreement

On August 29, 2013, the Company entered into a purchase agreement with Lincoln Park Capital Fund, LLC (“Lincoln Park or LPC”) (the “Purchase Agreement”), pursuant to which Lincoln Park agreed to purchase up to $10,050,000 of Company’s common stock (subject to certain limitations) from time to time over a twenty-four (24) month period. Further, on August 29, 2013, Montalvo entered into a registration rights agreement, (the “Registration Rights Agreement”) with Lincoln Park, pursuant to which Montalvo filed with the U.S. Securities and Exchange Commission (the “SEC”) a registration statement on Form S-1 to register for resale under the Securities Act of 1933, as amended (the “Securities Act”), the shares that have been or may be issued to Lincoln Park under the Purchase Agreement.

Under the terms and subject to the conditions of the Purchase Agreement, the Company has the right to sell to and LPC is obligated to purchase up to $10,050,000 in shares of the Company’s common stock, subject to certain limitations, from time to time, over the 24 month period commencing on November 7, 2013, the date that the registration statement, which the Company agreed to file with the SEC pursuant to the Registration Rights Agreement, was declared effective by the SEC. The Company may, from time to time and at its’ sole discretion, direct Lincoln Park to purchase shares of Company’s common stock in amounts up to 100,000 shares on any single business day so long as at least one business day has passed since the most recent purchase or up to $500,000 per purchase plus an additional “accelerated amount” under certain circumstances. There are no trading volume requirements or restrictions under the Purchase Agreement, and Montalvo will control the timing and amount of any sales of common stock to Lincoln Park. The purchase price of the shares that may be sold to Lincoln Park under the Purchase Agreement will be based on the market price of our common stock immediately preceding the time of sale as computed under the Purchase Agreement without any fixed discount; provided that in no event will such shares be sold to Lincoln Park when the closing sale price is less than $0.25 per share, subject to adjustment as provided in the Purchase Agreement. The purchase price per share will be equitably adjusted for any reorganization, recapitalization, non-cash dividend, stock split or other similar transaction occurring during the business days used to compute such price. The Company may at any time in its’ sole discretion terminate the Purchase Agreement without fee, penalty or cost upon one business days’ notice. Lincoln Park may not assign or transfer its rights and obligations under the Purchase Agreement.

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In connection with the entry into the Purchase Agreement, the Company issued 603,000 shares of its common stock to Lincoln Park in exchange for Lincoln Park committing to purchase up to $10,050,000 of the Company’s common stock over the next 24 months, subject to certain terms and conditions. These shares are fully vested and non-forfeitable. These shares were valued at $0.50 per share, the most recent PPM price of the Company’s common stock or $301,500 on the date of grant and were expensed as financing expense upon issuance.

Note 9 – Concentrations and Credit Risk

Customers and Credit Concentrations

Customer concentrations and credit concentrations are as follows:

	Net Sales
	For the Three Months Ended June 30, 2014			For the Three Months Ended June 30, 2013
Customer A		45	%		0	%

Customer B		31	%		0	%

		76	%		0	%

No customer in accounts receivable were over 10% at June 30, 2014 or 2013.

A reduction in sales from or loss of such customers would have a material adverse effect on the Company’s results of operations and financial condition.

Note 10 – Subsequent Events

The Company has evaluated all events that occurred after the balance sheet date through the date when the financial statements were issued to determine if they must be reported. The Management of the Company determined that the following reportable subsequent event was required to be disclosed:

From July 1, 2014 through August 11, 2014, the Company issued 66,666 shares of common stock in exchange for services to be provided. The shares are fully vested and non-forfeitable.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Forwarding Looking Statements

The information in this report contains forward-looking statements. All statements other than statements of historical fact made in this report are forward looking. In particular, the statements herein regarding industry prospects and future results of operations or financial position are forward-looking statements. These forward-looking statements can be identified by the use of words such as “believes,” “estimates,” “could,” “possibly,” “probably,” anticipates,” “projects,” “expects,” “may,” “will,” or “should,” or other variations or similar words. No assurances can be given that the future results anticipated by the forward-looking statements will be achieved. Forward-looking statements reflect management’s current expectations and are inherently uncertain. Our actual results may differ significantly from management’s expectations.

Although these forward-looking statements reflect the good faith judgment of our management, such statements can only be based upon facts and factors currently known to us. Forward-looking statements are inherently subject to risks and uncertainties, many of which are beyond our control. As a result, our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth below under the caption “Risk Factors.” You should not unduly rely on these forward-looking statements, which speak only as of the date on which they were made. They give our expectations regarding the future but are not guarantees. We undertake no obligation to update publicly or revise any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by law.

The following discussion should be read in conjunction with the information contained in the consolidated financial statements of the Company and the notes thereto appearing elsewhere herein and in conjunction with the Management’s Discussion and Analysis of Financial Condition and Results of Operations set forth in the Company’s Annual Report on Form 10-K for the year ended March 31, 2014 (the “Annual Report”). Readers should carefully review the risk factors disclosed in the Annual Report and other documents filed by the Company with the U.S. Securities and Exchange Commission (the “SEC”).

Investors are also advised to refer to the information in our previous filings with the SEC, especially on Forms 10-K, 10-Q and 8-K, in which we discuss in more detail various important factors that could cause actual results to differ from expected or historic results. It is not possible to foresee or identify all such factors. As such, investors should not consider any list of such factors to be an exhaustive statement of all risks and uncertainties or potentially inaccurate assumptions. As used in this report, the terms “Company,” “we,” “our,” “us” and “TQLA” refer to Montalvo Spirits, Inc., a Nevada corporation.

Results of Operations

For the three months ended June 30, 2014, we had sales of $79,923 as compared to sales of $43,374 for the three months ended June 30, 2013, resulting in an increase of 84%. This increase is primarily due to the signing of a distribution agreement with Southern Wine & Spirits in Nevada, as well as increased marketing efforts in our existing markets.

Gross margin increased to $57,395, or 72% of sales for the three months ended June 30, 2014 from $27,075, or 62% of sales for the three months ended June 30, 2013.

Operating expenses for the three months ended June 30, 2014 totaled $31,477, as compared to expenses of $113,181 from the three months ended June 30, 2013. The decrease was primarily attributable to lower salary and consulting costs.

Total operating profit for the three months ended June 30, 2014 was $25,918, as compared to an operating loss totaling $86,106 for the three months ended June 30, 2013.

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Liquidity and Capital Resources

Our auditors have issued a “going concern” opinion, meaning that there is substantial doubt if we can continue as an on-going business for the next twelve months unless we obtain additional capital. No substantial revenues are anticipated until we have completed the financing from this offering and implemented our plan of operations. With the exception of cash advances from our officers and directors, our only source for cash at this time is investments by others in this offering. We must raise cash to implement our strategy and stay in business. The amount of the offering will likely allow us to operate for at least one year.

As of June 30, 2014, we had $26,981 in cash on hand, $57,481 in accounts receivable and $306,667 in inventories totaling $391,129 in assets, as compared to $363,527 in total assets as of March 31, 2014. The funds available to the Company will not be sufficient to fund the planned operations of the Company. If we do not substantially increase our sales, we will require funding to continue our operations of which there can be no assurance that we will be able to raise funds or that if we do so that they will be on grounds that are favorable to the Company.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

The Company is a smaller reporting Company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and is not required to provide the information under this item.

Item 4. Controls and Procedures.

Disclosure Controls and Procedures

We carried out an evaluation, under the supervision and with the participation of our Company’s Chief Executive Officer and Chief Financial Officer, of the design and effectiveness of our “disclosure controls and procedures” (as defined under Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that, as of the end of the period covered by this report, these disclosure controls and procedures were not effective to provide reasonable assurance that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified by the rules and forms of the SEC and is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

The conclusion that our disclosure controls and procedures were not effective is due to the inappropriate application of US GAAP rules as a result of deficiencies that existed in the design or operation of our internal control over financial reporting.

The matters involving internal controls and procedures that the Company’s management considered to be material weaknesses under the standards of the Public Company Accounting Oversight Board are as follows: (1) lack of a functioning audit committee and lack of a majority of outside directors on the Company’s board of directors, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures; (2) inadequate segregation of duties consistent with control objectives; (3) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of US GAAP and SEC disclosure requirements; and (4) ineffective controls over period end financial disclosure and reporting processes.

The Company intends to (i) form an audit committee that will establish policies and procedures that will provide the board of directors a formal review process that will among other things, assure that management controls and procedures are in place and being maintained consistently; (ii) appoint one or more outside directors; and (iii) prepare and implement sufficient written policies and checklists which will set forth procedures for accounting and financial reporting with respect to the requirements and application of US GAAP and SEC disclosure requirements. The Company anticipates that these actions will remediate the related material weaknesses.

Changes in Internal Controls over Financial Reporting

There have been no changes in our internal controls over financial reporting during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

None.

Item 1A. Risk Factors.

The Company is a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended, and is not required to provide the information under this item.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

On June 16, 2014, the Company issued 11,111 shares of the Company’s common stock to a consultant in exchange for services to be provided. These shares are fully vested and non-forfeitable.

On June 23, 2014, the Company issued 11,111 shares of the Company’s common stock to a consultant in exchange for services to be provided. These shares are fully vested and non-forfeitable.

On June 30, 2014, the Company issued 11,111 shares of the Company’s common stock to a consultant in exchange for services to be provided. These shares are fully vested and non-forfeitable.

The securities described above were offered and sold in reliance upon exemptions from registration pursuant to Section 4(2) under the Securities Act and Rule 506 of Regulation D promulgated thereunder. The documents executed in connection with these issuances contain representations to support the Company’s reasonable belief that the investor had access to information concerning the Company’s operations and financial condition, the investors acquired the securities for their own account and not with a view to the distribution thereof in the absence of an effective registration statement or an applicable exemption from registration, and that the investors are sophisticated within the meaning of Section 4(2) of the Securities Act and are “accredited investors” (as defined by Rule 501 under the Securities Act). In addition, the issuances did not involve any public offering; the Company made no solicitation in connection with the sale other than communications with the investors; the Company obtained representations from the investors regarding their investment intent, experience and sophistication; and the investors either received or had access to adequate information about the Company in order to make an informed investment decision.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

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Item 5. Other Information.

None

Item 6. Exhibits.

Exhibit No.				Description

31.1				Rule 13(a)-14(a)/15(d)-14(a) Certification of Chief Executive Officer

31.2				Rule 13(a)-14(a)/15(d)-14(a) Certification of Chief Financial Officer

32.1				Section 1350 Certification of Chief Executive Officer

32.2				Section 1350 Certification of Chief Financial Officer

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**

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	MONTALVO SPIRITS, INC.


Date: August 13, 2014	By:	/s/ Alex Viecco
		Name: Alex Viecco
		Title: Chief Executive Officer (Principal Executive Officer)

Date: August 13, 2014	By:	/s/ Carlos Gonzalez Rivera
		Name: Carlos Gonzalez Rivera
		Title: Chief Financial Officer (Principal Financial Officer) (Principal Accounting Officer)

Montalvo Spirits, Inc. - FORM 10-Q - August 13, 2014

Attached files

Montalvo Spirits, Inc. Reports