UNITED STATES
 SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 
 
 FORM 10-K





x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGEACT OF 1934





For the fiscal year ended April 30, 2011





o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGEACT OF 1934





For the transition period from __________ to __________





Commission File Number 000-19086





Drinks Americas Holdings, Ltd.


(Exact name of small business issuer as specified in its charter)





Delaware
87-0438825(State or other jurisdiction of
(I.R.S. Employerincorporation or organization)
Identification No.)





372 Danbury Road


Wilton, CT 06897


(Address of principal executive offices)





(203) 762-7000


(Issuer's telephone number)





Securities registered under Section 12(b) of the Exchange Act: (none)





Securities registered under Section 12(g) of the Exchange Act: Common


Stock, $0.001 par value per share





Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yeso  No x





Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yeso  No x





Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the 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 Website, 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). Yeso  No o





Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ̈





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. (Check one):





Large accelerated filer o
Accelerated filer oNon-accelerated filer o
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). o Yes x No





The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the quarter ended October 31, 2010 was approximately $1,075,442.33 The registrant had 32,765,010 shares of common stock outstanding at October 31, 2010.





As of August 1, 2011, there were 493,456,981 shares of Common Stock, par value $0.001 per share, outstanding.





Table of Contents




DRINKS AMERICAS HOLDINGS, LTD.





FORM 10-K





Tableof Contents





PART IItem 1.
Business
4Item 1A.
Risk Factors
12Item 1B.
Unresolved Staff Comments
18Item 2.
Properties
18Item 3.
Legal Proceedings
18Item 4.
(Removed and Reserved)
19PART IIItem 5.
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
20Item 6.
Selected  Financial Data
23Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations
23Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
27Item 8.
Financial Statements and Supplementary Data
27Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
27Item 9A.
Controls and Procedures
27Item 9B.
Other Information
28PART IIIItem 10.
Directors, Executive Officers, and Corporate Governance
28Item 11.
Executive Compensation
33Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
36Item 13.
Certain Relationships and Related Transactions, and Director Independence
39Item 14.
Principal Accountant Fees and Services
40PART IVItem 15.
Exhibits, Financial Statement Schedules
41SIGNATURES
45





Table of Contents




Explanatory Note





Unless otherwise indicated or the context otherwise requires, all references below in this annual report on Form 10-K (“Report”) to the “Company”, “us”, “our” and “we” refer to (i) Drinks Americas Holdings, Ltd. (ii) our 100% owned Delaware subsidiary, Drinks Americas, Inc., (iii) our 100% owned Delaware limited liability company, Maxmillian Mixers, LLC, (iv) our 90% owned New York limited liability company, Drinks Global Imports, LLC,  (v) our 100% owned New York Limited Liability Company, DT Drinks, LLC and (vi) our 90% owned Connecticut subsidiary, Olifant U.S.A, Inc. (which we acquired on January 15, 2009).





Cautionary Notice Regarding Forward Looking Statements





Our disclosure and analysis in this Report contain forward-looking statements. Certain of the matters discussed concerning our operations, cash flows, financial position, economic performance and financial condition, including, in particular, future sales, product demand, competition and the effect of economic conditions include forward-looking statements within the meaning of section 27A of the Securities Act of 1933, referred to herein as the Securities Act, and Section 21E of the Securities Exchange Act of 1934, referred to herein as the “Exchange Act”.





Statements that are predictive in nature, that depend upon or refer to future events or conditions or that include words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “estimates” and similar expressions are forward-looking statements. Although we believe that these statements are based upon reasonable assumptions, including projections of orders, sales, operating margins, earnings, cash flow, research and development costs, working capital, capital expenditures, distribution channels, profitability, new products, adequacy of funds from operations and other projections, and statements expressing general optimism about future operating results, and non-historical information, they are subject to several risks and uncertainties, and therefore, we can give no assurance that these statements will be achieved.





Readers are cautioned that our forward-looking statements are not guarantees of future performance and the actual results or developments may differ materially from the expectations expressed in the forward-looking statements.





As for the forward-looking statements that relate to future financial results and other projections, actual results will be different due to the inherent uncertainty of estimates, forecasts and projections and may be better or worse than projected. Given these uncertainties, you should not place any reliance on these forward-looking statements. These forward-looking statements also represent our estimates and assumptions only as of the date that they were made. We expressly disclaim a duty to provide updates to these forward-looking statements, and the estimates and assumptions associated with them, after the date of this 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. You are advised, however, to consult any additional disclosures we make in our Form 10-K, Forms 10-Q and Forms 8-K reports to the SEC. Also note that we provide a cautionary discussion of risk and uncertainties under the caption "Risk Factors" in this report. These are factors that we think could cause our actual results to differ materially from expected results. Other factors besides those listed here could also adversely affect us. This discussion is provided as permitted by the Private Securities Litigation Reform Act of 1995.





Table of Contents




PART 1





ITEM 1.BUSINESS





HISTORY OF COMPANY





On June 9, 2004, Drinks Americas, Inc. (“DA”) entered into an Agreement and Plan of Share Exchange with Gourmet Group, Inc. (“Gourmet Group”) and the shareholders of DA.  Prior to entering into this share exchange, Gourmet Group was a company pursuing the acquisition of various operating businesses since our sale of Jardine Foods, Inc., our previous operating entity, in May 2002.





As of March 9, 2005, we, as Gourmet Group, issued an aggregate of 2,864,253 shares of our common stock (or 87.28% of the outstanding common stock on a fully-diluted basis) to DA's shareholders, an additional 120,000 total shares of our common stock (or 3.66%) to two advisors to DA and a total of 26,667shares of our common stock (or 0.8%) to the four members of Maxmillian Mixers, LLC, a Delaware limited liability company affiliated with DA ("Mixers") in exchange for all of DA's outstanding common shares and DA’s business. Immediately prior to issuing such shares, Gourmet Group (which had previously been a Nevada corporation), by way of merger merged with and into a newly formed Delaware corporation, thereby becoming a Delaware corporation. Gourmet Group changed its name to Drinks Americas Holdings, Ltd., effectively reverse split its outstanding shares one-for-ten, and authorized up to 1,000,000 shares of "blank check" preferred stock in its new certificate of incorporation. In return for such issuances of shares, we, as Gourmet Group, received all of the outstanding shares of capital stock of DA and all of the membership interests in Mixers. Thus, DA and Mixers became our wholly-owned subsidiaries and the business of those subsidiaries constitutes substantially all of our operations at that time. Prior to the share exchange transaction described above, Maxmillian Partners, LLC ("Partners") owned approximately 99% of the outstanding capital stock of DA and immediately after the share exchange became our majority shareholder. Subsequently, Partners distributed its shares pro rata to its 21 members as part of a plan of liquidation. For financial accounting purposes, this share exchange has been recognized as a reverse merger, and accordingly we changed our fiscal year end from June 30 to DA's year end of April 30th, and all of our historical financial statements prior to the share exchange are those of DA.





On October 15 2010, the Company affected a 15 for 1 reverse split of issued and outstanding shares of common stock of the Company without changing par value of the stock. The shares outstanding before reverse split were 394,610,278 shares; the shares outstanding after reverse split were 26,307,352. All information contained in this Annual Report on Form 10-K reflect such post-split share adjustments.





Based in Wilton, Connecticut, we were founded in 2002 by an experienced team of beverage, entertainment, retail and consumer product industry professionals, led by J. Patrick Kenny, a former executive at Joseph E. Seagram & Sons. We specialize in the marketing and distribution of premium alcoholic and nonalcoholic beverages with an emphasis on utilizing and leveraging associations with iconic brand names, brands with historic origins or entertainers and celebrities.





We develop, produce (primarily through contracts with independent manufacturers or contractors called co-packers), market and/or distribute alcoholic and non-alcoholic beverages for sale primarily in the continental United States. For the majority of our products we own the trademarks, have developed the formula for a product that we distribute, or we have the exclusive licensed right to distribute and market product in the United States. In other cases we only have the right to distribute the products and have been granted exclusive licenses of the trademark to allow us to do so.





We own certain of our products jointly with brand owners, celebrities, or their affiliates. We refer to all of the products we distribute as “our products”. In June of 2011  we acquired the rights to distribute and market existing brands and products from Fabrica De Tequilas Finos S.A. de C.V. (“Finos”) and Cervecería Mexicana, S. de R.L. de C.V. (“Cerveceria”).





During the fiscal year 2011, prior to our credit agreement with Finos and Cerveceria, the expansion of our business had been negatively affected by insufficient working capital. As a result, we have regularly had to make judgments as to inventory levels in general and whether to maintain inventory for any particular product based on available working capital, rather than maintaining the optimum levels required to grow our business. We have tried to focus on the most efficient growth opportunities. Our credit agreement from our recent June 2011transaction, subsequent to the fiscal year end , puts in place sufficient working capital and credit which should enable production and brand expansion. These agreements now in place with our distillery and brewery relationship with Fabrica De Tequilas Finos S.A. de C.V. (“Finos”) and Cervecería Mexicana, S. de R.L. de C.V. (“Cerveceria”) now affords the Company extended access to credit and will allow the Company uninhibited access to production.




4
 Table of Contents





Our strategy is to take advantage of iconic and historically well-known brands, established but underdeveloped brands, celebrity brands and the strategic relationships our management team has developed throughout their careers. We distribute our products through established spirits, beer and wine, distributors, virtually all of which are well known to our management team from prior business dealings with them in the beverage industry. We have expanded the number of distributors we do business with in certain markets where we believe it is appropriate. We distribute some of our products through a distribution deal with Mexcor International Wine and Spirits ("Mexcor").  For a limited number of our products Mexcor is currently one of our distributors to a national network of wine, spirits and beverage distributors for Old Whiskey River Bourbon, Olifant Vodka and Damiana Liqueur. Mexcor purchases our products from us and pays Drinks an agreed upon license and distribution fee. Our products are produced by independent co-packers, typically, pursuant to our specifications. Our management's relationships with manufacturers, distillers, development/research companies, bottling concerns and certain customers provide the foundation through which we expect to grow our business in the future. The spirits and beer products Drinks acquired the licensed rights to from Worldwide Beverage Imports and manufactured by Fabrica De Tequilas Finos S.A. and Cerveceria Mexicana will be sold directly from Drinks to its network of distributors.





We have assembled, and will attempt to continue to assemble, our premium brands, on a “low cost” basis. We believe acquisition of mid-sized brands and single trademark companies by our partner, WBI will provide a stream of products that can be incremental to Drinks portfolio We are willing to develop these brands with WBI. We believe that the “skill-set” of our management team is a primary asset in the development of these acquired brands and trademarks. We have acquired products or trademarks from, or entered into ventures with, partners such as, Willie Nelson and Old Whiskey River LLC, Olifant USA, Interscope Geffen A&M, Wynn Starr Flavors, Inc., DAS Communications, Rheingold Beer and Marvin Traub Associates.





In events subsequent to fiscal 2011, we have entered into the licensing of the existing sales, distribution and marketing rights with Worldwide Beverage Imports, LLC (“WBI”) to KAH Tequila, Agave 99 Tequila, Ed Hardy Tequila, Mexicali Beer, Chili Beer, Rio Bravo Beer and Red Pig Ale. Several of the brands that we have acquired the licensing business to and have existing business in the market, have the strategic advantage of being historically iconic such as Rheingold Beer, established in 1883 or Mexicali Beer, sold since 1928 in Mexico.





Our brands have an association with iconic histories or iconic entertainers that provide us efficient promotion and marketing opportunities. Our bourbon brand Old Whiskey River is promoted with Willie Nelson and our beer brand such as Rheingold has a long history and brand identification with New York dating back to 1883.


We believe that the consumer awareness of these historical brands and Iconic associations give us a marketing advantage and allow for more efficient brand marketing. We believe the public relations impact  and resulting media opportunities due to these brand histories and associations cuts across electronic, social and print media formats and delivers an exponential impact in building brand awareness and consumer excitement.





We believe that our organizational approach will also minimize the need to invest heavily in fixed assets or factories. Our strategic relationship with Fabrica de Tequilas Finos, S.A. de C.V. and Cervecería Mexicana, S. de R.L. de C.V as well as Mexcor International Wine and Spirits will allow us to operate with modest overhead and substantially reduce our need for capital on an ongoing basis.





- Our major alcoholic beverages, including the addition of the recent WBI brands, are:
- Olifant Vodka, which is manufactured at the Wenneker Distillery in Holland where it has been manufactured since 1841, and was rated by the New York Times as the second best Vodka in the world;
- Old Whiskey River Bourbon (R), an award winning small batch 6 year old bourbon (sometimes referred to as "Old Whiskey River ");
- Aguila Tequila, a 100% tequiliana weber blue agave reposado tequila (sometimes referred to as "Aguila");
- Damiana, a Mexican liqueur, which the Company sells through Mexcor, is made from the Damiana root and at times given in Mexican culture as a wedding gift because of its perceived aphrodisiac characteristics;
- Rheingold Beer which was established in 1883 and has always been known as “New York’s Beer”. We began selling this beer in September of 2010 and since that time have expanded to 13 states in both bottles and cans with a substantial number of retail and on premise accounts now selling the brand in New York, New Jersey, Connecticut, Rhode Island, Maryland, Georgia, Florida, Pennsylvania, Ohio, Kentucky, Michigan, North Carolina and Texas;
- KAH Tequila which is sold in an iconic skull-shaped bottle decorated as the famous God of the Dead which comes in Silver, Reposado, Anejo and Extra Aged Anejo. The award winning tequila ,which recently won platinum and gold industry awards comes in both 750 and 50ml bottles;
- Agave 99, an award winning organic and kosher high proof tequila which is available nationally;
- Ed Hardy Silver Tequila manufactured by Fabrica de Tequila Finos S.A. de C.V.and fashioned in the famous and iconic designer Ed Hardy logoed bottle. Ed Hardy is a world class global trademark;
- Mexicali Beer which comes in Lager, Light and Mexicali Dark crafted in 12 ounce bottles and soon to be available in kegs, the historic Mexican brand has been a feature in Mexico since 1928. The beer has the same lime but better taste than other Mexican brands;
- Chili Beer made at Ceveceria Mexicana S.A. de C.V., which features a unique hot chili pepper flavor, currently is sold in Trader Joe’s and now has one chili actually in every bottle and is expanding nationally; and
- Red Pig Ale, also available from Cerveceria Mexicana, S. de R.L. de C.V, is the only craft ale from all of Mexico.  Its dark craft beer taste is available in 12 ounce six packs.

5
 Table of Contents





Our Company is a Delaware corporation, our principal place of business is located at 372 Danbury Road, Suite 163, Wilton, Connecticut 06897 and our telephone number is (203) 762-7000.





STRATEGY





Our long-term business strategy is to expand the sales and distribution of our  alcoholic and non-alcoholic beverage portfolio and to add branded beverage products with existing revenue and profits from the largest and most profitable beverage categories such as Tequila or Imported and Specialty Beer. Our business model and our recent entry into a strategic relationship with WBI and our opportunity to market our existing and new brands position the Company to compete in these categories.





Key elements of our business strategy include: using our partnership with WBI and our newly licensed brands, KAH, Agave 99, Ed Hardy, Mexicali Beer, Chili Beer and Red Pig Ale along with our distribution relationships to keep our overhead costs low and support our margins, creating consumer awareness and demand for our brands. We plan on utilizing our iconic and historic trademark brand strategy and the demonstrated ability of these brands to generate public relations and promotional brand marketing based on their already high level of consumer awareness, to grow and establish these brands. This strategy we believe will result in top line growth with the ability to be profitable in the very competitive beverage categories of spirits, wine and beer.





On June 27, 2011, the Company executed a Stock Purchase Agreement (the “Purchase Agreement”) with Worldwide Beverage Imports, LLC, a Nevada limited liability company (“WBI”). Pursuant to the Purchase Agreement, the Company issued an aggregate of 100,000,000 shares of its restricted common stock of the Company (the “Initial Issuance”), of which 75,000,000 shares were issued to WBI, and 12,500,000 shares were issued to each of two consultants of WBI.  In consideration for the Initial Issuance, WBI will proceed to license distribution rights (the “Rights”) of up to 39 SKUs of products owned or licensed by WBI, 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 WBI 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 $0.002 per share. The Additional Shares shall be paid from residual cash from the sales made by the Company associated with the Rights after expenses in no more than five tranches in accordance with the terms of the Purchase Agreement.





WBI is obligated to fund to Drinks in no fewer than five tranches of $150,000 up to $1.5million dollars in capital infusion.





For this transaction Drinks Americas received the licensed rights to the existing and future business of KAH Tequila, Ed Hardy Tequila, Agave 99, Mexicali Beer, Chili Beer, Rio Bravo Beer, and Red Pig Ale as well as the opportunity to market private label beer to key accounts. In addition to this the terms of the transaction allow for Drinks to receive up to 120 days credit for production of product allowing the Company to accelerate sales and capture orders without having to obtain difficult or costly bank or inventory financing while accelerating sales and expanding market share. Access to credit has been a key factor in historically limiting the Company’s growth and business expansion and significantly impacted historic gross and net margins. This transaction gives Drinks access to unlimited credit for 90 to 120 days in the purchase of inventory from WBI.





On February 11, 2010, the Company signed an agreement with Mexcor International Wine and Spirits, Inc., an importer and distributor for hundreds of high quality brands nationally and internationally. Mexcor has agreed to manage the sourcing, production, importing and distribution of a specific number of our portfolio of brands nationally.





Under the terms of the Mexcor agreement, the parties have agreed to a 15-year term. Additionally, the Company has agreed to issue the principal of the business 800,000 shares of Company common stock in exchange for consulting services. Mexcor is eligible to receive financial incentives provided the parties deliver and attain certain minimum performance requirements.  Mexcor agreed to deliver additional new brands to the Company’s brand portfolio, which the parties plan to jointly acquire, develop and market. The agreement with Mexcor led to the substantial reduction of our overhead costs and provided access to production capital for inventory when the banking environment did not allow for access to credit for production.




6
 Table of Contents





Beginning with the second quarter of fiscal 2010, we significantly reduced our overhead expenses through decreased administrative support staff and decreased marketing expenditures. The resulting lower payroll and payroll related and travel expenses realized in the second half of fiscal 2010 will continue to be realized into fiscal 2011 and beyond as we continue to refine and restructure our operating business model. Selling general and administrative expenses for the first half of fiscal 2010 total approximately $3,210,000 and for the second half of fiscal 2010 totaled approximately $664,000 a $2,546,000 reduction.





The Company’s agreement and transaction with WBI substantially alters and improves the Company’s ability to access production resources and capital. Our working capital condition has been improved as a result. Subsequent to the year end, the Company entered into the agreement with WBI. As a key component of that transaction, WBI working with its affiliated Fabrica de Tequila Finos S.A. de C.V. and Cervecería Mexicana, S. de R.L. de C.V will extend between 90 and 120 days credit to Drinks Americas in the acquisition of Tequila and Beer products and fund the Company with up to $1.5 million in working capital through an infusion of inventory and certain production guarantees. This transaction has been concluded. The Company believes this subsequent event materially reduces the Company’s ongoing need for working capital.





ALCOHOLIC BEVERAGE DISTRIBUTION





The Company has complete national coverage through its network of Spirits, Wine and Beer distributors which are available and has agreed to represent its products.  The Company sells its brands through a network of Spirits and Wine wholesalers that it sells to directly, a national network of beer wholesalers that it sells to directly and additionally, through Mexcor an additional network  of spirits wholesalers. The Company also sells on consignment to up to 14 control states whereby the Company provides inventory to state regulated stores and is paid upon the sale of product.





BEER, WINE AND SPIRITS INDUSTRY OVERVIEW





The United States beverage alcohol market consists of three distinct segments:





Beer, wine and distilled spirits. Distilled spirits consist of three primary categories: white goods, whiskey and specialties. White goods, consisting of vodka, rum, gin and tequila, represent the largest category. Vodka is the largest product within the distilled spirits and accounts for 30% of industry volume. As reported by the Distilled Spirits Council, 2009 Industry Review held in New York on February 2, 2010,  despite the recessionary economy, the distilled spirits industry chartered its tenth consecutive year of growth in 2009, with a 2.6% average annual growth rate over the past 10 years.  Spirits volumes grew 1.4% in 2009, while Spirits revenue grew 66% over the past decade with a 5.2%, 10-year average annual growth rate. Spirits volume market share increased in 2009 to 30.2% from 29.7% in 2008; however, spirits revenue market share decreased in 2009 to 32.9% down from 33.1% in 2008. The predominate reason for the decline is because value brands volume share accounted for 40.6%, premium brands volume share accounted for 36.4%, while high-end and super brands combined for the balance at 23%.





Vodka represented 24% of industry revenue at $4.6 billion, and category revenue is up $75 million. Vodka value volume is up 10.7%; premium volume is up 5.0%, and high-end and super volumes are down 2.3% and 5.8%, respectively. Rum revenues increased by 0.8% to 2.2 billion. Tequila revenues increased by $48.5 million. Whiskey, which includes Bourbon, Blends, Canadian, Scotch & Irish, and comprises 28% of industry revenues at $5.3 billion, saw a slight 0.7% decline in overall volume. In summary, slow growth rates are consistent with past recession’s industry experience and increased volume share positions the industry for growth when the economy recovers.





Significant consolidation in the global spirits industry has produced five primary large competitors: Diageo, Allied Domecq, Pernod Ricard, Brown-Forman and Bacardi & Company, Ltd.





The overall beer category’s growth slowed in 2009 through 2010 most likely due to the faltering economy which may have bolstered the lower-price beer segments.  Overall the U. S. beer industry has experienced decreased consumer consumption in 2009. According to the industry-funded Beer Institute, beer shipment volumes fell 2.1% during the first 11 months of 2009, and according to market research firm IBIS World, beer producers revenues declined 2.7% in 2009. Despite the above, one segment of the beer industry that has resisted the recession is craft breweries, increasingly popular for flavorful beers made in smaller batches. According to data from the Nielsen Co., craft breweries sales rose 12.4% in 2009. As customers look for more flavor, diversity and choice, the Company believes its Rheingold Beer product launch fits comfortably into this industry segment. Both the discount and economy class and Mexican Import segment of the beer category continue to exhibit growth through calendar 2010 and 2011.




7
 Table of Contents





PRODUCTS, ACQUISTIONS AND ALLIANCES





HISTORIC AND ICONIC BASED BRANDS





A portion of our strategy is to rely on historically well-known brands, established but underleveraged brands or Iconic celebrity associated brands. We are executing this strategy, which we believe will enhance consumer acceptance, lower ongoing marketing costs and strengthen our access to distribution channels. We have purchased or obtained the distribution rights to several historic brands and entered into several ventures with icon entertainers. Our business model leverages consumer identification with these historic or iconic personalities, leveraging social media platforms  quickly and effectively communicating a brand message. We believe the public relations impact of our association with these well known brands and icons and the resulting media opportunities cuts across electronic and print media formats and delivers an exponential impact in building brand awareness and consumer excitement. We believe that with access to production this business model should lead to both exponential revenue growth and profits.





ALCOHOLIC BEVERAGE PRODUCTS





The Company owns, distributes or licenses or collects royalties from a number of Spirits Brands to include Old Whiskey River Bourbon, Damiana Liqueur, Aguila Tequila, Rheingold Beer and as a result of its transaction subsequent to the year end with WBI, KAH Tequila, Agave 99, Ed Hardy Tequila, Mexicali Beer, Chili Beer, Red Pig Ale, Rio Bravo Beer and various private label brands.





In December 2002, we purchased 25% interest in Old Whiskey River Distilling Company, LLC which owns or licenses the related trademarks and trade names associated with the Old Whiskey River products. We hold the exclusive worldwide distribution rights, through December 31, 2017, subject to an indefinite number of five-year renewals, for Old Whiskey River Bourbon which is marketed in association with Willie Nelson, a renowned country western entertainer. Our distribution agreement is subject to certain minimum sales requirements. Old Whiskey River Bourbon has been featured on The Food Channel's Emeril Live as well as Celebrity Food Finds and other television programs. This line of products is available nationally at the Texas Roadhouse Restaurant chain as well as other outlets with specific Willie Nelson promotions. Old Whiskey River is a featured item at Specs chain of liquor stores in Texas. We have developed a marketing plan that focuses on Florida, North Carolina and South Carolina and Texas where Willie Nelsons’ brand image is high and bourbon consumption is significant. The Company is currently promoting Old Whiskey River Red Bandanas and providing autographed guitars for promotion.





In fiscal year 2005, we entered into a U.S. distribution contract giving us the exclusive sales and marketing rights to Damiana, a Hispanic liqueur for the United States market. In 2010 we assigned this agreement to Mexcor in exchange for receipt of an ongoing royalty per case. Since assignment of that contract to Mexcor we have sold approximately 4,000 cases of Damiana. In the United States, Damiana is sold on a national basis in approximately 40 states.  We have introduced point of sale marketing material aimed at expanding consumer brand awareness for Damiana.





In October 2005, we acquired ownership of a long-term license for (99 years) for the Rheingold trademark and other assets related to the Rheingold brand. We believe Rheingold has a significant brand identity and awareness level within the Metro New York and east coast markets. We believe this brand has the potential to be an integral component of our Metro New York distribution base. We plan to produce this product at The Lion Brewery in Wilkes-Barre, Pennsylvania and distribute the brand with Beehive/Phoenix New York, the Metro New York Heineken Distributor as well as among other distributors.





On January 15, 2009, the Company acquired 90% of the capital stock of Olifant U.S.A, Inc. (“Olifant”). Olifant has the worldwide distribution rights (other than Europe) to Olifant Vodka and Olifant Gin which are both produced in Holland. Olifant Vodka, made purely from hand selected Dutch grains, is triple distilled in small batches in the distillery’s original copper pots tills and aged for a smooth refreshing finish that is world class.  It is an award-winning spirit with great quality and taste at a price point that is economically attractive in today’s retail environment.





In June of 2011 subsequent to the close of the 2011 fiscal year, Drinks entered into a licensing agreement with to sell, market and distribute the existing businesses of KAH Tequila, Ed Hardy Tequila, Agave 99, Mexicali Beer, Chili Beer, Red Pig Ale and Rio Bravo Beer. As of August of 2011, the Company had generated orders for each of these products and begun expanding the brands national distribution.




8
 Table of Contents





FLAVORS, RESEARCH AND DEVELOPMENT RELATIONSHIP





We have a requirements contract with Wynn Starr Flavors, Inc. ("Wynn Starr"), a leading supplier of flavors and similar product components through which, with certain exceptions, we are required to acquire the flavors we require for our products. Wynn Starr performs research and development for us with respect to the flavors we need for new and/or proposed products. Wynn Starr became a DA shareholder by investing $250,000 in DA in 2002, and, under its agreement with us, has provided research and development services for us thereby lessening the expenses we would otherwise incur. The relationship has been essential to us, and provides a significant research resource at relatively low cost, e.g. developing drinks for targeted markets. We expect that certain of our new products will utilize patents developed and licensed by Wynn Starr. Wynn Starr has also assisted us in evaluating the product quality of various brands which we have considered acquiring and/or distributing. Our incremental product development expenses to date have not been material.





CELEBRITY MARKETING RESOURCES





We intend to continue to utilize our access to icon celebrity-based product endorsers, through the contacts of our management and various advisors, to further promote the branded identity of certain of the beverages we will develop or acquire.





We have entered into agreements with DAS Communications, Ltd. and Shep Gordon of Alive Enterprises. Both David Sonenberg, who controls DAS Communications, Ltd., and Shep Gordon are our shareholders. We have also entered into a joint venture (50% each) with Interscope Geffen A&M, of Universal Music Group, to commercialize and market jointly owned alcoholic and non alcoholic beverage products in collaboration with artists under contract with Interscope Geffen A&M. Our relationship with Shep Gordon has resulted in agreements with country music “icon” Willie Nelson and access to various culinary icons and introductions to other promotional resources.  Although our agreements with Mr. Gordon and Interscope have expired , we maintain relationships with both parties and believe both relationships  will continue to assist us where mutual business interest is established.





TRADEMARK DEVELOPMENT RESOURCES





In March 2002, we entered into a consulting agreement with Marvin Traub, former Chief Executive Officer of the Bloomingdales' department store chain, and an expert in trademark development. While Mr. Traub’s consulting agreement ended effective April 30, 2010, Mr. Traub continues to serve on our Board of Directors and provides ongoing advice and marketing expertise to us.





MARKETING, SALES AND DISTRIBUTION





MARKETING





Our marketing plan is based upon our strategy of leveraging historically well known brands and icon branding. This model has been used with our launch of Rheingold Beer and with Willie Nelson’s Old Whiskey River Bourbon. We have also successfully launched Newman’s Own Sparkling Lemonades and Trump Super Premium Vodka in the past by using the public relations activity across numerous media platforms to generate a high level of brand awareness and consumer interest.





Due to the well known history of most of our brands, we rely heavily on account level promotions, tastings and social media.





SALES





Our route to market is by selling our products directly to distributors. These distributors maintain extensive sales and overhead resources to sell, primarily in the beverage sections of liquor stores, grocery stores, drug stores, convenience stores, delicatessens, sandwich shops and supermarkets. Many of our beverage products are sold nationally and our distribution model, depending on the product, includes several national and regional chains, for example, our products have been sold at Total Wine, Stu Leonard, Meijers, and Acme. Ralphs in California, and Walgreen's, ABC Liquor, Albertsons, HEB, Spec’s, and Foodtown in Texas and various other retail chains. Old Whiskey River is sold nationally at Texas Roadhouse. Rheingold Beer is sold in a number of metro New York, Michigan, Ohio and Texas chain store outlets. Our newest brand KAH Tequila is sold and authorized at Wal-Mart nationally.




9
 Table of Contents





DISTRIBUTION





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




For this transaction we received the licensing rights to the existing and future business of KAH Tequila, Ed Hardy Tequila, Agave 99, Mexicali Beer, Chili Beer, Rio Bravo Beer, and Red Pig Ale as well as the opportunity to market private label beer to key accounts. In addition to this the terms of the transaction allow for Drinks to receive up to 120 days credit for production of product allowing the Company to accelerate sales and capture orders without having to obtain difficult or costly bank or inventory financing while accelerating sales and expanding markets, factors which had been key limited considerations for Drinks’ past business expansion and significantly impacted historic gross and net margins.





On February 11, 2010, the Company signed an agreement with Mexcor, Inc., an importer and distributor for hundreds of high quality brands nationally and internationally. Mexcor has agreed to manage the sourcing, importing and distribution of several of our portfolio of brands nationally. Our Company will continue to focus its efforts on its core business of marketing and building a portfolio of iconic brands as well as developing, coordinating and executing marketing and promotional strategies for its icon brands. WBI Licensed Brands and Rheingold Beer will be sold directly by Drinks Americas to a network of beer wholesalers and is excluded from our agreement with Mexcor.





Under the terms of the agreement, the parties have agreed to a 15-year term. Additionally, prior to the reverse split of the Company’s common stock, the Company agreed to issue the principal of the business 800,000  shares of Company common stock in exchange for consulting services. Mexcor is eligible to receive financial incentives provided the parties deliver and attain certain minimum performance requirements.





We sell the majority of our products through our distribution network, and we currently have relationships with well over 100 independent distributors throughout North America. Our policy is to grant our distributors rights to sell particular brands within a defined territory on a case by case basis. Our distributors buy our products from us for resale. We believe that substantially all of our distributors also carry beverage products of our competitors. Our agreements with our distributors vary; we have entered into written agreements with a number of our top distributors for varying terms; most of our other distribution relationships are oral (based solely on purchase orders) and are terminable by either party at will.





We generally require our independent distributors to place purchase orders for our products at least 14 days in advance of requested shipping dates. To the extent we have product available in inventory, we will fulfill other purchase orders when and as received. We and our distributors typically contract with independent companies to have product shipped from our contract packers to independent warehouses, and then on to our distributors. Distributors then sell and deliver our products either to sub-distributors or directly to retail outlets, and such distributors or sub-distributors stock the retailers' shelves with our products. We recognize revenue upon shipment to our distributors and customers of our products, net of anticipated discounts and allowances.





PRODUCTION





CONTRACT PACKING ARRANGEMENTS





We currently use independent contract packers known as “co-packers” to prepare, bottle and package our products. Currently, our primary contract packers are Heaven Hill Distilleries in Kentucky.  We additionally now have relationships with Fabrica de Tequila Finos S.A. de C.V. and Cervecería Mexicana, S. de R.L. de C.V through our licensing agreement with WBI, that commenced in June 2011.





We continually review our contract packing needs in light of regulatory compliance and logistical requirements and may add or change co-packers based on those needs. We rely on and believe our co-packers comply with applicable environmental laws.




10
 Table of Contents





As is customary in the contract packing industry, we are expected to arrange for our contract packing needs sufficiently in advance of anticipated requirements. Accordingly, it is our business practice to require our independent distributors to place their purchase orders for our products at least 14 days in advance of shipping. Other than minimum case volume requirements per production run, we do not have any minimum production requirements.





The terms of Drinks transaction with WBI affords the Company between 90 and 120 days credit terms on KAH Tequila, Agave 99, and Ed Hardy Tequila as well as 120 days credit Mexicali Beer, Chili Beer, Rio Bravo Beer and Red Pig Ale.





RAW MATERIALS





Substantially all of the raw materials used in the preparation, bottling and packaging of our products are purchased by us or by our contract packers in accordance with our specifications. Typically, we rely on our contract packers to secure raw materials that are not unique to us. The raw materials used in the preparation and packaging of our products consist primarily of spirits, flavorings, concentrate, glass, labels, caps and packaging. These raw materials are purchased from suppliers selected by us or in concert with our co-packers or by the respective supplier companies.





QUALITY CONTROL





We attempt to use quality ingredients for our products. We seek to ensure that all of our products satisfy our quality standards. Contract packers are selected and monitored by Drinks in an effort to assure adherence to our production procedures and quality standards. Samples of our products from each production run undertaken by each of our contract packers are analyzed and categorized in a reference library.





For every run of product, our contract packers undertake extensive on-line testing of product quality and packaging. For each product, the contract packer must transmit all quality control test results to us upon request. We believe that working in concert with our internal management, and the in-house quality control mechanisms of our distillery and brewery partners assure that our standards are at least equal to those established in the industry.





Testing at each of our co-packers generally includes microbiological checks and other tests to ensure the production facilities for our products meet the standards and specifications of our quality assurance program. We believe the production facilities inspection programs are at least equal to industry standards. We request that water quality be monitored during production and at scheduled testing times to ensure compliance with applicable government regulatory requirements.





We also inspect packaging suppliers' production facilities and monitor their product quality.





GOVERNMENT REGULATION





The production and marketing of our licensed and proprietary alcoholic and non alcoholic beverages are subject to the rules and regulations of various Federal, provincial, state and local health agencies, including in particular the U.S. Food and Drug Administration (“FDA”) and the U.S. Alcohol and Tobacco Tax and Trade Bureau (“TTB”). The FDA and TTB also regulate labeling of our products. From time to time, we may receive notification of various technical labeling or ingredient reviews with respect to our products. We believe that we have a compliance program in place to ensure compliance with production, marketing and labeling regulations on a going-forward basis. There are no regulatory notifications or actions currently outstanding.





TRADEMARKS, FLAVOR CONCENTRATE TRADE SECRETS AND PATENTS





We own a number of trademarks, including, in the United States, “Drinks Americas” (TM), “Olifant” (TM), “Cohete” (TM), “Swiss T”(TM), “Screaming Monkey” (TM) and “Aguila” (TM), Casa BoMargo (TM). Trademarks have been filed and pending with no opposition for Drinks Americas (TM), “Monte Verde”(TM) and “Corcovado”(TM). In addition, we have trademark protection in the United States for a number of other trademarks for slogans and product designs, including “The Rooster Has Landed”(R), “Party Harder”(TM).




We also own, indirectly as a member of a limited liability company, an interest in the "Old Whiskey River" trademark.


11
 Table of Contents





In November 2005, we entered into an eight-year license agreement for sales of Trump Super Premium Vodka. Under the agreement the Company is required to pay royalties on sales of the licensed product. The agreement requires minimal royalty payments through November 2012 which if not paid could result in termination of the license.  We are currently in default under the terms of its license agreement with Trump Marks LLC. The licensor has the right to terminate the license. The Company and the licensor are currently in discussion to amend the agreement under mutually beneficial terms.





Under our license agreement for Old Whiskey River, we are obligated to pay royalties of between $10.00 and $33.00 per case, depending on the size of the bottle. Our Rheingold license requires us to pay the licensor $3.00 per barrel for domestic sales and $10.33 for foreign sales. Under our license agreement for Damaina Liqueur with Mexcor we receive a $10 royalty for each case of Damiana sold by Mexcor for the next five years.





We consider our trademarks, patent and trade secrets to be of considerable value and importance to our business. No successful challenges to our registered trademarks have arisen and we have no reason to believe that any such challenges will arise in the future.





COMPETITION





The beverage industry is highly competitive. We compete with other beverage companies, most of which have significantly more sales, significantly more resources and which have been in business for much longer than we have. We compete with national and regional beverage producers and "private label" suppliers. Some of our alcohol competitors are Diageo, Pernod Ricard, Brown-Forman, Castle Brands, Allied Biomes and Bacardi & Company, Ltd. On the non-alcoholic front, some of our direct competitors include Cadbury Schweppes (which produces Snapple and Mystic among other brands) Camper, Boylands and Hansens. We believe it is a costly and difficult for large companies to create new brands. As a result, we believe opportunities exist for smaller companies to develop high-quality, high-margin brands, which can grow to be very attractive acquisition candidates for the larger companies.





EMPLOYEES





We have four full-time employees and four independent contractors working for us. No employee is represented by a labor union. The independent contractors have executed agreements or contracts with us.





ITEM1A. RISK FACTORS





An investment in our common stock involves a high degree of risk. You should carefully consider the risks described below as well as other information provided to you in this prospectus, including information in the section of this document entitled “Forward Looking Statements.” The risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties not presently known to us or that we currently believe are immaterial may also impair our business operations. If any of the following risks actually occur, our business, financial condition or results of operations could be materially adversely affected, the value of our common stock could decline, and you may lose all or part of your investment.





Risks Related to our Business





WE ARE A DEVELOPING COMPANY AND OUR PROSPECTS MUST BE CONSIDERED IN LIGHT OF OUR SHORT OPERATING HISTORY AND SHORTAGE OF WORKING CAPITAL





We are a developing company with a very short operating history, having been incorporated in September 2002. Our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by developing companies, including dealing with a shortage of necessary funds in the very competitive marketplace in which the alcoholic and non-alcoholic beverage business is carried on, as well as the many risks commonly anticipated or experienced by mature companies. Our ability to operate as a going concern and to achieve profitable operations will be dependent on such factors as the success of our business model and marketing strategy, market penetration of existing products, competition, future brand additions, continued development of distribution relationships and the availability of financing. No assurance can be given that we will be able successfully to develop our business under the foregoing conditions.




12
 Table of Contents





WE RELY HEAVILY ON OUR INDEPENDENT DISTRIBUTORS, AND THIS COULD AFFECT OUR ABILITY TO EFFICIENTLY AND PROFITABLY DISTRIBUTE AND MARKET OUR PRODUCTS, AND MAINTAIN OUR EXISTING MARKETS AND EXPAND OUR BUSINESS INTO OTHER GEOGRAPHIC MARKETS.





Our ability to establish a market for our brands and products in new geographic distribution areas, as well as maintain and expand our existing markets, is dependent on our ability to establish and maintain successful relationships with reliable independent distributors strategically positioned to serve those areas. Many of our larger distributors sell and distribute competing products, including non-alcoholic and alcoholic beverages, and our products may represent a small portion of their business. To the extent that our distributors are distracted from selling our products or do not expend sufficient efforts in managing and selling our products, our sales will be adversely affected. Our ability to maintain our distribution network and attract additional distributors will depend on a number of factors, many of which are outside our control. Some of these factors include: (i) the level of demand for our brands and products in a particular distribution area; (ii) our ability to price our products at levels competitive with those offered by competing products; and (iii) our ability to deliver products in the quantity and at the time requested by distributors.





There can be no assurance that we will be able to meet all or any of these factors in any of our current or prospective geographic areas of distribution. Further, shortage of adequate working capital may make it impossible for us to do so. Our inability to achieve any of these factors in a geographic distribution area will have a material adverse effect on our relationships with our distributors in that particular geographic area, thus limiting our ability to maintain and expand our market, which will likely adversely effect our revenues and financial results.





WE GENERALLY DO NOT HAVE LONG-TERM AGREEMENTS WITH OUR DISTRIBUTORS, AND WE EXPEND SIGNIFICANT TIME AND MAY NEED TO INCUR SIGNIFICANT EXPENSE IN ATTRACTING AND MAINTAINING KEY DISTRIBUTORS.





Our marketing and sales strategy presently, and in the future, will rely on the performance of our independent distributors and our ability to attract additional distributors. We have entered into written agreements with certain of our distributors for varying terms and duration; however, most of our distribution relationships are informal (based solely on purchase orders) and are terminable by either party at will. We currently do not have, nor do we anticipate in the future that we will be able to establish, long-term contractual commitments from many of our distributors. In addition, despite the terms of the written agreements with certain of our significant distributors, we have no assurance as to the level of performance under those agreements, or that those agreements will not be terminated. There is also no assurance that we will be able to maintain our current distribution relationships or establish and maintain successful relationships with distributors in new geographic distribution areas. Moreover, there is the additional possibility that we will have to incur significant expenses to attract and maintain key distributors in one or more of our geographic distribution areas in order to profitably exploit our geographic markets. We may not have sufficient working capital to allow us to do so.





BECAUSE OUR DISTRIBUTORS ARE NOT REQUIRED TO PLACE MINIMUM ORDERS WITH US, WE NEED TO CAREFULLY MANAGE OUR INVENTORY LEVELS, AND IT IS DIFFICULT TO PREDICT THE TIMING AND AMOUNT OF OUR SALES.





Our independent distributors are not required to place minimum monthly, quarterly or annual orders for our products. In order to reduce their inventory costs, our independent distributors maintain low levels of inventory which, depending on the product and the distributor, range from 15 to 45 days, of typical sales volume in the distribution area. We believe that our independent distributors endeavor to order products from us in such quantities, at such times, as will allow them to satisfy the demand for our products in the distribution area. Accordingly, there is no assurance as to the timing or quantity of purchases by any of our independent distributors or that any of our distributors will continue to purchase products from us in the same frequencies and volumes as they may have done in the past. Our goal is to maintain inventory levels for each of our products sufficient to satisfy anticipated purchase orders for our products from our distributors, which is difficult to estimate. This places burdens on our working capital which has been limited since we began operations. As a result, we have not consistently been able to maintain sufficient inventory levels and may not be able to do so in the future.





As is customary in the contract packing industry for small companies, we are expected to arrange for the production of our products sufficiently in advance of anticipated requirements. To the extent demand for our products exceeds available inventory and the capacities available under our contract packing arrangements, or orders are not submitted on a timely basis, we will be unable to fulfill distributor orders on a timely basis. Conversely, we may produce more products than warranted by actual demand, resulting in higher storage costs and the potential risk of inventory spoilage. Our failure to accurately predict and manage our contract packaging requirements may impair relationships with our independent distributors, which, in turn, would likely have a material adverse effect on our ability to maintain relationships with those distributors.




13
 Table of Contents


THE BANKRUPTCY, CESSATION OF OPERATIONS, OR DECLINE IN BUSINESS OF A SIGNIFICANT DISTRIBUTOR COULD ADVERSELY AFFECT OUR REVENUES, AND COULD RESULT IN INCREASED COSTS IN OBTAINING A REPLACEMENT.





If any of our primary distributors were to stop selling our products or decrease the number of cases purchased, our revenues and financial results could be adversely affected. There can be no assurance that, in the future, we will be successful in finding new or replacement distributors if any of our existing significant distributors discontinue our brands, cease operations, file for bankruptcy or terminate their relationship with us.





WE HAVE NOT SATISFIED CERTAIN OF OUR COMMITMENTS UNDER DISTRIBUTION AGREEMENTS, WHICH ENTITLE US TO DISTRIBUTE CERTAIN OF OUR PRODUCTS. IF ANY OF THESE AGREEMENTS WERE CANCELLED IT WOULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS.





Our rights to distribute certain of our products are generally governed by distribution agreements which contain minimum sales targets and other requirements some of which we have not satisfied to date. Therefore virtually all of our distribution contracts can be cancelled. We rely on our relationships with the parties who have granted us distribution rights rather than contractual protection. Cancellation of one or more of our distribution contracts would have a material adverse effect on our business.





WE NEED TO EFFECTIVELY MANAGE OUR GROWTH AND THE EXECUTION OF OUR BUSINESS PLAN. ANY FAILURE TO DO SO WOULD NEGATIVELY IMPACT OUR RESULTS.





To manage operations effectively, we must improve our operational, financial and other management processes and systems. We have a small staff and our success also depends on our ability to maintain high levels of employee efficiency, to manage our costs in general and administrative expense in particular, and otherwise to efficiently execute our business plan. We need to cost-efficiently add new brands and products, develop and expand our distribution channels, and efficiently implement our business strategies. There are no assurances that we will be able to effectively and efficiently manage our growth. Any inability to do so could increase our expenses and negatively impact the results of our operations.





OUR INDEPENDENT AUDITORS’ REPORT INCLUDES AN EMPHASIS OF MATTER PARAGRAPH STATING THAT THERE IS A SUBSTANTIAL DOUBT ABOUT OUR ABILITY TO CONTINUE AS A GOING CONCERN.





Because we have incurred significant losses from operations since inception, our auditor included in its report for the years ended April 30, 2011 and 2010, an emphasis of matter paragraph in its independent auditors’ report stating that there is a substantial doubt about our ability to continue as a going concern. If we continue to generate significant losses we may not be able to continue as a going concern.





THE LOSS OF KEY PERSONNEL WOULD DIRECTLY AFFECT OUR EFFICIENCY AND ECONOMIC RESULTS.





We are dependent upon the creative skills and leadership of our founder, J. Patrick Kenny, who serves as our President and Chief Executive Officer. The loss of the services of Mr. Kenny could have a material adverse affect on our business and operations, including our ability to develop and execute a long-term, profitable business plan. Due to inadequate working capital, we have often not paid agreed upon compensation to our employees and independent contractors.  We expect to timely pay our employees and independent contractors in the future; however, if we fail to do so, there can be no assurance they will continue to render services to us.





Our management team consists of several key executives and we also rely on several key distribution, marketing and financial personnel who provide services to us as independent contractors. In order to manage and operate our business successfully in the future, it will be necessary to further strengthen our management team. The hiring of any additional executives will increase our compensation expense. We may not have sufficient working capital to be able to do so.




14
 Table of Contents





OUR STRATEGY REQUIRES US TO DEVELOP AND MAINTAIN RELATIONSHIPS WITH OTHER FIRMS.





Our strategy depends on various relationships with other firms for product development, research facilities, distilling facilities, bottling, distribution and low-cost marketing. Because of these relationships, we do not expect to invest heavily in fixed assets or factories. Of particular importance to us is our relationship with independent producers who manufacture our products, typically, pursuant to our specifications. We do not have our own production capacity and rely on independent contractors to produce our products. We will need to maintain and develop relationships with additional manufactures as we add products to our product mix. It is vital to our success that our producers deliver high quality products to us with favorable pricing terms. There can be no assurance, however, that we will be able to develop and maintain relationships which provide us the services and facilities we require. If we fail to develop and maintain such relationships, we may be forced to change our strategy, which could have a material adverse effect on the results of our operations. Further, if our relationship with a producer of any of our products is terminated, it is likely our business will be disrupted until a replacement producer is identified and production commences.





OUR BUSINESS AND FINANCIAL RESULTS DEPEND ON MAINTAINING A CONSISTENT AND COST-EFFECTIVE SUPPLY OF RAW MATERIALS.





Raw materials for our products include concentrate, glass, labels, flavoring, caps and packaging materials. Currently, we purchase our flavor concentrate from two flavor concentrate suppliers. We believe that we have adequate sources of raw materials, which are available from multiple suppliers, and that in general we maintain good supplier relationships. The price of our concentrates is determined through negotiation with our flavor houses, and may be subject to change. Prices for the remaining raw materials are generally determined by the market, and may change at any time. Increases in prices for any of these raw materials could have a material adverse impact on our ability to achieve profitability. If we are unable to continue to find adequate suppliers for our raw materials on economic terms acceptable to us, it will adversely affect our results of operations.





WE MAY NOT BE ABLE TO ACQUIRE AND SUCCESSFULLY INTEGRATE ADDITIONAL PRODUCTS IN THE FUTURE.





We have grown our business primarily through acquisitions of brands and, if we have the working capital necessary to do so, we expect to acquire additional brands in the future. There can be no assurance that we will be able to acquire additional products or assimilate all of the products we do acquire into our business or product mix. Acquisitions can be accompanied by risks such as potential exposure to unknown liabilities relating to the acquired product or business. We have entered into, and may continue to enter into, joint ventures, which may also carry risks of liability to third parties.





OUR INABILITY TO PROTECT OUR TRADEMARKS, PATENT AND TRADE SECRETS MAY PREVENT US FROM SUCCESSFULLY MARKETING OUR PRODUCTS AND COMPETING EFFECTIVELY.





Failure to protect our intellectual property could harm our brand and our reputation, and adversely affect our ability to compete effectively. Further, enforcing or defending our intellectual property rights, including our trademarks, patents, copyrights and trade secrets, could result in the expenditure of significant financial and managerial resources. We regard our intellectual property, particularly our trademarks and trade secrets to be of considerable value and importance to our business and our success. We rely on a combination of trademark, patent, and trade secrecy laws, and contractual provisions to protect our intellectual property rights. There can be no assurance that the steps taken by us to protect these proprietary rights will be adequate or that third parties will not infringe or misappropriate our trademarks, trade secrets (including our flavor concentrate trade secrets) or similar proprietary rights. In addition, there can be no assurance that other parties will not assert infringement claims against us, and we may have to pursue litigation against other parties to assert our rights. Any such claim or litigation could be costly and we may lack the resources required to defend against such claims. In addition, any event that would jeopardize our proprietary rights or any claims of infringement by third parties could have a material adverse affect on our ability to market or sell our brands, and profitably exploit our products.





WE HAVE LIMITED WORKING CAPITAL AND WILL NEED ADDITIONAL FINANCING IN THE FUTURE.





Our working capital needs in the future will depend upon factors such as market acceptance of our existing products and of any new products we launch, the success of our independent distributors and our production, marketing and sales costs. None of these factors can be predicted with certainty.




15
 Table of Contents





We have sustained substantial operating losses since our organization. We will need additional debt or equity financing in the future to fully implement our business plan. We may not be able to obtain any additional financing on acceptable terms or at all. As a result, we may not have adequate working capital to implement future expansions, maintain sufficient levels of inventory, and maintain our current levels of operation or to pursue strategic acquisitions. Our failure to obtain sufficient financing would likely result in the delay or abandonment of some or all of our development plans, any one of which would likely harm our business and the value of our common stock.





CERTAIN OF OUR PRODUCTS ARE CLOSELY IDENTIFIED WITH CELEBRITIES AND OUR BRAND RECOGNITION IS SIGNIFICANTLY AFFECTED BY THEIR SUCCESS IN THEIR PROFESSION.





Certain of our products, including products for which we have acquired distribution rights, adopt the name of a single personality or celebrity, or are associated with a single personality or celebrity. Therefore the reduction in acceptance or public approval  of any such personality will correspondingly damage the associated product and could have a material adverse effect on the results of our operations.





Risks Relating to our Industry





WE COMPETE IN AN INDUSTRY THAT IS BRAND-CONSCIOUS, SO BRAND NAME RECOGNITION AND ACCEPTANCE OF OUR PRODUCTS ARE CRITICAL TO OUR SUCCESS.





Our business is substantially dependent upon awareness and market acceptance of our products and brands by our targeted consumers. In addition, our business depends on acceptance by our independent distributors of our brands as beverage brands that have the potential to provide incremental sales growth rather than reduce distributors' existing beverage sales. Although we believe that we have made progress towards establishing market recognition for certain of our brands in both the alcoholic and non alcoholic beverage industry, it is too early in the product life cycle of these brands to determine whether our products and brands will achieve and maintain satisfactory levels of acceptance by independent distributors and retail consumers.





COMPETITION FROM TRADITIONAL ALCOHOLIC AND NON-ALCOHOLIC BEVERAGE MANUFACTURERS MAY ADVERSELY AFFECT OUR DISTRIBUTION RELATIONSHIPS AND MAY HINDER DEVELOPMENT OF OUR EXISTING MARKETS, AS WELL AS PREVENT US FROM EXPANDING OUR MARKETS.





The beverage industry is highly competitive. We compete with other beverage companies, most of which have significantly more sales and significantly more resources, giving them significant advantages in gaining consumer acceptance for their products, access to shelf space in retail outlets and marketing focus by our distributors, all of whom also distribute other beverage brands. Our products compete with all beverages, most of which are marketed by companies with greater financial resources than what we have. Some of these competitors are or will likely in the future, place severe pressure on our independent distributors not to carry competitive alternative brands such as ours. We also compete with regional beverage producers and "private label" suppliers. Some of our alcoholic competitors are Diageo, Pernod Ricard, Castle Brands, Brown-Furman and Bacardi & Company, Ltd. Some of our direct competitors in the alternative beverage industry include Cadbury Schweppes (Snapple, Stewart, Nantucket Nectar, Mystic), Thomas Kemper, Boylans and Hansens. Competitor consolidations, market place competition, particularly among branded beverage products, and competitive product and pricing pressures could impact our earnings, market share and volume growth. If, due to such pressure or other competitive phenomena, we are unable to sufficiently maintain or develop our distribution channels, or develop alternative distribution channels, we may be unable to achieve our financial targets. As a means of maintaining and expanding our distribution network, we intend to expand the market for our products, and introduce additional brands. However, we will require financing to do so. There can be no assurance that we will be able to secure additional financing or that other companies will not be more successful in this regard over the long term. Competition, particularly from companies with greater financial and marketing resources than those available to us, could have a material adverse effect on our existing markets, as well as our ability to expand the market for our products.





WE COMPETE IN AN INDUSTRY CHARACTERIZED BY RAPID CHANGES IN CONSUMER PREFERENCES, SO OUR ABILITY TO CONTINUE DEVELOPING NEW PRODUCTS TO SATISFY OUR CONSUMERS' CHANGING PREFERENCES WILL DETERMINE OUR LONG-TERM SUCCESS.





Our current market distribution and penetration is limited as compared with the potential market and so our initial views as to customer acceptance of a particular brand can be erroneous, and there can be no assurance that true market acceptance will ultimately be achieved. In addition, customer preferences are also affected by factors other than taste, such as the recent media focus on obesity in youth. If we do not adjust to respond to these and other changes in customer preferences, our sales may be adversely affected.




16
 Table of Contents





A DECLINE IN THE CONSUMPTION OF ALCOHOL COULD ADVERSELY AFFECT OUR BUSINESS.





There have been periods in American history during which alcohol consumption declined substantially. A decline in alcohol consumption could occur in the future due to a variety of factors including: (i) a general decline in economic conditions, (ii) increased concern about health consequences and concerns about drinking and driving, (iii) a trend toward other beverages such as juices and water, (iv) increased activity of anti-alcohol consumer groups, and (v) increases in federal, state or foreign excise taxes. A decline in the consumption of alcohol would likely negatively affect our business.





WE COULD BE EXPOSED TO PRODUCT LIABILITY CLAIMS FOR PERSONAL INJURY OR POSSIBLY DEATH.





Although we have product liability insurance in amounts we believe are adequate, we cannot assure you that the coverage will be sufficient to cover any or all product liability claims. To the extent our product liability coverage is insufficient; a product liability claim would likely have a material adverse affect upon our financial condition. In addition, any product liability claim successfully brought against us may materially damage the reputation of our products; thus adversely affecting our ability to continue to market and sell that or other products.





OUR BUSINESS IS SUBJECT TO MANY REGULATIONS AND NONCOMPLIANCE IS COSTLY.





The production, marketing and sale of our alcoholic and non alcoholic beverages, including contents, labels, caps and containers, are subject to the rules and regulations of various federal, state and local health agencies. If a regulatory authority finds that a current or future product or production run is not in compliance with any of these regulations, we may be fined, or production may be stopped, thus adversely affecting our financial conditions and operations. Similarly, any adverse publicity associated with any noncompliance may damage our reputation and our ability to successfully market our products. Furthermore, rules and regulations are subject to change from time to time and while we monitor developments in this area, the fact that we have limited staff makes it difficult for us to keep up to date and we have no way of anticipating whether changes in these rules and regulations will impact our business adversely. Additional or revised regulatory requirements, whether regarding labeling, the environment, taxes or otherwise, could have a material adverse effect on our financial condition and results of operations.





THE CURRENT ECONOMIC EVENTS, INTERNATIONAL CONFLICTS, AND TERRORISM EVENTS ALL OR INDIVIDUALLY MAY HAVE AN ADVERSE IMPACT ON OUR SALES AND EARNINGS, AND OUR SHIPPING COSTS HAVE INCREASED.





We cannot predict the impact of the current economic climate in the United States, or the current international situation, on current and future consumer demand for and sales of our products. In addition, recent volatility in the global oil markets has resulted in rising fuel and freight prices, which many shipping companies are passing on to their customers. Our shipping costs have increased, and these costs may continue to increase. Due to the price sensitivity of our products, we do not anticipate that we will be able to pass these increased costs on to our customers.


Risks Related to our Common Stock





BECAUSE OUR COMMON STOCK IS CONSIDERED A "PENNY STOCK," A SHAREHOLDER MAY HAVE DIFFICULTY SELLING SHARES IN THE SECONDARY TRADING MARKET.





Our common stock is subject to certain rules and regulations relating to "penny stock" (generally defined as any equity security that has a price less than $5.00 per share, subject to certain exemptions). Broker-dealers who sell penny stocks are subject to certain "sales practice requirements" for sales in certain nonexempt transactions (i.e., sales to persons other than established customers and institutional "accredited investors"), including requiring delivery of a risk disclosure document relating to the penny stock market and monthly statements disclosing recent price information for the penny stocks held in the account, and certain other restrictions. For as long as our common stock is subject to the rules on penny stocks, the market liquidity for such securities could be significantly limited. This lack of liquidity may also make it more difficult for us to raise capital in the future through sales of equity in the public or private markets.




17
 Table of Contents





THE PRICE OF OUR COMMON STOCK MAY BE VOLATILE, AND A SHAREHOLDER'S INVESTMENT IN OUR COMMON STOCK COULD SUFFER A DECLINE IN VALUE.





There could be significant volatility in the volume and market price of our common stock, and this volatility may continue in the future. Our common stock is listed on the over-the-counter Bulletin Board and there is a greater chance for market volatility for securities that trade on the OTC Bulletin Board as opposed to a national exchange or quotation system. This volatility may be caused by a variety of factors, including the lack of readily available quotations, the absence of consistent administrative supervision of "bid" and "ask" quotations and generally lower trading volume. In addition, factors such as quarterly variations in our operating results, changes in financial estimates by securities analysts or our failure to meet our or their projected financial and operating results, litigation involving us, general trends relating to the beverage industry, actions by governmental agencies, national economic and stock market considerations as well as other events and circumstances beyond our control could have a significant impact on the future market price of our common stock and the relative volatility of such market price.





A LARGE NUMBER OF SHARES OF COMMON STOCK WILL BE ELIGIBLE FOR FUTURE SALE AND MAY DEPRESS OUR STOCK PRICE.





Our shares that are eligible for future sale may have an adverse effect on the price of our stock. As of August 1, 2011, there were approximately 493,456,981 shares of our common stock outstanding. In connection with December 2007 private placement, we  issued 333,333 shares of common stock, 11,000 shares of our Series A Preferred Stock, which is convertible into 2,095,238 shares of our common stock and warrants to acquire 40,000 shares of our common stock. A significant percent of these shares may become eligible to be traded.  Sales of substantial amounts of common stock, or a perception that such sales could occur, and the existence of options or warrants to purchase shares of common stock at prices that may be below the then current market price of the common stock, could adversely affect the market price of our common stock and could impair our ability to raise capital through the sale of our equity securities.





YOUR OWNERSHIP INTEREST, VOTING POWER AND THE MARKET PRICE OF OUR COMMON STOCK MAY DECREASE BECAUSE WE HAVE ISSUED, AND MAY CONTINUE TO ISSUE, A SUBSTANTIAL NUMBER OF SECURITIES CONVERTIBLE OR EXERCISABLE INTO OUR COMMON STOCK.





We have issued common stock, warrants, options and convertible notes to purchase our common stock to satisfy our obligations and fund our operations and reward our employees. In the future we may issue additional shares of common stock, options, warrants, preferred stock or other securities exercisable for or convertible into our common stock to raise money for our continued operations. We continue to seek additional investors. If additional sales of equity occur, your ownership interest and voting power in us will be diluted and the market price of our common stock may decrease.





ITEM 1B.UNRESOLVED STAFF COMMENTS





Not applicable.





ITEM 2. PROPERTIES





We lease 2,739 square feet of office in Wilton, Connecticut under an operating sublease which will expire September 30, 2011, with base annual rent payments of approximately $36,000 through September 30, 2011.  Under our lease, we are also responsible for our pro rata share of real estate tax increases. We are in the process of negotiating an extension to the sublease. We believe our leased premise is suitable and adequate for our use and adequately covered by insurance.





ITEM 3. LEGALPROCEEDINGS





In June 2009, Richard Shiekman, a former employee of the Company, filed an application for prejudgment remedy against the Company and our Chief Executive Officer in Superior Court of Connecticut, Judicial District of Fairfield (Docket Number CV 09 4028895 S). In this action, the plaintiff sought in excess of $300,000.00 in unpaid wages and commissions, and expenses. In lieu of a prejudgment remedy, the Company provided the plaintiff with Company stock to be held subject to further order from the court, as security for the plaintiff’s claims. On April 26, 2011, the matter was fully resolved, all parties withdrew their claims and exchanged releases, and plaintiff returned the stock previously pledged. The settlement required the Company to pay Mr. Shiekman a total of $75,000.00 on or before July 15, 2011 or a total of $100,000.00 on or before September 15, 2011. Prior to July 14, 2011, the Company (through its insurer) paid $32,500.00 toward the settlement. On July 14, 2011, the Company paid an additional $10,000 toward the settlement. At that time, Mr. Shiekman agreed that so long as the Company pays an additional $45,00.00 by September 1, 2011, he would consider the settlement paid in full, for a total of $87,500.00. If not, the total amount due would be $100,000.00, less the $42,500.00 already paid. As of the date hereof, the Company has paid a total of $42,500 toward the settlement.




18
 Table of Contents





In October 2009, James Sokol, a former salesperson for the Company, filed suit and an application for prejudgment remedy seeking in excess of $300,000.00 in unpaid wages, commissions and expenses against the Company and its Chief Executive Officer in the Superior Court for the Judicial District of Fairfield (Docket Number CV 09 5027925).  In lieu of a prejudgment remedy, the Company provided the plaintiff with Company stock to be held subject to further order of the court, as security for the plaintiff’s claims. The matter settled in June 2010 and plaintiff withdrew the action and released the Company in exchange for $48,558.23 in cash payable in monthly installments, $50,000.00 worth of company stock, which the Company has delivered, and a promissory note in the amount of $47,129.64, which the Company has delivered and which remains outstanding to date.





In June 2009, Liquor Group Wholesale, Inc. (“Liquor Group”), a company which provided distribution services for us in several states, filed a claim for damages against us in Duval County Florida for alleged damages including breach of contract and sought damages. It was the Company’s opinion that the claim arose out of our termination of the agreements we had with them for their nonperformance, failure of the plaintiff to accurately report sales to the Company and their withholding of information required by the agreements. The Company filed a counterclaim of $500,000 for damages against Liquor Group and has denied their claimed breach of contract claim previously made against it.  The Company contended that it is owed money by Liquor Group under the agreements. The matter was submitted to  arbitration before the American Arbitration Association.  The arbitrator found that Liquor Group inappropriately confiscated Drinks’ bailment inventory and breached the agreement. For breach of contract by Liquor Group, the arbitrator found Drinks damaged in the amount of $180,058.62, said sum to be trebled for breach of contract damages due Drinks of $540,175.86. Additionally, the arbitrator found Liquor Group responsible for any and all costs and expenses incurred by Drinks in enforcing its rights under the agreement including reasonable attorney’s fees of $120,605.15 and costs of $3,878.04, being a total owed of $664,659.05. Management intends to vigorously seek enforcement of the arbitration award upon jurisdiction of the City of Jacksonville, Duval County, Florida.





In December 2009, Niche Media, Inc., an advertising vendor filed suit against the Company in the Connecticut Superior Court for the Judicial District of Stamford/Norwalk (Docket Number CV 09-6002627-S) claiming unpaid invoices for the approximate amount of $130,000 plus accruing interest and attorneys’ fees.  In March 2011, the Company reached settlement with Niche Media whereby payments for a balance of $90,000 will be paid over 29 months commencing on June 2011.  As of the date hereof, the Company has made timely payments in accordance with the settlement and expects to continue to do so.





Socius CG II, Ltd., (“Socius”), a creditor of the Company due to the purchase of various claims from various creditors of the Company, filed a complaint against the Company for breach of contract to recover on the claims against the Company on June 18, 2010 in the Supreme Court of the State of New York. On July 29, 2010, we entered into a settlement agreement with Socius pursuant to which we agreed to issue 2,586,667 shares of our common stock in exchange for satisfaction of the claim for $334,006. This settlement agreement required court approval before the issuance of such stock because it involved the payment of the settlement in the form of the Company’s common stock in reliance upon the Section 3(a)(10) exemption from the registration requirements of Section 5 of the Securities Act of 1933, as amended. On July 30, 2010, a Notice of Motion for Court Order Approving Stipulation for Settlement of Claims was submitted to the court, which moved for an order to enforce the terms of our proposed settlement with Socius. The court ultimately approved the settlement agreement and the issuance of the 2,586,667 shares to Socius as exempt from registration pursuant to the Section 3(a)(10) registration exemption. As of the date hereof, the Company has issued all shares to Socius in connection with the Settlement. Socius has paid or made partial payment to half of the listed creditors in the settlement.





In May 2011, Wenneker Distilleries (“Wenneker”), a distillery located in Holland, filed suit in the United States District Court for the Middle District of Pennsylvania seeking in excess of $225,894 in outstanding invoices owed to Wenneker pursuant to a certain Stock Purchase Agreement (the “SPA”), dated January 15, 2009, by and between the Company, Olifant USA, Inc. (“Olifant”), Jack McKenzie and Paul Walraven. Plaintiff claims that pursuant to the SPA, the Company is obligated to pay all of outstanding invoices owed to Wenneker by Olifant. The Company plans to vigorously defend this suit.





Other than the items discussed above, we believe that the Company is currently not subject to litigation, which, in the opinion of our management, is likely to have a material adverse effect on us.





ITEM 4. (REMOVEDAND RESERVED).




19
 Table of Contents





ITEM 5.MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASERS OF EQUITY SERCURITIES AND SMALL ISSUER PURCHASE OF EQUITY SECURITIES





MARKET INFORMATION





Our common stock was authorized to trade on June 2, 2005 on the over-the-counter market with quotations available on the OTC Electronic Bulletin Board under the symbol "DKAM" on the Over-the-Counter Bulletin Board Electronic Quotation System maintained by the National Association of Securities Dealers, Inc. Trading commenced on June 3, 2005. Prior to June 3, 2005, there was no public trading market for our Common Stock.





The following table sets forth the range of high and low bid quotations of our common stock for the periods indicated. The information contained in the table was obtained from Bloomberg Financial Services. The prices represent inter-dealer quotations, which do not include retail markups, markdowns or commissions, and may not represent actual transactions.





Year Ending, April 30, 2010

High


LowFirst Quarter, July 31, 2009

$
0.20


$
0.12Second Quarter, October 31, 2009

$
0.16


$
0.04Third Quarter, January 31, 2010

$
0.05


$
0.01Fourth Quarter, April 30, 2010

$
0.04


$
0.0105





Year Ending, April 30, 2011

High


LowFirst Quarter, July 31, 2010

$
0.22


$
0.07Second Quarter, October 31, 2010

$
0.13


$
0.02Third Quarter, January 31, 2011

$
0.07


$
0.01Fourth Quarter, April 30, 2011

$
0.01


$
0.0012





Year ending April 30, 2012First Quarter, July 31, 20011

$
0.0038


$
0.002





HOLDERS





As of August 1, 2011, there were approximately 493,456,981 shares of our common stock outstanding, which were held of record by approximately 65 stockholders, not including persons or entities that hold the stock in nominee or "street" name through various brokerage firms. Further, as of August 1, 2011, there were seven stockholders of record of our Preferred Stock.





DIVIDENDS





The payment of dividends, if any, is to be within the discretion of our Board of Directors. We presently intend to retain all earnings, if any, for use in our business operations and accordingly, the Board of Directors does not anticipate declaring any dividends in the near future. In addition, the terms of our Series A Preferred Stock limit our ability to pay cash dividends to our stockholders.   Dividends, if any, will be contingent upon our revenues and earnings, capital requirements and financial condition.




20
 Table of Contents





Holders of our Series B Preferred Stock are entitled to receive dividends which will accrue in shares of Series B Preferred Stock on an annual basis at a rate equal to 10% per annum from the issuance date.  Accrued dividends will be payable upon redemption of the Series B Preferred Stock.





SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS





On June 3, 2011, the Company filed a registration statement on Form S-8 and registered 25,000,000 shares issuable under the Drinks Americas Holdings ltd. 2011 Consultants Plan (the “2011 Plan”). As of the date hereof, the Company has issued a total of 25,000,000 shares of Company common stock under the plan as compensation for legal and marketing services at a fair value of $67,500.





On January 6, 2011, the Company filed a registration statement on Form S-8 and registered  30,000,000 shares issuable under the 2011 Stock Incentive Plan (the “2011 Plan”).  As of April 30, 2011, the Company has issued a total of 28,879,516 shares of Company common stock under the plan as compensation for legal and marketing services at a fair value of $170,837 and 1,120,484 shares remain available for future issuance under the 2010 Plan.





On April 13, 2010, the Company filed a registration statement on Form S-8 and registered  2,000,000 shares issuable under the 2010 Stock Incentive Plan (the “2010 Plan”).  Subsequent to April 30, 2010, the Company has issued a total of 1,506,839 shares of Company common stock under the plan as compensation for legal and marketing services at a fair value of $114,272 and 493,161 shares remain available for future issuance under the 2010 Plan.





On November 6, 2009, the Company filed a registration statement on Form S-8 and registered  1,333,333 shares issuable under the 2009 Stock Incentive Plan (the “2009 Plan”).  The Company has issued a total of 906,490 shares of Company common stock under the plan as compensation for legal and marketing services as of April 30, 2009 at a fair value of $ 316,450 which vested immediately upon grant. Additionally, 382,673were issued subsequent to year end as compensation for legal and marketing services at a fair value of $ 65,667 and 44,170 shares remain available for future issuance under the 2009 Plan.





In January 2009, the Company’s shareholders approved the 2008 Stock Incentive Plan (the “2008 Plan”) which provides for awards of incentives of non-qualified stock options, stock, restricted stock and stock appreciation rights for its officers, employees, consultants and directors in order to attract and retain such individuals and to enable them to participate in the long-term success and growth of the Company. Under the 2008 Plan, 666,667 common shares were reserved for distribution, of which 648,333 have been issued and 48,333  remain available for future issuance. Of this amount, 30,000 shares issued to employees were subsequently canceled when the employees terminated their service with the Company. Stock options granted under the Plan are granted with an exercise price at or above the fair market value of the underlying common stock at the date of grant, generally vest over a four year period and expire 5 years after the grant date.





On November 9, 2009, the Company granted 233,333 shares under the 2008 Plan at fair value of $132,000 to several consultants, which vested immediately upon grant, as compensation for legal and marketing services.





On March 12, 2009, the Company granted an aggregate of 385,000 options under its 2008 Stock Incentive Plan to various employees, the directors of the Company, and to two consultants to the Company.  The exercise price of the options granted to employees,  directors, and one of the consultants was at the market value (other than those issued to our CEO which was at a 10% premium to the market value) of the underlying common stock at the date of grant. The exercise price of the options granted to the other consultant, $0.35, was above the fair market value of the underlying common stock at the date of grant. The value of the options on the date of grant was calculated using the Black-Scholes formula with the following assumptions: risk free rate-2%, expected life of options –5 years, expected stock volatility -67%, expected dividend yield -0%. The Company issued an aggregate of 278,333 options to purchase shares of its common stock to its employees including 166,667to its CEO, 33,333 to its COO and 20,000 to its former CFO.





These options granted to employees of the Company vest over a four year period and expire five years after the grant date. The cost of the options, $375,750, is expected to be recognized over the four year vesting period of the non-vested options.  The options awarded to the directors of the Company (66,667) and the consultants (40,000) at fair value of $129,000 vested immediately on the grant date.




21
 Table of Contents





The fair value of each option  award is estimated on the date of grant using the Black-Scholes option pricing model and is affected by assumptions regarding a number of highly complex and subjective variables  including expected volatility, risk-free interest rate, expected dividends and expected term. Expected volatility is based on the historic volatility of the Company’s stock over the expected life of the option. The expected term and vesting of the option represents the estimated period of time until the exercise and is based on management’s estimates, giving consideration to the contractual term, vesting schedules and expectations of future employee behavior. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for the expected term of the option. The Company has not paid dividends in the past and does not plan to pay any dividends in the near future. SFAS 123R, “Share Based Payment,” also requires the Company to estimate forfeitures at the time of grant and revise these estimates, if necessary, in subsequent period if actual forfeitures differ from those estimates. The Company estimates forfeitures of future experience while considering its historical experience.





A summary of the options outstanding under the Plan as of April 30, 2011 and 2010 is as follows:





2011


2010Shares


Weighted

Average

Exercise

Price


Shares


Weighted

Average

Exercise

PriceOutstanding at beginning of period


355,001


$
2.55



-0-


$
-Granted


-



-



385,000



2.75Forfeited


-



-



(29,999
)


2.40Outstanding at end of period


355,001


$
2.55



355,001


$
2.55Exercisable at end of period


230,834


$
2.87



106,667


$
2.99Weighted average fair value of grants during the period





$
2.55






$
2.78





The fair value of options at date of grant was estimated using the Black-Scholes option pricing model utilizing  the following weighted average assumptions:





2010Risk-free rate


2.0
%Expected option life in years


5.0Expected stock price volatility


67
%Expected dividend yield


0
%





Also on March 12, 2009, the Company granted 78,333 shares of its common stock under the Plan to several of its employees as consideration for past services they have performed for the Company. The value of the stock on the date of grant aggregated $188,000 which is  included in selling, general and administrative expenses for the year ended April 30, 2009 and accrued expense as of April 30, 2009 as none of these shares were issued as of that date.  Of these, an aggregate of 50,000 shares were issued in June 2009.





RECENT SALE OF UNREGISTERED SECURITIES





There are no equity securities of the Company sold by us during the fiscal year ending April 30, 2011 that were not registered under the Securities Act of 1933, as amended, and have not previously been included in a Quarterly Report on Form 10-Q or in a Current Report on Form 8-K.




22
 Table of Contents





PURCHASES OF EQUITY SECURITIES BY THE ISSUED AND AFFILIATED PURCHASERS





None.





ITEM 6. SELECTED FINANCIAL DATA





Not applicable.





ITEM 7. MANAGEMENT'SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS





The following discussion and analysis of the consolidated financial condition and results of operations should be read with "Selected Financial Data" and our consolidated financial statements and related notes appearing elsewhere in this report. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. The actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including, but not limited to, those set forth under "Risk Factors" and elsewhere in this report.





RESULTS OF OPERATIONS





Year ended April 30, 2011 compared to year ended April 30, 2010





Net Sales: For the year ended April 30, 2011, net sales were approximately $497,000 under our revised royalty revenue business model compared to net sales of approximately $890,000 for the year ended April 30, 2010 which level of volume was driven by the Company's wholesale business model. The decrease of 44% reflects the transition of our business model in February 2010 from a wholesale operation to a royalty based operation under our distribution and importation agreement with Mexcor, Inc. as well as the delay in the second quarter of 2009 in replacing our working capital financing following the arbitrary termination of our financing facility with Sovereign Bank.





Gross Margin:  Gross margin (loss) for the year ended April 30, 2011, was approximately $(32,000) or (6%) of net sales under the royalty business model compared to gross margin of approximately $(399,000), or (45%) of net sales for the year ended April 30, 2010 under the wholesale business model. This decrease in gross margin is attributable to the transition of our business model to a royalty-based revenue operation from a wholesale revenue model and the associated start-up production costs involved in launching of Rheingold beer in the second quarter of 2010 as well as the $40,000 charge to write-off  non-saleable vodka products.





In order to sustain our market presence and continue to have inventory after the loss of our access to production credit and in order to continue to sell our brands while we repositioned the company, we transitioned our then current products to a royalty model with Mexcor, Inc. This royalty based operation coupled with our working capital shortfall and the discontinuance of Newman’s Own product line and the  curtailment in certain product supply inventories impacted our company. Consequently, we wrote-off the inventories of the discontinued brands and reduced to net realizable value among our brands certain product offerings and components that were not transitioned to Mexcor, Inc. which resulted in a negative margin of approximately $399,000 (-44% of net sales) for the year ended April 30, 2010. The Company recorded a charge of approximately $744,000 for discontinued and obsolete component inventories and a charge of approximately $53,000 to adjust certain inventories to net realizable values





Selling, General and Administrative Expenses: Selling, general and administrative expenses for the year ended April 30, 2011 amounted to approximately $2,754,000 compared to approximately $3,874,000 for the same period of the prior year, a decrease of approximately $1,121,000, or 29%, attributable to our decision to reduce our operating and marketing expenses and thereby sustain our limited working capital. The overhead reductions resulted in lower payroll and payroll related travel and marketing expenses. Additionally, our distribution and importation agreement with Mexcor, Inc. (“Mexcor”) resulted in our ability to transfer our field sales force and the associated sales commission costs and travel expenses to Mexcor, as we restructured our business-operating model in fiscal 2010 and positioned the company to enter into certain agreements in 2011.The cost reductions we obtained from restructuring our business plus additional working capital which enabled us to launch successfully Rheingold beer in our second quarter.




23
 Table of Contents





Gain on settlement of debt:During the year ended April 30, 2011, we negotiated and settled outstanding debt, primarily trade vendors, for a lower than previously recorded obligation.  As such, we recognized a gain on settlement of debt of approximately $617,000 for the year ended April 30, 2011 compared to Nil the previous year.





Impairment of intangible assets:During the year ended April 30, 2011 we performed an evaluation of our recorded book value of our 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 our intangible assets associated with Olifant, Aguila and Mexcor exceeded their fair value for the year ended April 30, 2011.  As a result, upon completion of the assessment, wet recorded a non-cash impairment charge of approximately $1,422,000, net of tax, or $0.02 per share during the year ended April 30, 2011 to reduce the carrying value to $0. Considerable management judgment is necessary to estimate the fair value.  Accordingly, actual results could vary significantly from management’s estimates.


Interest expense:Interest expense for the year ended April 30, 2011 was approximately $994,000 compared to $1,540,000 for the same period last year, a net decrease of $546,000 or 35%.  This decrease is predominantly due to a reduction in the cost of financing our outstanding liabilities as compared to prior year.





Other income (expense): For the year ended April 30, 2011, other income (expense) of $(83,076) is predominately comprised financing costs associated with certain issued notes payable during the current year compared to net other income of $128,119 for the year ended April 30, 2010.





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





As a general rule, the second and third quarters of our fiscal year (August-January) are the periods that we realize our greatest sales as a result of sales of alcoholic beverages during the holiday season. During the fourth quarter of our fiscal year (February-April) we generally realize our lowest sales volume as a result of our distributors decreasing their inventory levels which typically remain on hand after the holiday season. Given our lack of working capital, the effects of seasonality on our sales have been lessened.





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 April 30, 2011, the Company has a shareholders' deficiency of approximately $4,463,000 applicable to controlling interests compared with $2,886,000 applicable to controlling interests at April 30, 2010, and working capital deficiency of $4,905,967 as of April 30, 2011 and has incurred significant operating losses and negative cash flows since inception. For the year ended April 30, 2011, the Company sustained a net loss of approximately $4,586 ,000 compared to a net loss of $5,617,000 for the year ended April 30, 2010 and used cash of approximately $1,337,000 in operating activities for the year ended April 30, 2011 compared with approximately $588,000 for the year ended April 30, 2010. We will need additional financing which may take the form of equity or debt and we have converted certain liabilities into equity.  We anticipate that increased sales revenues from our newly launched Rheingold Beer product line and our Mexcor Agreement will contribute to improving our cash flow and provide additional liquidity from operations.  In the event we are not able to increase our working capital, we will not be able to implement or may be required to delay all or part of our business plan, and our ability to attain profitable operations, generate positive cash flows from operating and investing activities and materially expand the business will be materially adversely affected. The accompanying consolidated financial statements do not include any adjustments relating to the classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the company be unable to continue in existence.




24
 Table of Contents





We will need to continue to manage carefully our working capital and our business decisions will continue to be influenced by our working capital requirements. Lack of liquidity continued to negatively affect our business and curtail the execution of our business plan.





Net Cash Used in Operating Activities: Net cash used in operating activities for the year ended April 30, 2011 was approximately $1,337,000, primarily from our loss of approximately $4,586,000 net with non cash activities of $532,000 depreciation and amortization, $1,422,000 impairment charges, $550,000 changes in operating assets and sundry other non cash activities.. We have to date funded our operations predominantly through loans from shareholders, officers and investors and additionally through the issuance of our common stock as payment for outstanding obligations.





Net Cash provided by Financing Activities: Net cash provided by  financing activities for the year ended April 30, 2011 was $1,164,500 primarily from net proceeds from debt and notes payable.





OFF BALANCE SHEET ARRANGEMENTS





Not applicable.





CRITICAL ACCOUNTING POLICIES





Our significant accounting policies are more fully described in  to the audited financial statements. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosures of contingent assets and liabilities. Actual results could differ from those estimates under different assumptions or conditions. We believe that the following critical accounting policies are subject to estimates and judgments used in the preparation of the financial statements.





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 or a royalty rate computed on the net sales of the distributor shipments to its customers.





The Company recognizes revenue dilution from items such as product returns, inventory credits, discounts and other allowances in the period that such items are first expected to occur. The Company does not offer its clients the opportunity to return products for any reason other than manufacturing defects. In addition, the Company does not offer incentives to its customers to either acquire more products or maintain higher inventory levels of products than they would in ordinary course of business. The Company assesses levels of inventory maintained by its customers through communications with them. Furthermore, it is the Company's policy to accrue for material post shipment obligations and customer incentives in the period the related revenue is recognized.





ACCOUNTS RECEIVABLE





Accounts receivable are recorded at original invoice amount less an allowance for uncollectible accounts that management believes will be adequate to absorb estimated losses on existing balances. Management estimates the allowance based on collectability of accounts receivable and prior bad debt experience. Accounts receivable balances are written-off upon management's determination that such accounts are uncollectible. Recoveries of accounts receivable previously written off are recorded when received. Management believes that credit risks on accounts receivable will not be material to the financial position of the Company or results of operations at April 30, 2010 and 2009 the allowance for doubtful accounts was $127,846 and $128,751, respectively.




25
 Table of Contents





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





In accordance with ASC-360-10, Accounting for the Impairment or Disposal of Long-lived Assets, we review long-lived assets for impairment at least annually or 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 year ended April 30, 2011, the Company determined that based on estimated future cash flows, the carrying amount of our Olifant license rights along with other licensing rights exceeded its fair value by $1,422,000, and accordingly, recognized an impairment loss.





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.





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 in accordance with ASC-718-10 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 per share under the provisions of ASC 260-10-45, Earnings per Share, whereby basic earnings 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 per share is determined in the same manner as basic earnings 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 years ended April 30, 2011 and 2010, the diluted earnings per share amounts equal basic earnings per share because the Company had net losses and the impact of the assumed exercise of contingently issuable shares would have been anti-dilutive.




26
 Table of Contents





ITEM 7A. QUANTITATIVEAND QUALITATIVE DISCLOSURE ABOUT MARKET RISK





Not applicable.





ITEM 8. FINANCIALSTATEMENTS AND SUPPLEMENTARY DATA





Financial Statements are listed in the Index to Financial Statements and filed and included elsewhere herein as a part of this Annual Report on Form 10-K.





ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE





None





ITEM 9A. CONTROLS AND PROCEDURES





DISCLOSURES 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) and 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 April 30, 2011, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of April 30, 2011, our Chief Executive Officer, who also is our principal executive officer, and our Chief Financial Officer, who is our principal 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 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.





MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVER FINICAL REPORTING





Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that are intended to:





1.
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;





2.
provide reasonable assurance that transactions are recorded as necessary to permit reparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and





3.
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on our financial statements.




27
 Table of Contents





Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.





Management's assessment of the effectiveness of the small business issuer's internal control over financial reporting is as of the year ended April 30, 2011. We believe that internal control over financial reporting is effective. We have not identified any, current material weaknesses considering the nature and extent of our current operations and any risks or errors in financial reporting under current operations.





This annual report does not include an attestation report of the Company's registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company's registered public accounting firm pursuant to rules of the SEC that permanently exempt smaller reporting companies.





There was no change in our internal control over financial reporting that occurred during the fiscal year ended April 30, 2011, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.





ITEM 9B. OTHERINFORMATION





Effective June 1, 2011, Mr. Lazo resigned as the Chief Operating Officer of the Company for personal reasons. There were no disagreements between Mr. Lazo and the Company or any officer or director of the Company which led to Mr. Lazo’s resignation.





Effective January, 2011, Mr. Klein resigned as a director of the Company for personal reasons.  There were no disagreements between Mr. Klein and the Company or any officer or director of the Company which led to Mr. Klein’s resignation.





Effective August 5, 2011, Mr. Federico G. Cabo Jr. resigned as a director of the Company for personal reasons.  There were no disagreements between Mr. Cabo Jr. and the Company or any officer or director of the Company which led to Mr. Cabo Jr.’s resignation.





ITEM 10.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CORPORATE GOVERNANCE





Below are the names and certain information regarding the Company’s executive officers and directors.




Name

Age

Positions and OfficesJ. Patrick Kenny


54

President, Chief Executive Officer, Chief Financial Officer, Principal Accounting Officer, and Chairman of the Board of DirectorsJason Lazo(1)


44

Chief Operating OfficerMarvin Traub


85

DirectorFredrick Schulman


58

DirectorHubert Millet


74

DirectorJack Kleinert


52

DirectorFederico G. Cabo


66

DirectorRichard F. Cabo


40

DirectorLeonard Moreno


53

Director





(1)
Mr. Lazo resigned as Chief Operating Officer effective June 1, 2011.


(2)
Mr. Klein resigned as director effective January 2011.




28
 Table of Contents





J. Patrick Kenny has served as the Chairman and Chief Executive Officer of Drinks Americas, Inc. (“DA”) since it was founded in September 2002 and as Chairman of the Company since January 2009.  DA acquired control of the Company in March 2005.  Mr. Kenny has been our President and Chief Executive Officer, and a member of our Board of Directors, since March 2005. He is a former Senior Vice President and General Manager of Joseph E. Seagram & Sons ("Seagram"), for which he held a variety of senior management positions over 22 years, with increasing levels of responsibility in Seagram's wine, wine cooler, alcoholic and non-alcoholic beverage divisions. Mr. Kenny assumed the responsibilities of the Company’s Principal Accounting Officer on November 2, 2009.





Mr. Kenny managed Seagram's worldwide carbonated soft drink operations from 1992 through March 2000. He held the title of Senior Vice President and General Manager when he left Seagram in March 2000, prior to its sale to Vivendi Universal. In April 2000, he co-founded Sweet16 Intermedia, Inc., a trademark licensing and media company which was sold to TEENTV Inc., a media company for chain retailers and mall properties. He has also acted as adviser to several Fortune 500 beverage marketing companies, and has participated in several beverage industry transactions. Prior to joining Seagram, Mr. Kenny was employed in a range of sales and sales management positions with Scott Paper Co. and then Coca Cola's Wine Spectrum. Mr. Kenny initially attended West Point (U.S. Military Academy), until an athletic injury required lengthy treatment. He later received a B.A. at Georgetown University, and an M.A. at St. Johns University in New York. Mr. Kenney’s knowledge and expertise in the Company’s industry, his history with the Company, his management skills and other business experience and acumen led to the Board’s conclusion that Mr. Kenny should serve as Chairman of our board of directors. He also serves as a Partner of Montauk Ventures.





Jason Lazo has served as our Chief Operating Officer since March 2005 and the Chief Operating Officer of DA since May, 2003. Mr. Lazo resigned as our Chief Operating Officer effective June 1, 2011.  From December 1997 to May 2003, he worked for Seagram as Director of Finance, during which he served in the Mixers Group of Seagram working with Mr. Kenny. From January 1990 to December 1997, Mr. Lazo worked at Kraft Foods as Manager of Business Analysis, with responsibility for the Capri Sun and Kool-Aid Koolburst, and Ready to Drink Country Time & Crystal Lite brands. He has also worked as a Kraft Foods Plant Controller, managing the start-up of Capri Sun and Lender's Bagels. He has worked in logistics and procurement for Kraft Foods central manufacturing organization and in corporate finance for Entenmann's Bakeries, Inc. He received a B.S. in Finance and an M.S. in Accounting from Long Island University.





Bruce K. Klein has served as the Vice Chairman of the Board of DA since it was founded in September 2002 and had been our Chairman of the Board from March 2005 to January 2009. Mr. Klein resigned as a director of the Board effective January 1, 2011. Since February 1999, he has served as the Managing Partner of Victory Partners LLC, a company created to fund private businesses in their early stages. In the last five years Victory has funded six businesses in technology, vitamins and internet services areas, of which three have became public companies and three remain private. From 1992 to 1997 Mr. Klein was a registered representative of the Equitable Companies, responsible for sales and services to high income clients, acting as investment advisor and estate planner to an exclusive client base. From 1986 to 1991, Mr. Klein served as President of Transatlantic Exports Corp., where his duties included purchasing and exporting of finished and contract goods throughout Europe and Africa. From 1980 through 1991, Mr. Klein owned several retail businesses in lumber, hardware home centers and decorating. He received a B.S. in Finance and an M.BA in Marketing from Farleigh Dickinson University. Mr. Klein’s history with the Company, his management skills and other business experience and acumen led to the Board’s conclusion that Mr. Klein should serve as a member of our board of directors.





Marvin Traub was an initial investor with Mr. Kenny in Maxmillian Partners, LLC, a former affiliate of DA. He joined our Board of Directors in March 2005. From 1969 to 1991, he served as the President and Chairman of Bloomingdales. His background is in marketing, retail, home furnishings and apparel. Mr. Traub serves as President of his own marketing and consulting firm, Marvin Traub Associates ("MTA"), which he founded in 1992. MTA is a unique consulting firm with great expertise in global retailing, marketing and consumer goods products. Prior to that, Mr. Traub served as Chairman of Finance Global Consulting, the consulting arm of Finance, Inc., where he was Senior Advisor.





Mr. Traub is the author of "Like No Other Store..." a combination autobiography and history of Bloomingdale's and American retailing. It was first published in 1993 by Random House and has since gone through three printings, two hardback and one paperback. In the summer of 2008, Mr. Traub’s second book, “Like No Other Career...” a sequel to “Like No Other Store...” was published by Assouline and launched worldwide in October 2008 in Paris. Mr. Traub's consulting clients include American Express, Ralph Lauren, Jones New York, Saks Fifth Avenue, Macy’s Department Stores, Nautica Europe, Lanvin-France, Coin-Italy, Men's Health Magazine, Yue Sai Kan-China, Aishti-Lebonon, Quarter 206-Berlin,  the Time Warner Center at Columbus Circle in New York, Oscar de la Renta, Harvey Nichols – Dubai, The Tata Group – India, Attica Department Store – Athens and Bloomingdales - Dubai. Along with two partners, Mr. Traub created TSM Capital in 2007, a partnership that invests in midsize, upscale apparel and accessory brands. The first two investments were Matthew Williamson and Rachel Roy. In the Spring 2008, Mr. Traub, with other investors, acquired Ellen Tracy form Liz Claiborne and serves as Chairman of Ellen Tracy in the new enterprise.




29
 Table of Contents





Mr. Traub graduated from Harvard College Magna Cum Laude in 1947 and Harvard Business School with Distinction in 1949. Mr. Traub was the recipient of The Gold Medal of the National Retail Federation in 1991 as well as the Legion d’ Honeur and Order of Merit from France and was awarded the Commendatore de la Republic by Italy. Mr. Traub’s knowledge and expertise in marketing, his history with the Company, his management skills and other business experience and acumen led to the Board’s conclusion that Mr. Traub should serve as a member of our board of directors.





Fredrick Schulman served as the Chairman and President of Gourmet Group, Inc. (our predecessor) from September 2000 until March of 2005 and he has been a member of our Board of Directors since March 2005. He has 25 years of experience in corporate and commercial finance, venture capital, leveraged buy outs, investment banking and corporate and commercial law. Mr. Schulman's career includes key positions with RAS Securities in New York from 1994 to 1998 as General Counsel and Investment Banker, eventually becoming Executive Vice President and Director of Investment Banking. From 1999 to September 2001, he was President of Morgan Kent Group, Inc, a venture capital firm based in New York and Austin, Texas. Since September 2003, Mr. Schulman has served as Chairman of Skyline Multimedia Entertainment, Inc., and, since September 2002, he has served as President and Director of East Coast Venture Capital, Inc., a specialized small business investment company and community development entity based in New York. Since September 2006, Mr. Schulman also has served as chairman of the board of directors of NewBank, a New York charted commercial bank. Mr. Schulman’s knowledge and expertise in the industry, his history with the Company, his management skills and other diverse business experience and acumen led to the Board’s conclusion that Mr. Schulman should serve as a member of our board of directors.





Hubert Millet joined our Board of Directors in March 2007. Mr. Millet has over 40 years’ experience in consumer products and has spent over 20 years in senior management positions in the beverage industry. Since 2000, Mr. Millet has acted as an international consultant to various clients in the beverage industry. From 1989 through 2000, Mr. Millet worked for The Seagram Company Ltd where he served as a member of the Seagram Spirits & Wine Executive Council. From 1991 through 1997, he served as the President of Seagram Global Brands Division where he was responsible for production and business development for Martell Cognacs, Mumm and Perrier-Jouet Champagnex and Barton & Guestier wines, as well as scotch whiskey operations (Chivas Brothers and Glenlivet). From 1989 through 2000 Mr. Millet was the Chief Executive Officer and Chairman of Seagram's Mumm Martell Group. Mr. Millet has previously served as Chairman of Barton & Guestier SA, a member of the Board of Directors of Martell Cognac, a member of the Board of Directors and Chief Executive Officer of G.H. Mumm, a member of the Board of Directors and Chief Executive Officer of Perrier-Jouet, a member of the Board of Directors of Tropicana Europe, and Chairman of the Board of Directors of Herve Leger (Fashion Co.). From 1977 through 1989, Mr. Millet worked for Groupe Cointreau where he served in various roles, including the Chief Executive Officer of the Cointreau Group and as Cointreau's Finance & Development Director. From 1970 through 1977, Mr. Millet worked for the British American Tobacco Company, Cosmetics and Beauty Products Division, where he served in various roles including as a Vice President responsible for finance and development with respect to the divisions of European operation.





Mr. Millet has also served as a member of the Board of Directors of Parfums Hermes (1982-2007), a member of the Hermes Group Strategic Committee (1982-2001), and serves as a member of the Board of Directors of Hermes USA, and a member of the Board of Directors of The Savannah College of Art and Design.  Mr. Millet was the French consul in Savannah, Georgia from 2001 to 2006. Millet has been the recipient of various rewards, including Officier de la Legion d'honneur, Officer dans l'Ordre National du Merite and Medaille Commemorative d'Algerie. Mr. Millet’s knowledge and expertise in our industry, his management skills and other diverse business experience, and his prior directorships led to the Board’s conclusion that Mr. Millet should serve as a member of our board of directors.





Jack Kleinert joined our Board of Directors in April 2010. He is the CEO and co-founder of Velocity Portfolio Group (VPG). Founded in 2003, VPG purchases distressed consumer receivables and liquidates the receivables using its nationwide legal network.  Prior to founding VPG, Mr. Kleinert ran his own private investment group, JCK Investments.  For 15 years beginning in 1982, Mr. Kleinert worked for Goldman Sachs. He was elected as a General Partner of the firm in 1994 and retired as a Limited Partner at the end of 1997. Mr. Kleinert is a graduate of Princeton University with a Bachelor of Science degree in Chemical Engineering.  He resides in Franklin Lakes, NJ with his wife and four children. Mr. Kleinert’s management skills and other diverse business experience and acumen led to the Board’s conclusion that Mr. Kleinert should serve as a member of our board of directors.





Federico G. Cabo joined our Board of Directors in June 2011. Mr. Cabo is an industry veteran with over thirty five years of experience as a brewer and master distiller. He is highly seasoned expert with experience in manufacturing, sales and marketing of beverages in the U.S. and International markets. Mr. Cabo has spent the last ten years developing and perfecting his company’s tequila distilling processes and expanding his distribution network.




Mr. Cabo’s background as an engineer is evident in his state-of-the-art, highly efficient distillery, which he designed to allow for modular growth accordance with the needs of the company up to three times present production capacity. Mr. Cabo has served as the Chief Executive Officer of Fabrica De Tequilas Finos S.A. de C.V. since 1981. Mr. Cabo has also served as the Chie Executive Officer of Cervecería Mexicana, S. de R.L. de C.V since 2006. Mr. Cabo has also served as a director for Xact Aid, Inc. from 2004 to 2005. Mr. Cabo’s knowledge and experience in our industry, his management skills, and his diverse business experience led to the Board’s conclusion that Mr. Cabo should serve as a member of our board of directors.




30
 Table of Contents


Richard F. Cabo joined our Board of Directors in June 2011. Mr. Cabo is an industry veteran with over twenty years of experience in the management, sale, and marketing of alcoholic beverages. He started his career as a director of advertising in the beverage industry for tequila and Latin beer brands.   In later years, he successfully owned and operated Artluxe fine art gallery in Los Angeles.  Mr. Cabo has been a managing member of WBI, a liquor import and distribution company, since 2009. He has also served as the director of marketing at Fabrica De Tequilas Finos S.A. de C.V. since 2001. Mr. Cabo’s knowledge and experience in our industry, his management skill and business experience led to the Board’s conclusion that Mr. Cabo should serve as a member of our board of directors.





Leonard Moreno joined our Board of Directors in June 2011. Mr. Moreno has served as the Director of Operations of Cerveceria Mexicana, S. de R.L. de C.V. since 1991. Mr. Moreno’s knowledge and experience in our industry led to the Board’s conclusion that Mr. Cabo should serve as a member of our board of directors.





Save as otherwise reported above, none of our directors hold directorships in other reporting companies and registered investment companies at any time during the past five years.





There are no family relationships among our directors or officers except that Richard Cabo is the son of Federico Cabo.





INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS





To our knowledge, during the last ten years, none of our directors and executive officers (including those of our subsidiaries) has:





·
Had a bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time.





·
Been convicted in a criminal proceeding or been subject to a pending criminal proceeding, excluding traffic violations and other minor offenses.





·
Been subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities.





·
Been found by a court of competent jurisdiction (in a civil action), the SEC, or the Commodities Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated.





·
Been the subject to, or a party to, any sanction or order, not subsequently reverse, suspended or vacated, of any self-regulatory organization, any registered entity, or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.





SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE





Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our directors, executive officers and beneficial owners of more than 10% of our common stock to file with the SEC reports of their holdings of and transactions in our common stock. Based solely upon our review of copies of such reports and representations from reporting persons that were provided to us, Jack Kleinert, Marvin Traub and J. Patrick Kenny were late in filing a Form 4.




31
 Table of Contents





CODE OF ETHICS





The Company has adopted a written code of ethics that applies to the Company's principal executive officer, principal financial officer, principal accounting officer and any persons performing similar functions. The Company will provide a copy of its code of ethics to any person without charge upon written request addressed to 372 Danbury Road, Wilton, CT 06897.





CHANGES IN NOMINATING PROCESS





There are no material changes to the procedures by which security holders may recommend nominees to our Board of Directors.





COMMITTEES OF THE BOARD





Our Board of Directors has established an Audit Committee and a Compensation Committee.





AUDIT COMMITTEE





Our Audit Committee consists of Fredrick Schulman as Chairman and Marvin Traub. Our Audit Committee is responsible for preparing reports, statements and charters required by the federal securities laws, as well as:





·
overseeing and monitoring the integrity of our consolidated financial statements, our compliance with legal and regulatory requirements as they relate to financial statements or accounting  matters, and our internal accounting and financial controls;





·
preparing the report that SEC rules require be included in our annual proxy statement;





·
overseeing and monitoring our independent registered public accounting firm's qualifications, independence and performance;





·
providing the Board with the results of our monitoring and  recommendations; and





·
providing to the Board additional information and materials as it deems necessary to make the Board aware of significant financial  matters that require the attention of the Board.





The Board has determined that all current members of the Audit Committee have the ability to read and understand fundamental financial statements. The Board has also determined that Fredrick Schulman qualifies as "Audit Committee financial expert" as defined under Item 407 of Regulation S-K of the Securities Exchange Act of 1934 (the "Exchange Act"). Mr. Schulman, in his capacity as Chairman and Chief Executive Officer of Gourmet Group, Inc. (our predecessor company) for over four years, directly supervised the financial staff of the Company and coordinated the preparation of the Company's financial statements with its outside auditors. Neither Mr. Schulman nor Mr. Traub would be viewed as an independent member of the Audit Committee under the NASDAQ corporate governance rules.





COMPENSATION COMMITTEE





The Compensation Committee consists of Fredrick Schulman and Jack Kleinert, with Fredrick Schulman as the Chairman. The Compensation Committee assists the Board in fulfilling its oversight responsibilities relating to officer and director compensation and the development and retention of senior management.




32
 Table of Contents





NOMINATING COMMITTEE





The Board does not have a standing nominating committee. The Company does not maintain a policy for considering nominees.  Director nominees are recommended, reviewed and approved by the entire Board. The Board believes that this process is appropriate due to the relatively small number of directors on the Board and the opportunity to benefit from a variety of opinions and perspectives in determining director nominees by involving the full Board.





While the Board is solely responsible for the selection and nomination of directors, the Board may consider nominees recommended by Stockholders as it deems appropriate. Stockholders who wish to recommend a nominee should send nominations to the Company's Chief Executive Officer, J. Patrick Kenny, 372 Danbury Road, Wilton, CT 06897, that include all information relating to such person that is required to be disclosed in solicitations of proxies for the election of directors. The recommendation must be accompanied by a written consent of the individual to stand for election if nominated by the Board and to serve if elected by the Stockholders.





ITEM 11. EXECUTIVE COMPENSATION





COMPENSATION OF EXECUTIVE OFFICERS





The following table shows for fiscal years ended April 30, 2011 and 2010, respectively, certain compensation awarded or paid to, or earned by, the following persons (collectively, the "Named Executive Officers"): J. Patrick Kenny, our President, Chief Executive Officer and Principal Accounting Officer, and Jason Lazo, our Chief Operating Officer, whose total compensation exceeded $100,000 in 2011 and 2010.





SUMMARY COMPENSATION TABLE





NAME AND

PRINCIPAL POSITION

FISCAL

YEAR

SALARY

($)


BONUS

($)


STOCK

AWARDS

($)


OPTION

AWARDS

($)


ALL OTHER

COMPENSATION

($)


TOTAL

($)J. Patrick Kenny

2011

$
300,000


$
—


$
25,000


$
-


$
59,870


$
384,870Chief Executive

2010

$
300,000


$
—


$
180,000


$
56,250


$
45,667


$
581,917Officer and Chief

Financial Officer(1)(4)Jason Lazo

2011

175,000


—


—


—


6,985


181,985Chief Operating

2010


175,000



—



40,000



1,510



6,985



223,495Officer (2)(3)




(1)
Mr. Kenny has accrued substantial amounts of his salary (approximately $184,251) as of April 30, 2011 and approximately $643,000 as of April 30, 2010 as well as providing the Company with approximately $37,950 in working capital, related party loans as of April 30, 2011and $155,000 as of April 30, 2010 as reflected on our balance sheets.Stock Awards for the fiscal year ended 2011, represents a $25,000 bonus awarded by the Board to Mr. J. P. Kenny our CEO. Stock Awards for the fiscal year ended 2010, represents a $20,000 bonus awarded by the Board to Mr. J. P. Kenny for signing a distribution agreement and $160,000, represents the replacement value of the shares issued January 11, 2009 for pledging shares associated with the St. George financing transaction. For fiscal 2011, all other compensation is comprised of personal medical insurance premiums, $12,000; life insurance, $5,896 and an automobile allowance, $12,498. For fiscal 2010, all other compensation is comprised of personal medical insurance premiums, $24,262; life insurance, $9,820 and an automobile allowance, $11,585.(2)
Stock Awards for the fiscal year ended 2010, represents the value of the 50% bonus shares issued January 11, 2009 for pledging shares associated with the St. George financing transaction. Option Awards represents the dollar value of expenses recognized for financial statement purposes with respect to 2009 Stock Incentive Plan options that have vested since date of grant. Stock Awards for fiscal 2009, ($40,000) represents the issuance of 16,667 shares of our common stock to Mr. Lazo as a bonus forservices provided the Company at fair market value on the date of grant valued in accordance with FAS 123R at $0.16 per share. For fiscal 2011and 2010, $985; life insurance and $6,000 and an automobile allowance  33
 Table of Contents
  (3)
Effective June 1, 2011, Mr. Lazo resigned as our Chief Operating Officer.(4)
Mr. Kenny and Mr. Lazo accrued salary with Mr. Kenny’s actual compensation paid out in 2010 totaling $60,000.


INCENTIVE PLANS





In January 2009, the Company’s shareholders approved the 2008 Stock Incentive Plan (the “Plan”) which provides for awards of incentives of non-qualified stock options, stock, restricted stock and stock appreciation rights for its officers, employees, consultants and directors in order to attract and retain such individuals and to enable them  to participate in the long-term success and growth of the Company. Stock options granted under the Plan are granted with an exercise price at or above the fair market value of the underlying common stock at the date of grant, generally vest over a four year period and expire 5 years after the grant date.





Also on March 12, 2009, the Company granted 78,333 shares of its common stock under the Plan to several of  its employees as consideration for past services they have performed for the Company. The stock awards vested immediately upon grant. The stock we issued to our Named Executive Officers was valued based on the market price of the shares on the Over-The-Counter Bulletin Board on the date the shares were granted.





OUTSTANDING EQUITY AWARDS AT FISCAL 2011





The following table lists all outstanding equity awards held by each of the Named Executive Officers as of April 30, 2011.





Equity Awards

Stock AwardsEquity











Equity

EquityIncentive











Incentive

IncentiveNumber of


Number of


Plan Awards:











Plan Awards:

Plan Awards:Unearned


Unearned


Number of









Market

Number of

Market Valuesecurities


securities


Securities






Number of


Value of

Unearned

Of UnearnedUnderlying


Underlying


Underlying






Shares or


Stock

Shares, Units

Shares, UnitsUnexercised


Unexercised


Unexercised


Option



Units of Stock


that

or Other

or OtherOptions


Options


Unearned


Exercise

Option

That Have


Have Not

Rights That

Rights That(#)


(#)


Options


Price

Expiration

Not Vested


Vested

Have Not

Have NotNAME

Exercisable (1)


Inextricable


(#)


($)

Date (2)

(#)


($)

Vested (#)

Vested ($)J. Patrick Kenny


-



-



166,667



2,64

03/11/14


-



-

83,333

$
-Jason Lazo


-



-



33,333



2.40

03/11/14


-



-

33,333

$
-





(1) Options vest and become exercisable in four equal annual installments over the course of four years.





(2) The expiration date of each option occurs 5 years after the date of grant of each option.




34
 Table of Contents





EMPLOYMENT AGREEMENTS





We have not entered into any employment agreements with our executive officers or other employees to date. We may enter into employment agreements with them in the future. For example, the terms of the agreement the Company entered into with WBI require that the Company enter into an employment agreement with Mr. Kenny and Mr. Davidson for no less than three years and up to five years.





COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION





The members of the Compensation Committee during the fiscal year ended 2011 were Fredrick Schulman and up until January 1, 2011, Marvin Traub. None of our members of the Compensation Committee during the fiscal year ended 2011 served as an officer or employee of the Company, was formerly an officer of the Company, or had any relationship requiring disclosure required by Item 404 of Regulation S-K.





DIRECTOR COMPENSATION





The following table represents a summary of the compensation paid to our directors for their services on our board of directors during the fiscal year ended April 30, 2011. Except as listed below, there were no bonuses, other annual compensation, restricted stock awards or stock options/SARs, or any other compensation paid to the directors listed for their services as a director of the Company. Except as disclosed in the table below,no compensation was paid to our directors for their services as directors of the Company for the fiscal year ended April 30, 2011.





Directors Compensation for the Fiscal Year Ended April 30, 2011





Name

Cash Fees

($) (1)


Option

Awards

($) (2)


Total

($)Bruce Klein(4)

$
25,000


$
-


$
25,000Marvin Traub


25,000



-



25,000Fredrick Schulman


25,000



-



25,000Hubert Millet


25,000



-



25,000Jack Kleinert (3)


-



-



-




(1).
Cash fees represent amounts earned but not paid in fiscal 2011 for services rendered as a director(2)
No options were awarded to our directors as compensation for the fiscal year ended April 30, 2011.(3)
Jack Kleinert was appointed to our Board of Directors effective April 26, 2010.(4)
Bruce Klein resigned from our Board of Directors effective January 2011.
 In fiscal 2011, our CEO earned interest of $5,096 on loans he made to the Company. In fiscal 2010, companies wholly owned by Marvin Traub and Bruce Klein earned consulting fees of $100,000 and $84,550, respectively, for work not related to serving on our board. In addition, in fiscal 2010, we issued Fred Schulman 394,853 shares of our common stock with an aggregate value of $7,897 for legal services rendered to our Company (See “Certain Relationships and Related Party Transactions”).
  35
 Table of Contents





ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS





SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS





Please refer to “Securities Authorized for Issuance Under Equity Compensation Plans” under Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.





SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS




The following table provides information about shares of common stock beneficially owned as of August 1, 2011 by:





·each of our directors, executive officers and our executive officers and directors as a group; and·each person owning of record or known by us, based on information provided to us by the persons named below, to own beneficially at least 5% of our common stock;





Number of Shares

Of


Percentage ofCommon Stock


OutstandingName and Address of Beneficial Owner

Beneficially Owned


SharesJ. Patrick Kenny


1,888,086
(1)


3.83
%30 Old Wagon RoadWilton, CT 06877Marvin Traub


999,014
(2)


*
%535 Fifth AvenueNew York, NY 10022Fredrick Schulman


278,098
(3)


*
%241 Fifth Ave, Suite 302New York, NY 10016Hubert Millet


271,200
(4)


*102 Queens Garden DrThousand Oaks, CA 91361
  36
 Table of Contents
  Jack Kleinert


27,028,741



5.5%c/o 372 Danbury Road

Wilton, CT 06897Federico G. Cabo

4101 White Side St.

Los Angeles, CA 90063


33,333,333



6.76%Richard F. Cabo

4010 White Side St.

Los Angeles, CA, 90063


33,333,333



6.76%Leonard Moreno

4010 White Side St.

Los Angeles, CA, 90063


0




*Federico G. Cabo Jr.

4010 White Side St.

Los Angeles, CA, 90063


0




*All Directors, Officers, and Management as a group (10 persons)


97,131,805



20.0
%


* less than 1%.





(1) Includes 1,538,343 shares owned by Kenny LLC I, and 133,333 shares owned by Kenny LLC II, entities controlled by Mr. Kenny, and 41,667 stock options which have vested. Does not include 361,540 shares owned by Brian Kenny, Mr. Kenny’s son; 9,077 shares owned by Mr. Kenny’s daughter; and 12,751 shares owned by Mr. Kenny's brother; as to which shares Mr. Kenny disclaims beneficial ownership; or options to purchase 125,000 shares of our common stock which were granted to Mr. Kenny which will not be exercisable within 60 days of  July 13, 2011. Does not include shares of common stock underlying 576,091 shares of Series C Preferred Stock, which may not be converted within 60 days of July 13, 2011 due to provisions of the Certificate of Designations with respect to the Series C Preferred Stock, which generally prevents conversion of the preferred stock if conversion would result in beneficial ownership by the holder of greater than 9.99% of our shares.





(2) Includes fully vested options to purchase 6,667 shares, 50% of 461,570 or 230,785 warrants to purchase our common stock. The balance of the warrants will not be exercisable within 60 days of July _31, 2011. Does not include 1,481 shares owned by Mr. Traub's son, as to which shares Mr. Traub disclaims beneficial ownership. Also includes 420,200 shares of common stock underlying 42,041 shares of Series C Preferred Stock.





(3) Includes 14,665 shares owned by Mr. Schulman's wife, Lois Shapiro, to which shares Mr. Schulman disclaims beneficial ownership, fully vested options to purchase 40,000 shares and 50% of 64,783 or 32,392 warrants to purchase our common stock. The balance of the warrants will not be exercisable within 60 days of August 1, 2011. Also includes58,980 shares of common stock underlying 5,901 shares of Series C Preferred Stock.





(4) Includes fully vested options to purchase 6,667shares and 50% of 64,783 or 32,392 warrants to purchase our common stock. The balance of the warrants will not be exercisable within 60 days of August 1, 2011. Also includes 58,981 shares of common stock underlying 5,901 shares of Series C Preferred Stock.




37
 Table of Contents





(5) Includes 800,000 shares of our common stock and 122,324 shares purchasable on conversion of convertible preferred stock. Does not include an additional 1,118,547 shares purchasable upon conversion of convertible preferred stock due to provisions of the Certificate of Designation with respect to our Series A Preferred Stock, which generally prevent conversion of the preferred stock if conversion would result in beneficial ownership by the holder of greater than 9.99% of our shares.





Except as otherwise indicated each person has the sole power to vote and dispose of all shares of common stock listed opposite his name. Each person is deemed to own beneficially shares of Common Stock which are issuable upon exercise of warrants or upon conversion of convertible securities if they are exercisable or convertible within 60 days of August 1, 2011. Except as otherwise indicated, none of the persons named in the table own any options or convertible securities.





EQUITY COMPENSATION PLAN INFORMATION





On June 3, 2011, the Company filed a registration statement on Form S-8 and registered 25,000,000 shares issuable under the Drinks Americas Holdings ltd. 2011 Consultants Plan (the “2011 Plan”). As of the date hereof, the Company has issued a total of 25,000,000 shares of Company common stock under the plan as compensation for legal and marketing services at a fair value of $67,500.





On April 13, 2010, the Company filed a registration statement on Form S-8 and registered 2,000,000 shares issuable under the 2010 Plan.  Subsequent to April 30, 2010, the Company has issued a total of 369,848shares of Company common stock under the 2010 Plan as compensation for legal and marketing services at a fair value of $50,346 and 1,630,152 shares remain available for future issuance under the 2010 Plan.





On November 6, 2009, the Company filed a registration statement on Form S-8 and registered 1,333,333  shares issuable under the 2009 Stock Incentive Plan (the “2009 Plan”)  The Company has issued a total of 906,490 shares of Company common stock under the 2009 Plan as compensation for legal and marketing services as of April 30, 2009 at a fair value of $ 316,450 which vested immediately upon grant. Additionally, 382,673 were issued subsequent to year end as compensation for legal and marketing services at a fair value of $ 65,667 and 44,170 shares remain available for future issuance under the 2009 Plan.





In January 2009, the Company’s shareholders approved the 2008 Stock Incentive Plan (the “2008 Plan”) which provides for awards of incentives of non-qualified stock options, stock, restricted stock and stock appreciation rights for its officers, employees, consultants and directors in order to attract and retain such individuals and to enable them to participate in the long-term success and growth of the Company. Under the 2008 Plan, 666,667 common shares were reserved for distribution, of which 618,333 have been issued and 48,333 remain available for future issuance. Of this amount 30,000 of shares issued to employees were subsequently canceled when the employees terminated their service with the Company. Stock options granted under the Plan are granted with an exercise price at or above the fair market value of the underlying common stock at the date of grant, generally vest over a four year period and expire 5 years after the grant date.





On November 9, 2009, the Company granted 233,333 shares under the 2008 Plan at fair value of $132,000 to several consultants, which vested immediately upon grant, as compensation for legal and marketing services.





Subject to the terms of the Plan, the plan administrator, which may be the Company's Board of Directors, shall determine the provisions, terms, and conditions of each award including, but not limited to, the vesting schedules, repurchase provisions, rights of first refusal, forfeiture provisions, form of payment (cash, shares, or other consideration) upon settlement, payment contingencies, performance criteria for vesting and other matters.





On March 12, 2009, the Company granted an aggregate of 385,000 options under the Plan to various employees, the directors of the Company, and to two consultants to the Company.  The exercise price of the options granted to employees, directors and one of the consultants was at the fair market value of the underlying common stock at the date of grant (other than those issued to our CEO which was at a 10% premium to the market value). The exercise price of the options granted to the other consultant, $0.35, was above the fair market value of the underlying common stock at the date of grant.





The Company issued an aggregate of 278,333 options to purchase shares of its common stock to its employees including 166,667 to its CEO, 33,333 to its COO and 20,000 to its CFO.  The options granted to employees of the Company vest over a four year period and expire five years after the grant date.   The options awarded to the directors (66,667) of the Company and the consultants (40,000) vested immediately upon grant. Also on March 12, 2009, the Company granted 78,333 shares of its common stock under the Plan to several of its employees as consideration for past services they have performed for the Company.




38
 Table of Contents





A summary of the options outstanding under our Plans as of April 30, 2011 and 2010 is as follows:




2011


2010Shares


Weighted

Average

Exercise

Price


Shares


Weighted

Average

Exercise

PriceOutstanding at beginning of period


355,001


$
2.55



-0-


$
-Granted


-



-



385,000



2.75Forfeited


-



-



(29,999
)


2.40Outstanding at end of period


355,001


$
2.55



355,001


$
2.55Exercisable at end of period


230,834


$
2.87



106,667


$
2.99Weighted average fair value of grants during the period





$
2.55






$
2.78





CHANGES IN CONTROL





There are no arrangements known to the Company, including any pledge by any person of securities of the Company, the operation of which may at a subsequent date result in a change in control of the Company.





ITEM 13. CERTAINRELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE





TRANSACTIONS WITH RELATED PERSONS





Related parties can include any of our directors or executive officers, certain of our stockholders and their immediate family members. A conflict of interest occurs when an individual’s private interest interferes, or appears to interfere, in any way with the interests of the company as a whole. Our code of ethics requires all directors, officers and employees who may have a potential or apparent conflict of interest to immediately notify his/her supervisor, who is responsible for consulting with the Chief Executive Officer or Chair of the Governance Committee of the Board of Directors, as appropriate. The Board of Directors has adopted rules for what activities constitute conflicts of interest and potential conflicts of interests, as well as procedures for determining whether a relationship or transaction constitutes a conflict of interest. The current version of these rules and procedures are set forth in our Code of Ethics.





Set forth below are descriptions of transactions with related persons for the fiscal year ended April 30, 2011 and April 31, 2010:





Consulting and Marketing Fees





For each of the years ended April 30, 2011 and 2010, the Company incurred fees for services rendered related to sales and marketing payable to a limited liability company which was controlled by Bruce Klein, a past member of the Company’s board of directors, and previous chairman of the board. As of April 30, 2011 and 2010 unpaid fees owed to the director’s firm, aggregated $-0- and $91,000, respectively. On April 28, 2010, in accordance with an agreement made in October 2009 with the Board of Directors by the CEO to settle the outstanding amount due of $84,550, the Company issued 37,578shares of its common stock in satisfaction of consulting fees.




39
 Table of Contents





In fiscal 2003 we entered into a consulting agreement with a company wholly owned by Marvin Traub, a member of the Company's board of directors. Under the agreement the consulting company is being compensated at a rate of $100,000 per annum. The consulting agreement terminated April 30, 2010. As of April 30, 2011 and 2010 we were indebted to the consulting company in the amount of $-0- and $50,000, respectively. On April 29, 2010, in accordance with an agreement made in October 2009 with the Board of Directors by the CEO to settle the outstanding amount due of $306,243, the Company issued a warrant to acquire 396,787 shares of our common stock.





On October 20, 2009, the Company reached agreements with its Chief Executive Officer and members of its Board of Directors to satisfy obligations owed to them, in the aggregate amount of $1,002,450 for salary, director fees, consulting fees and for satisfaction of a portion of an outstanding loan and the interest accrued thereon, by issuing to them 117,534 shares of our common stock and warrants to acquire 655,920 shares of our common stock. Under this arrangement, the valuation of the common stock and the exercise price of the warrants was $0.15 a share.  Fifty percent of the warrants can be exercised at anytime during the ten-year term and the other 50 percent will only be exercisable when the Company has achieved positive EBITDA for two successive quarters.  If this profitably standard is not realized during the term of the warrants, 50 percent of the warrants will be forfeited. On April 28 and 29, 2010, the Company issued 117,578 shares of common stock in satisfaction of $264,550 of director fees, consulting fees and $130,000 of the Chief Executive Officer’s past-due salary and 655,920 warrants in satisfaction of $506,243 of director fees and consulting fees.





In October 2009, upon the resignation of Brian Kenny as VP Marketing of the Company, we entered into a marketing consulting agreement with a company controlled by Brian Kenny to provide marketing services to the Company at the annual rate of $144,000. Brian Kenny is the son of our CEO, J. Patrick Kenny. For the fiscal year ended April 30, 2010, we issued 305,467 options in aggregate which vested 100% upon grant at a value of $88,000 for marketing consulting services he provided the Company.





Legal Fees





On February 11, 2010, the Company issued 26,324 with a fair value of $7,897 for legal services he provided the Company.





Royalty Fees





We incurred royalty expenses of approximately $838.55 and $74,027 in fiscal 2011 and 2010, respectively, to Alive Sprits LLC, which we own 25 percent membership interest. Additionally, Mexcor paid the Company royalty fees of approximately $50,075.62 in connection with Old Whiskey River.





Loan Payable





From July 2007 through April 2011, the Company has borrowed an aggregate of up to $850,985 from J. Patrick Kenny, our CEO, for working capital purposes.   The borrowings bear interest at 12% per annum. For the years ended April 30, 2011 and 2010 interest incurred on this loan aggregated $5,096 and $38,231, respectively.  As of April 30, 2011 and, 2010 amounts owed to our CEO on these loans including accrued and unpaid interest aggregated $657 and $154,670, respectively.





Independence of Directors





The Board of Directors has determined that each of our directors, except Mr. Kenny, are independent “directors” within the meaning of the applicable rules and regulations of the SEC and the director independence standards of NASDAQ. Neither Mr. Schulman nor Mr. Traub would be viewed as an independent member of the Audit Committee under NASDAQ corporate governance rules





ITEM 14. PRINCIPAL ACCOUNTANTS' FEES AND SERVICES





Set forth below are the fees billed by the Company’s independent principal accountants for the past two years for services provided to the Company.




40
 Table of Contents





Audit and Audit-Related Fees





We engaged Bernstein & Pinchuk, LLP as our principal accountants to perform the audit of our financial statements for the year ended April 30, 2011. During the year ended April 30, 2011 we were billed $97,518. The $97,518 billed during the fiscal year ended April 30, 2011 is comprised of the following: $54,445, for the year ended April 30, 2010 audit; $38,598, for three subsequent quarterly reviews; and $ 4,475, for reviews of two Form S-8 filings.  During the year ended April 30, 2010, we were billed $102,524. The $102,521 billed during the fiscal year ended April 30, 2010 is comprised of the following: $65,586, for the year ended April 30, 2009 audit; $33,763 for three subsequent quarterly reviews; and $3,175 for reviews of two From S-8 filings.





Tax Fees





None.





All Other Fees





None.





ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES





(a)
The following documents are filed as part of this report:





(1)
Financial Statements.





See “Index to Financial Statements” in item 8 on page 27 of this Annual Report on form 10-K.





(2)
Financial Statement Schedules.





All financial statement schedules are omitted either because they are not required, not applicable or the required information is included in the financial statements or notes thereto.





(3)
Exhibits.





(b)Item 16.   Exhibits





2.1 (7)
Agreement and Plan of Share Exchange, dated as of June 9, 2004, among Gourmet Group, Inc., Drinks Americas, Inc. and the shareholders of Drinks Americas, Inc.3.1 (7)
Certificate of Incorporation of Drinks Americas Holdings, Ltd.3.2 (7)
By-Laws of Drinks Americas Holdings, Ltd.3.3 (16)
Amended and Restated Certificate of Designations of Preferences, Rights and Limitations of Series A Convertible Preferred Stock3.4 (12)
Certificate of Amendment of Certificate of Incorporation of Drinks Americas Holdings, Ltd. dated January 16, 20093.5 (13)
Certificate of Designation of Series B Convertible Preferred Stock3.6 (16)
Amended and Restated Certificate of Designation of Preferences, Rights and Limitations of Series A Convertible Preferred Stock  41
 Table of Contents
  4.1 (7)
Form of 10% Convertible Promissory Note issued by Gourmet Group, Inc., including Registration Rights provisions.


4.2 (3)
Form of 10% Senior Convertible Promissory Note, dated March 2005, issued by Drinks Americas Holdings, Ltd. issued by Drinks Americas Holdings, Ltd. to investors in its Bridge Notes financing.4.3 (3)
Form of Stock Purchase Warrant, dated March 2005, issued by Drinks Americas Holdings, Ltd to investors in its Bridge Note financing.4.4 (4)
Form of Securities Purchase Agreement, dated as of January 30th, 2007 between Drinks Americas Holdings, Ltd. and certain investors.4.5 (4)
Form of Registration Rights Agreement, dated as of January 30th, 2007 between Drinks Americas Holdings, Ltd. and certain investors.4.6 (4)
Form of Common Stock Purchase Warrant, dated as of January 30th, 2007 between Drinks Americas Holdings, Ltd. and certain investors.4.7 (4)
Form of Placement Agent Agreement between Drinks Americas Holdings, Ltd. and Midtown Partners Co., LLC dated as of October 25th, 2006.4.8 (4)
Form of Placement Agent Warrant, dated as of January 30th, 2007 between Drinks Americas Holdings, Ltd. and Midtown Partners Co., LLC.4.10 (5)
Form of Registration Rights Agreement, dated as of December 18, 2007 between Drinks Americas Holdings, Ltd. and certain Investors.4.11 (5)
Form of Placement Agent Agreement between Drinks Americas Holdings, Ltd. and Midtown Partners Co., LLC dated as of December 14, 2006.4.13 (5)
Form of Placement Agent Warrant, dated as of December 18, 2007 between Drinks Americas Holdings, Ltd. and Midtown Partners Co., LLC.4.14 (11)
Securities Purchase Agreement, dated as of June 18, 2009 between Drinks Americas Holdings, Ltd., St. George Investments, LLC, J. Patrick Kenny and certain other parties thereto4.15 (11)
Debenture, dated June 18, 2009 issued by Drinks Americas Holdings, Ltd. to St. George Investments, LLC4.16 (11)
Form of Pledge Agreement, dated June 18, 2009 between Drinks Americas Holdings, Ltd., St. George Investments, LLC, and J. Patrick Kenny and certain other parties thereto4.17 (11)
Form of Personal Guarantee, dated June 18, 2009 issued by J. Patrick Kenny to St. George Investments, LLC4.18 (11)
St. George 7 Month Secured Purchase Note, dated June 18, 2009 between Drinks Americas Holdings, Ltd. and St. George Investments, LLC4.19 (11)
Warrant issued by Drinks Americas Holdings, Ltd. to St. George Investments, LLC, dated June 18, 20094.20 (13)
Preferred Stock Purchase Agreement, dated as of August17, 2009, by and among Drinks Americas Holdings, Ltd. and Optimus Capital Partners, LLC dba

Optimus Special Situations Capital Partners, LLC, including all material agreements related thereto4.21 (13)
Warrant, dated as of August 17, 2009 between Drinks Americas Holdings, Ltd. and Optimus Capital Partners, LLC dba Optimus Special Situations Capital Partners, LLC4.22 (14)
First Amendment to $4,000,000 Debenture, dated August 28, 2009, issued by Drinks Americas Holdings, Ltd. to St. George Investments, LLC4.23 (14)
First Amendment and Jointer to Pledge Agreement, dated August 28, 2009 between Drinks Americas Holdings, Ltd., St. George Investments, LLC, and J. Patrick Kenny and certain other parties thereto4.24 (14)
Default Waiver to Debenture, dated June 18, 20094.25 (17)
Convertible Promissory Note issued to Leon Frenkel10.1 (7)
Form of 10% Promissory Note issued by Drinks Americas, Inc. to Gourmet Group, Inc. relating to the proceeds of the Private Placement.10.2 (7)
Agreement, dated April 6, 2004, between Paul Newman, Newman's Own, Inc. and Drinks Americas, Inc. relating to the distribution of Newman's Own Lightly Sparkling Fruit Juices.10.3 (7)
Letter, dated May 12, 2003, from Interamericana de Licores, S.A. to Drinks Americas, Inc. relating to the production of Cohete Rum.10.4 (7)
Purchase Agreement, dated July 29, 2003, between Drinks Americas, Inc. and Aguila Tequila Partners relating to Aguila Tequila.10.5 (7)
Agreement, dated June 24, 2003, between Xanadu Wines Limited and Drinks Americas, Inc. relating to the distribution of Xanadu Normans Wines.


10.6 (7)
Interest Purchase Agreement, dated December 9, 2002, between Drinks Americas, Inc. and Shep Gordon.10.7 (7)
Assignment, dated December 9, 2002, from Shep Gordon to Drinks Americas, Inc. of the limited liability company interests in Old Whiskey River Distilling Company LLC.10.8 (7)
Assignment, dated December 9, 2002, from Shep Gordon to Drinks Americas, Inc. of the limited liability company interests in Y Sake LLC.10.9 (7)
Assignment, dated December 9, 2002, from Alive Enterprises, Inc. to Old Whiskey River Distilling Company LLC of Trademark rights to Old Whiskey River.10.10 (7)
Assignment, dated December 9, 2002, from Alive Enterprises, Inc. to Y Sake LLC of Trademark rights to Y Sake.10.11 (7)
Trademark License Agreement, dated December 9, 2002, between Drinks Americas, Inc. and Old Whiskey River Distilling Company LLC relating to Old Whiskey River and Willie Nelson.10.12 (7)
Trademark License Agreement, dated December 9, 2002, between Drinks Americas, Inc. and Y Sake LLC relating to Y Sake and Roy Yamaguchi.10.13 (7)
Distributor Rights Agreement, dated December 9, 2002, between Old Whiskey River Distilling Company LLC and Drinks Americas, Inc.  42
 Table of Contents
  10.14 (7)
Distributor Rights Agreement, dated December 9, 2002, between Y Sake LLC and Drinks Americas, Inc.10.15 (7)
Consulting and Exclusive Referral Agreement, dated December 9, 2002, by and among Shep Gordon, Drinks Americas, Inc. and Maxmillian Partners, LLC.10.16 (7)
Sublease Agreement, dated August 12, 2002, by and between Blau Marketing Technologies, Inc. as Sublandlord and Maxmillian Partners, LLC as subtenant.10.17 (7)
Amended and Restated License Agreement, dated December 10, 2002, between Old Whiskey River Distilling Company, LLC and Willie Nelson.10.18 (7)
Consulting Letter Agreement, dated March 28, 2002, between Marvin Traub Associates, Inc. and Maxmillian Partners, LLC.10.19 (7)
Letter, dated October 28, 2002, from DAS Communications Ltd. (David Sonenberg) to Drinks Americas, Inc.10.20 (7)
Restated (Demand) Promissory Note, dated as of July 9, 2004, in the amount of $290,000 from Drinks Americas, Inc. to Fredrick Schulman as agent for the payees.10.21 (7)
Promissory Note, dated May 10, 2004, in the amount of $200,000 from Drinks Americas, Inc. to Bank Leumi USA.10.22 (7)
Unlimited Guaranty, dated May 13, 2004, from Drinks Americas, Inc. to Bank Leumi USA.10.23 (7)
Secured Convertible Note and Agreement, dated April 8, 2003, in the amount of $200,000 from Maxmillian Partners LLC to Nexcomm International Beverages, LLC.10.24 (7)
Guaranty Agreement, dated April 8, 2003, between Drinks Americas, Inc. and Nexcomm International Beverages, LLC.10.25 (7)
Security Agreement, dated April 8, 2003, by and between Drinks Americas, Inc. and Nexcomm International Beverages, LLC.10.26 (7)
Secured Convertible Note and Agreement, dated July 28, 2003, in the amount of $200,000 from Maxmillian Partners LLC to Nexcomm International Beverages, LLC.10.27 (7)
Security Agreement, dated July 28, 2003, by and between Maxmillian Partners LLC and Kenneth H. Close.10.28 (7)
Security Agreement, dated July 28, 2003, by and between Drinks Americas, Inc. and Kenneth H. Close.10.29 (7)
Guaranty Agreement, dated July 28, 2003, between Maxmillian Mixers LLC and Kenneth H. Close.10.30 (7)
Promissory Note, dated October 15, 2004, in the amount of $155,975 from Drinks Americas, Inc. to Nexcomm International Beverages, LLC.10.31 (7)
Note, dated October 15, 2004, in the amount of $352,167 from Drinks Americas, Inc. to Kenneth H. Close.10.32 (7)
Promissory Note, dated October 15, 2004, in the amount of $44,560 from Drinks Americas, Inc. to Kenneth H. Close.10.33 (7)
Security Agreement, dated October 15, 2004, by and between Drinks Americas, Inc. and Nexcomm International Beverages, LLC.


10.34 (3)
Form of Registration Rights Agreement between Drinks Americas Holdings, Ltd and the investors in its Bridge Notes financing.10.35 (2)
Amended and Restated Promissory Note, dated December 26, 2005, by and between Drinks Americas Holdings, Ltd. and Kenneth H. Close for $776,167.10.36 (2)
Asset Purchase Agreement, dated as of October, 2005, by and between Drinks Americas Holdings, ltd. and Rheingold Brewing Company, Inc.10.37 (2)
Loan Agreement, dated June 1, 2006, by and between D.T. Drinks, LLC and Production Finance International, LLC.10.38 (2)
Loan and Security Agreement, dated June 1, 2006, by and between Drinks Americas, Inc., Drinks Global Imports, LLC, D.T. Drinks, LLC and Business Alliance Capital Company.10.39 (6)
Licensee Agreement between Trump Marks, LLC and D.T. Drinks, LLC, dated November 15, 2005.10.40 (6)
Agreement between D.T. Drinks, LLC and A.H. Wanders B.V., dated August 10, 2006.10.41 (6)
Exclusive Distribution Agreement between Damiana Importing, Inc. and Drinks Americas, Inc., dated May 25, 2005.10.42 (6)
Requirements Agreement between Wynn Starr Flavors, Inc. and Drinks Americas, Inc., dated February 19, 2003.10.43 (1)
Registrant’s Incentive 2007 Stock.10.44 (8)
Form of Stock Purchase Agreement dated January 15, 2009 between Drinks America Inc , Jack McKenzie and Paul Walraven10.45 (8)
Promissory Note in the aggregate amount of $800,000 payable to Jack McKenzie and Paul Walraven10.46 (9)
Forbearance and Modification Agreement


10.47 (10)
Account Purchase Agreement10.48 (17)
Stock Grant Agreement between Drinks Americas Holdings, Ltd and Leon Frenkel, dated November 9, 200910.49 (17)
Registration Rights Agreement between Drinks Americas Holdings, Ltd. and Leon Frenkel, dated November 9, 2009  43
 Table of Contents
  10.50 (15)
Master Distribution and Manufacturing Agreement, dated February 15, 2010, as amended, by and between Drinks Americas Holdings, Ltd. and Mexcor, Inc.10.51 (17)
Exchange Agreement between Drinks Americas Holdings, Ltd. and St. George Investments, LLC, dated November 13, 2009.10.52 (17)
Note Purchase Agreement between Leon Frenkel and St. George Investments, LLC, dated November 13, 2009.10.53 (16)
Agreement, dated as of June 24, 2010, by and among Drinks Americas Holdings, Ltd. and Enable Growth Partners, LP, Enable Opportunity Partners, LP, and Pierce Diversified Strategy Master Fund, LLC10.54(18)
Stock Purchase Agreement, dated June 27, 2011, by and between Drinks Americas Holdings, Ltd. and Worldwide Beverage Imports, LLC.14.1(19)
Code of Ethics21.1(2)
List of Subsidiaries of Drinks Americas Holdings, Ltd.31.1
Section 302 Certification of Principal Executive Officer31.2
Section 302 Certification of Principal Financial Officer32.1
Section 906 Certification of Principal Executive Officer32.2
Section 906 Certification of Principal Financial Officer





(1)
Incorporated by reference to our Post-Effective Amendment No.1 to Form SB-2 Filed on January 22, 2008.(2)
Incorporated by reference to our Form 10-KSB filed on August 14, 2006.


(3)
Incorporated by reference to our Form 8-K filed on March 25, 2005.(4)
Incorporated by reference to our Form 8-K filed January 31, 2007.


(5)
Incorporated by reference to our Form SB-2 filed on March 19, 2007.


(6)
Incorporated by reference to our 8-K filed on December 19, 2007.(7)
Incorporated by reference to our 8-K filed on March 9, 2005.


(8)
Incorporated by reference to our 8-K filed on January 15, 2009.(9)
Incorporated by reference to our 8-K filed on February 10, 2009.


(10)
Incorporated by reference to our 8-K filed on April 17, 2009.(11)
Incorporated by reference to our 8-K filed on June 25, 2009.


(12)
Incorporated by reference to our 10-K filed on August 13, 2009.(13)
Incorporated by reference to our 8-K filed on August 18, 2009.


(14)
Incorporated by reference to our 8-K filed on September 3, 2009.(15)
Incorporated by reference to our 8-K filed on April 13, 2010.


(16)
Incorporated by reference to our 8-K filed on June 30, 2010.(17)
Incorporated by reference to our Form S-1 filed in May 14, 2010.(18)
Incorporated by reference to our 8-K filed on June 28, 2011.(19)
Incorporated by reference to our 10-K filed on August 13, 2010.




44
 Table of Contents





SIGNATURES





Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized, on August 12, 2011.





Drinks Americas Holdings, Ltd.By:  /s/ J. Patrick KennyJ. Patrick KennyChief Executive Officer(Principal Executive Officer, Principal Financial Officerand Principal Accounting Officer)





Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.





Signature

Capacities

Date/s/ J. Patrick KennyJ. Patrick Kenny

Chief Executive Officer, Chairman of the Board

August 12, 2011Principal Executive Officer and Principal FinancialOfficer/s/ Frederick SchulmanFrederick Schulman

Director

August 12, 2011/s/ Marvin TraubMarvin Traub

Director

August 12, 2011/s/ Hubert MilletHubert Millet

Director

August 12, 2011/s/ Jack KleinertJack Kleinert

Director

August 12, 2011





/s/ Federico G. CaboFederico G. Cabo

Director

August 12, 2011/s/ Richard F. CaboRichard F. Cabo

Director

August 12, 2011/s/ Leonard MorenoLeonard Moreno

Director

August 12, 2011




45
 Table of Contents




DRINKS AMERICAS HOLDINGS, LTD. AND AFFILIATES





FINANCIAL STATEMENTS





PageFINANCIAL STATEMENTS FOR THE YEARS ENDED APRIL 30, 2011 AND 2010
F-1REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FINANCIAL STATEMENTS
F-2Consolidated Balance Sheets
F-3Consolidated Statements of Operations
F-4Consolidated Statements of Changes in the Shareholders' Equity (Deficiency)
F-5Consolidated Statements of Cash Flows
F-6Notes to Consolidated Financial Statements
F-7





F-1
 Table of Contents




REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





To the Board of Directors and Stockholders of


Drinks Americas Holdings, Ltd.





We have audited the accompanying consolidated balance sheets of Drinks Americas Holdings, Ltd. (“the Company”) as of April 30, 2011 and 2010 and the related statements of operations, changes in stockholders’ equity and cash flows for each of the years in the two-year period ended April 30, 2011. The Company’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.





We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statements presentation. We believe that our audits provide a reasonable basis for our opinion.





In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of April 31, 2011 and 2010 and the results of its operations and its cash flows for each of the years in the two-year period ended April 31, 2011 in conformity with accounting principles generally accepted in the United States of America.





The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3, the Company has incurred significant losses from operations since its inception and has a working capital deficiency. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 3. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.





/s/ Bernstein & Pinchuk








New York, New York


August 12, 2011




F-2
 Table of Contents




DRINKS AMERICAS HOLDINGS, LTD., AND AFFILIATES
 CONSOLIDATED BALANCE SHEETS
 APRIL 30, 2011 AND 2010
  2011


2010ASSETSCurrent assets:Cash and cash equivalents

$
1,923


$
203,552Accounts receivable, net of allowance for doubtful accounts of $170,657 and $127,846, respectively


68,925



66,346Inventory, net of allowances


62,850



222,608Other current assets


118,044



19,789Total current assets


251,742



512,295Property and equipment, net of accumulated depreciation


11,439



32,309Other assets:Investment in equity investees


102,345



73,593Intangible assets, net of accumulated amortization


381,776



1,971,300Deferred loan costs, net of accumulated amortization


129,103



437,973Other assets


17,936



85,735Total other assets


631,160



2,568,601Total assets

$
894,341


$
3,113,205LIABILITIES AND STOCKHOLDERS' DEFICIENCYCurrent liabilities:Accounts payable

$
1,743,277


$
2,199,665Accrued expenses


2,266,143



2,744,058Investor note payable


242,032



-Notes and loans payable, net of long term portion


874,414



437,196Derivative liability


31,186



-Loans payable from related party


657



154,670Deferred revenue


-



63,730Total current liabilities


5,157,709



5,599,319Long term debt:Notes and loans payable, net of current portion


200,000



400,000Total liabilities


5,357,709



5,999,319Commitments and contingencies


-



-Stockholders' deficiency:Preferred stock, $0.001 par value; 1,000,000 shares authorized:Series A Convertible: $0.001 par value; 10,544 shares issued and outstanding as of April 30, 2011 and 2010


11



11Series B: $10,000 par value; 13.837 issued and outstanding as of April 30, 2011 and 2010


138,370



138,370Series C: $1.00 par value; 635,835 and Nil issued and outstanding as of April 30, 2011 and 2010, respectively


635,835



-Common stock, $0.001 par value; 500,000,000 and 100,000,000 shares authorized as of April 30, 2011 and 2010, respectively; 344,366,062 and 18,873,000 shares issued and outstanding as of April 30, 2011 and 2010, respectively


344,364



18,873Treasury stock, 738,333 and 1,738,333 shares held as of April 30, 2011 and 2010, respectively


-



-Additional paid in capital


42,240,584



40,111,695Accumulated deficit


(47,803,230
)


(43,217,597
)Total Drinks Americas Holdings, Ltd stockholders' deficiency


(4,444,066
)


(2,948,648
)Equity attributable to non-controlling interests


(19,302
)


62,534Total stockholders' deficiency


(4,463,368
)


(2,886,114
)Total Liabilities and Stockholders' Deficiency

$
894,341


$
3,113,205





The accompanying notes are an integral part of these consolidated financial statements.




F-3
 Table of Contents


DRINKS AMERICAS HOLDINGS, LTD., AND AFFILIATES


CONSOLIDATED STATEMENTS OF OPERATIONS


YEARS ENDED APRIL 30, 2011 AND 2010




2011


2010Sales, net

$
497,453


$
890,380Cost of sales


529,097



1,289,835Gross margin


(31,644
)


(399,455
)Selling, general and administrative expenses


2,753,547



3,874,283Net loss from operations


(2,785,191
)


(4,273,738
)Other income (expense):Interest, net


(994,028
)


(1,539,536
)Gain on change in fair value of derivative


9,189



-Gain on settlement of debt


617,266



-Impairment of intangible assets


(1,422,440
)


-Other income (expense):


(92,265
)


128,119Total other income (expense)


(1,882,278
)


(1,411,417
)Net loss before non controlling interests

$
(4,667,469
)

$
(5,685,155
)Net loss attributable to non controlling interest


81,836



68,410Net loss

$
(4,585,633
)

$
(5,616,745
)Net loss per common share, basic and fully diluted

$
(0.06
)

$
(0.61
)Weighted average number of common shares outstanding, basic and fully diluted


78,826,266



9,167,490




The accompanying notes are an integral part of these consolidated financial statements.





F-4
 Table of Contents




DRINKS AMERICAS HOLDINGS, LTD., AND AFFILIATES


CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY
 YEARS ENDED APRIL 30, 2011 AND 2010
  Preferred stock


Common stockSeries A


Series B


Series CShares


Amount


Shares


Amount


Shares


Amount


Shares


AmountBalance, April 30, 2009


11,000


$
11



-


$
-



-


$
-



5,844,159


$
5,844Issuance of shares and warrants for cash


-



-



14



138,370



-



-



-



-Issuance of shares , warrants and options for services


-



-



-



-



-



-



2,978,577



2,979Conversion of preferred shares to common shares


(456
)


-



-



-



-



-



303,867



304Issuance of shares in settlement of notes and interest payable


-



-



-



-



-



-



2,086,758



2,087Issuance of shares in payment of Olifant note


-



-



-



-



-



-



468,647



469Issuance of treasury shares in escrow for legal settlement


-



-



-



-



-



-



-



-St George Debenture conversions


-



-



-



-



-



-



2,638,681



2,639St George debenture default, pledged, replaced, warrants & bonus shares issuances


-



-



-



-



-



-



1,400,372



1,400Mexcor agreement


-



-



-



-



-



-



800,000



800Related party-Note payment


-



-



-



-



-



-



333,333



333Issuance of shares in payment of note


-



-



-



-



-



-



280,000



280Non controlling interest in net loss of consolidated subsidiary


-



-



-



-



-



-



-



-Net loss


-



-



-



-



-



-



-



-Balance, April 30, 2010


10,544


$
11



14


$
138,370



-


$
-



17,134,394


$
17,135Preferred shares issued in exchange for debt


-



-



-



-



-



576,091



-



-Preferred shares issued in exchange for warrants


-



-



-



-



-



59,744



-



-St George Debenture conversions


-



-



-



-



-



-



175,626,460



175,625Issuance of shares in settlement of notes and interest payable


-



-



-



-



-



-



45,640,693



45,640Issuance of shares in payment of accrued liabilities


-



-



-



-



-



-



38,893,183



38,893Issuance of shares in payment of legal settlement


-



-



-



-



-



-



66,332,999



66,333Fair value of vesting options


-



-



-



-



-



-



-



-Beneficial conversion feature of convertible debt


-



-



-



-



-



-



-



-Non controlling interest in net income of consolidated subsidiary


-



-



-



-



-



-



-



-Net loss


-



-



-



-



-



-



-



-Balance, April 30, 2011


10,544


$
11



14


$
138,370



-


$
635,835



343,627,729


$
343,626


The accompanying notes are an integral part of these consolidated financial statements.




F-5
 Table of Contents




DRINKS AMERICAS HOLDINGS, LTD., AND AFFILIATES


CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY
 YEARS ENDED APRIL 30, 2011 AND 2010
  TotalStockholders'DeficiencyAdditional





Attributable


Non


TotalTreasury stock


Paid in


Accumulated


To Drinks


Controlling


Stockholders'Shares


Amount


Capital


Deficit


Americas Holdings, Ltd


Interest


DeficiencyBalance, April 30, 2009


-


$
-


$
34,288,247


$
(37,600,852
)

$
(3,306,750
)

$
130,944


$
(3,175,806
)Issuance of shares and warrants for cash


-



-



120,882



-



259,252



-



259,252Issuance of shares , warrants and options for services


-



-



2,370,840



-



2,373,819



-



2,373,819Conversion of preferred shares to common shares


-



-



(304
)


-



-



-



-Issuance of shares in settlement of notes and interest payable


-



-



565,885



-



567,972



-



567,972Issuance of shares in payment of Olifant note


-



-



141,531



-



142,000



-



142,000Issuance of treasury shares in escrow for legal settlement


1,738,333



1,738



24,342



-



26,080



-



26,080St George Debenture conversions


-



-



572,361



-



575,000



-



575,000St George debenture default, pledged, replaced, warrants & bonus shares issuances


-



-



1,311,324



-



1,312,724



-



1,312,724Mexcor agreement


-



-



239,200



-



240,000



-



240,000Related party-Note payment


-



-



99,667



-



100,000



-



100,000Issuance of shares in payment of note


-



-



377,720



-



378,000



-



378,000Non controlling interest in net loss of consolidated subsidiary


-



-



-



-



-



(68,410
)


(68,410
)Net loss


-



-



-



(5,616,745
)


(5,616,745
)


-



(5,616,745
)Balance, April 30, 2010


1,738,333


$
1,738


$
40,111,695


$
(43,217,597
)

$
(2,948,648
)

$
62,534


$
(2,886,114
)Preferred shares issued in exchange for debt


-



-



-



-



576,091







576,091Preferred shares issued in exchange for warrants


-



-



(59,744
)






-



-



-St George Debenture conversions


-



-



846,399



-



1,022,024



-



1,022,024Issuance of shares in settlement of notes and interest payable


-



-



257,758



-



303,398



-



303,398Issuance of shares in payment of accrued liabilities


-



-



508,293



-



547,186



-



547,186Issuance of shares in payment of legal settlement


(1,000,000
)


(1,000
)


501,044



-



566,377



-



566,377Fair value of vesting options


-



-



42,870







42,870







42,870Beneficial conversion feature of convertible debt


-



-



32,269



-



32,269



-



32,269Non controlling interest in net income of consolidated subsidiary


-



-



-



-



-



(81,836
)


(81,836
)
 Net loss


-



-



-



(4,585,633
)


(4,585,633
)


-



(4,585,633
)Balance, April 30, 2011


738,333


$
738


$
42,240,584


$
(47,803,230
)

$
(44,440,066
)

$
(19,302
)

$
(4,463,368
)





The accompanying notes are an integral part of these consolidated financial statements.




F-6
 Table of Contents




DRINKS AMERICAS HOLDINGS, LTD., AND AFFILIATES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED APRIL 30, 2011 AND 2010
 
 2011


2010CASH FLOWS FROM OPERATING ACTIVITIES:Net loss

$
(4,585,633
)

$
(5,616,745
)Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization


532,030



579,897Allowance for doubtful accounts


42,811



(16,875
)Inventory impairment charges


-



797,116Intangible impairment charges


1,422,440



-Issuance of common stock for interest


84,199



567,972Issuance of common stock and warrants for services


257,436



900,430Non-controlling interest


(81,836
)


(68,410
)Reduction in notes payable


450,000



533,440Gain on change in fair value of derivative liability


(9,189
)


-Changes in operating assets and liabilities:Accounts receivable


(45,390
)


(7,675
)Due from factor


-



31,786Inventories


159,758



184,542Other current assets


(98,255
)


353,447Other assets


67,799



1,390,539Accounts payable


657,175



(176,314
)Accrued expenses


(126,991
)


(104,851
)Deferred revenue


(63,730
)


63,730Net cash used in operating activities


(1,337,376
)


(587,971
)CASH FLOWS FROM INVESTING ACTIVITIES:Net changes in equity investment


(28,752
)


-Net cash used in investing activities


(28,752
)


-CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from issuance of preferred stock


-



138,370Proceeds from debt


329,056



732,616Proceeds from note


989,456



864,680Repayment of debt


(154,013
)


(974,314
)Net cash provided from financing activities


1,164,499



761,352Net (decrease) increase in cash and cash equivalents


(201,629
)


173,383Cash and cash equivalents-beginning of the period


203,552



30,169Cash and cash equivalents-end of period

$
1,923


$
203,552Supplemental disclosure of non-cash investing and financing activities:Interest paid

$
-


$
-Taxes paid

$
-


$
-Satisfaction of note and interest payable by issuance of common stock

$
303,398


$
567,972Payment of accounts payable and accrued expenses with shares of common stock

$
1,113,563


$
2,373,819Payments of notes by issuance of common stock

$
1,022,024


$
1,195,000


The accompanying notes are an integral part of these consolidated financial statements.
  F-7
 Table of Contents


DRINKS AMERICAS HOLDINGS, LTD., AND AFFILIATES
 NOTES TOCONSOLIDATED FINANCIAL STATEMENTS
 APRIL 30, 2011


1. BASIS OF PRESENTATION AND NATURE OF BUSINESS





Basis of Presentation





On March 9, 2005 the shareholders of Drinks Americas, Inc. ("Drinks") a company engaged in the business of importing and distributing unique, premium alcoholic and non-alcoholic beverages associated with icon entertainers, sports figures, celebrities and destinations, to beverage wholesalers throughout the United States, acquired control of Drinks Americas Holdings, Ltd. ("Holdings"). Holdings and Drinks was incorporated in the state of Delaware on February 14, 2005 and September 24, 2002, respectively. On March 9, 2005 Holdings merged with Gourmet Group, Inc. ("Gourmet"), a publicly traded Nevada corporation, which resulted in Gourmet shareholders acquiring 1 share of Holdings' common stock in exchange for 10 shares of Gourmet's common stock. Both Holdings and Gourmet were considered "shell" corporations, as Gourmet had no operating business on the date of the share exchange, or for the previous three years. Pursuant to the June 9, 2004 Agreement and Plan of Share Exchange among Gourmet, Drinks and the Drinks' shareholders, Holdings, with approximately 4,058,000 shares of outstanding common stock, issued approximately 45,164,000 of additional shares of its common stock on March 9, 2005 (the "Acquisition Date") to the common shareholders of Drinks and to the members of its affiliate, Maxmillian Mixers, LLC ("Mixers"), in exchange for all of the outstanding Drinks' common shares and Mixers' membership units, respectively. As a result Maxmillian Partners, LLC ("Partners") a holding company which owned 99% of Drinks' outstanding common stock and approximately 55% of Mixers' outstanding membership units, became Holdings' controlling shareholder with approximately 87% of Holdings' outstanding common stock. For financial accounting purposes this business combination has been treated as a reverse acquisition, or a recapitalization of Partners' subsidiaries (Drinks and Mixers).





Subsequent to the Acquisition Date, Partners, which was organized as a Delaware limited liability company on January 1, 2002 and incorporated Drinks in Delaware on September 24, 2002, transferred all its shares of holdings to its members as part of a plan of liquidation.





On March 11, 2005 Holdings and an individual organized Drinks Global, LLC ("DGI"). Holdings own 90% of the membership units and the individual, who is the president of DGI, owns 10%. DGI's business is to import wines from various parts of the world and sell them to distributors throughout the United States. In May 2006 Holdings organized D.T. Drinks, LLC ("DT Drinks") a New York limited liability company for the purpose of selling certain alcoholic beverages.





On January 15, 2009 Drinks acquired 90% of Olifant U.S.A Inc. (“Olifant”), a Connecticut corporation, which owns the trademark and brand names and holds the worldwide distribution rights (excluding Europe) to Olifant Vodka and Gin.





Our license agreement with respect to Kid Rock’s BadAss Beer and related trademarks currently requires payments to Drinks Americas based upon volume through the term of the agreement.





Nature of Business





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





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





On February 11, 2010, the Company signed an agreement with Mexcor, Inc., ("Mexcor") an importer and distributor for hundreds of high quality brands nationally and internationally. Mexcor has agreed to manage the sourcing, importing and distribution of our portfolio of brands nationally. Our Company will continue to focus its efforts on its core business of marketing and building a portfolio of iconic brands as well as developing, coordinating and executing marketing and promotional strategies for its icon brands. We anticipate that the agreement with Mexcor will rapidly drive additional royalty revenues and substantially reduce our overhead costs.




F-8
 Table of Contents




Under the terms of the agreement, the parties have agreed to a 15-year term. Additionally, the Company has agreed to issue the principal of the business 12 million shares of Company common stock in exchange for consulting services. Mexcor is eligible to receive financial incentives provided the parties deliver and attain certain minimum performance requirements.  Mexcor has agreed to deliver additional new brands to the Company’s brand portfolio, which the companies plan to jointly acquire, develop and market.





2. SIGNIFICANT ACCOUNTING POLICIES





Significant Accounting Policies





Principles of consolidation





The accompanying consolidated balance sheets as of  April 30, 2011 and 2010 and the consolidated results of operations, consolidated changes in shareholders’ equity (deficiency) and the consolidated cash flows for the years ended April 30, 2011 and 2010 reflect Holdings majority-owned subsidiaries and Partners (collectively, the "Company"). All intercompany transactions and balances in these financial statements have been eliminated in consolidation. The amount of common and preferred shares authorized, issued and outstanding as of April 30, 2011 and, 2010 is those of Holdings.





Revenue Recognition





The Company recognizes revenues when title passes to the customer, which is generally when products are shipped. The Company recognizes royalty revenue based on its license agreements with its distributors which typically is the greater of either the guaranteed minimum royalties payable under our license agreement or a royalty rate computed on the net sales of the distributor shipments to its customers.





The Company recognizes revenue dilution from items such as product returns, inventory credits, discounts and other allowances in the period that such items are first expected to occur. The Company does not offer its clients the opportunity to return products for any reason other than manufacturing defects. In addition, the Company does not offer incentives to its customers to either acquire more products or maintain higher inventory levels of products than they would in ordinary course of business. The Company assesses levels of inventory maintained by its customers through communications with them. Furthermore, it is the Company's policy to accrue for material post shipment obligations and customer incentives in the period the related revenue is recognized.





Accounts Receivable





Accounts receivable are recorded at original invoice amount less an allowance for uncollectible accounts that management believes will be adequate to absorb estimated losses on existing balances. Management estimates the allowance based on collectability of accounts receivable and prior bad debt experience. Accounts receivable balances are written off upon management's determination that such accounts are uncollectible. Recoveries of accounts receivable previously written off are recorded when received. Management believes that credit risks on accounts receivable will not be material to the financial position of the Company or results of operations at April 30, 2011 and April 30, 2010 the allowance for doubtful accounts was   $170,657 and $127,846, 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.




F-9
 Table of Contents





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 year ended April 30, 2011 and 2010, the Company concluded that there was no impairment.





Deferred Charges and Intangible Assets





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





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





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





Income Taxes





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





Stock Based Compensation





The Company accounts for stock-based compensation using the modified prospective approach. The Company recognizes in the statement of operations the grant-date fair value of stock options and other equity based compensation issued to employees and non-employees.





Earnings (Loss) Per Share





The Company computes earnings (loss) per share whereby basic earnings (loss) per share is computed by dividing net income (loss) attributable to all classes of common shareholders by the weighted average number of shares of all classes of common stock outstanding during the applicable period. Diluted earnings (loss) per share is determined in the same manner as basic earnings (loss) per share except that the number of shares is increased to assume exercise of potentially dilutive and contingently issuable shares using the treasury stock method, unless the effect of such increase would be anti-dilutive. For the years ended April 30, 2011 and 2010, the diluted earnings per (loss) share amounts equal basic earnings (loss) per share because the Company had net losses and the impact of the assumed exercise of contingently issuable shares would have been anti-dilutive.




F-10
 Table of Contents





Use of Estimates





The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. Actual results could differ from those estimates.





Fair Value





Accounting Standards Codification subtopic 825-10, Financial Instruments (“ASC 825-10”) requires disclosure of the fair value of certain financial instruments. The carrying amount reported in the consolidated balance sheets for accounts receivables, accounts payable and accrued expenses approximates fair value because of the immediate or short-term maturity of these financial instruments. The carrying amount reported in the accompanying consolidated balance sheets for notes payable approximates fair value because the actual interest rates do not significantly differ from current rates offered for instruments with similar characteristics.





The Company uses fair value measurements to record fair value adjustments to certain assets and to determine fair value disclosures. Derivative liabilities are recorded at fair value on a recurring basis. In accordance with Accounting Standards Codification Topic 820,Fair Value Measurements and Disclosures (“ASC 820”), the Company groups its assets at fair value in three levels, based on the markets in which the assets are traded and the reliability of the assumptions used to determine fair value.





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 April 30, 2011, the Company has a shareholders' deficiency of $4,463,368 applicable to controlling interest compared with $2,886,114 applicable to controlling interest for the year ended April 30, 2010, and has incurred significant operating losses and negative cash flows since inception. For the year ended April 30, 2011, the Company sustained a net loss of $4,585,633 compared to a net loss of $5,616,745 for the year ended April 30, 2010 and used cash of approximately $1,337,000 in operating activities for the year ended April 30, 2011 compared with approximately $588,000 for the year ended April 30, 2010. We will need additional financing which may take the form of equity or debt and we have converted certain liabilities into equity. We anticipate that increased sales revenues will help.  In the event we are not able to increase our working capital, we will not be able to implement or may be required to delay all or part of our business plan, and our ability to attain profitable operations, generate positive cash flows from operating and investing activities and materially expand the business will be materially adversely affected. The accompanying consolidated financial statements do not include any adjustments relating to the classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the company be unable to continue in existence.





4. ACCOUNTS RECEIVABLE AND DUE FROM FACTORS





Accounts Receivable and Due from Factors as of April 30, 2011 and April 30, 2010, consist of the following:




April 30,


April 30,2011


2010Accounts receivable

$
234,386


$
188,996Accounts receivable-factor


5,196



5,196Allowances


(170,657
)


(127,846
)$
68,925


$
66,346
  F-11
 Table of Contents




During the year ended April 30, 2011, the Company wrote off as uncollectable $42,811 as bad debt expense.




5. INVENTORIES




Inventories as of April 30, 2011 and 2010 consist of the following:




April 30,

2011


April 30,

2010Raw Materials

$
33,960


$
87,546Finished goods


28,890



168,948Reserves for excess and slow-moving inventories


—



(33,886
)$
62,850


$
222,608





During the year ended April 30, 2010, the Company incurred an impairment of the carrying value of its inventory by $797,116 which it charged to cost of sales to reflect certain inventory obsolescence and adjust its carrying value to net realizable value.





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 April 30, 2011and 2010 consist of the following:




April 30,

2011


April 30,

2010Employee advances

$
81,258


$
—Prepaid Other


36,786



19,789$
118,044


$
19,789





Prepaid other are comprised of prepaid marketing fees, employee travel advances and expenses.




F-12
 Table of Contents





7. PROPERTY AND EQUIPMENT





Property and equipment as of April 30, 2011 and 2010 consist of the following:




Useful

April 30,


April 30,Life

2011


2010Computer equipment
5 years

$
23,939


$
23,939Furniture & fixtures
5 years


10,654



10,654Automobiles
5 years


70,975



68,337Leasehold Improvements
5 years


66,259



66,259Production molds & tools
5 years


122,449



122,449294,276



291,638Accumulated depreciation



(282,837
)


(259,329
)$
11,439


$
32,309





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 year ended April 30, 2011 and 2010 was $23,508 and $26,591, respectively.





8. INTANGIBLE ASSETS





Intangible assets include the acquisition costs of trademarks, license rights and distribution rights for the Company’s alcoholic beverages.





As of April 30, 2011 and 2010, intangible assets are comprised of the following:




April  30,

2011


April 30,

2010Trademark & distribution rights of Olifant vodka acquisition

$
-


$
1,333,333Trademark and license rights of Rheingold beer


230,000



230,000Mexcor agreement


-



240,000Other trademark and distribution rights


475,000



575,000705,000



2,378,333Accumulated amortization


(323,224
)


(407,033
)$
381,776


$
1,971,300
 
 Amortization expense for the year ended April 30, 2011 and 2010 was $167,084 and $161,350, respectively.
  F-13
 Table of Contents





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





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 and 2010.





One of the Triggering Events includes the failure of the Company to maintain an average daily dollar volume of common stock traded per day for any consecutive 10-day period of at least $10,000 or if the average value of the shares pledged to secure the Company’s obligation under the Drinks Debenture (as subsequently described) falls below $1,600,000.





Under the Drinks Debenture, commencing six months after the Closing Date, the Investor may request the Company to repay all or a portion of the Drinks Debenture by issuing the Company’s common stock, $0.001 par value, in satisfaction of all or part of the Drinks Debenture, valued at the Market Price, (as defined in the Drinks Debenture), of Drink’s common stock at the time the request is made (collectively, the “Share Repayment Requests”).  The Investor’s may not request repayment in common stock if, at the time of the request, the amount requested would be higher than the difference between the outstanding balance owed under the Drinks Debenture and 125% of the aggregate amount owed under the Investor Note.





The Company may prepay all or part of the Drinks Debenture upon 10-days prior written notice and are entitled to satisfy a portion of the amount outstanding under the debenture by offset of an amount equal to 125% of the amount owed under the Investor Notes, which amount will satisfy a corresponding portion of the Drinks Debenture.





Also as part of this financing, the Investor acquired warrants to purchase 166,667 shares of our common stock at an exercise price of $0.35 per share (the “Investor Warrants”).  The Investor Warrants contain full ratchet anti-dilution provisions, as to the exercise price and are exercisable for a five-year period. Management has determined that the aggregate value of the warrants was $142,500 based on the market price per share of the Company’s common stock on the date of the agreement.





In order to secure waivers which the investors in our December 2007 placement of our  Series A Preferred stock claimed were required for the Company to consummate this financing, we allowed, and the three December investors elected, to  convert an aggregate of $335,800 (335.8 shares) of our preferred stock into 223,867 shares of our common stock. In addition, in August 2009 we allowed the two other holders of our Series A Preferred Stock to convert an aggregate of $134,625 (134.6 shares) of our Series A Preferred Stock into 80,000 shares of our common stock.  The book value of the preferred stock converted exceeded the par value of the common stock received on the date of conversions. It was subsequently agreed with the lead investor that the Company would not be required to issue shares of our common stock for debt or employee compensation.





Out of the gross proceeds of this Offering, the Company paid the placement agent $37,500 in commissions and we are obligated to pay the placement agent 10% of the principal balance of the Investor Notes when each note is paid. We also issued to the Placement Agent (see paragraph below), warrants to acquire 5% of the shares of our Common Stock which we deliver in response to Share Repayment Requests, at an exercise price equal to the Market Price related to the shares delivered in response to the Share Repayment Request (the "Placement Agent Warrants"), which warrants are exercisable for a five year period, will contain cashless exercise provisions as well as anti-dilution provisions in the case of stock splits and similar matters.




F-14
 Table of Contents




In March 2010, the Company delivered to the Placement Agent, in aggregate 311,608 Placement Agent Warrants as follows: effective February 24, 2010, a warrant to purchase 28,334 shares of Company common stock at an exercise price of $0.2391; effective February 11, 2010, a warrant to purchase 1,333,334 shares of Company common stock at an exercise price of $0.015; effective January 15, 2010, a warrant to purchase 66,667 shares of Company common stock at an exercise price of $0.0938 ; effective December 30, 2009, a warrant to purchase 45,455 shares of Company common stock at an exercise price of $0.01375; effective August 28, 2009, a warrant to purchase 12,821  shares of Company common stock at an exercise price of $0.9750  $0.065; effective June 19, 2009, a warrant to purchase 16,667 shares of Company common stock at an exercise price of $1.4063 ; and, effective June 19, 2009, a warrant to purchase 8,334  shares of Company common stock at an exercise price of $6.5625 . The fair value, taken together, of the warrants determined using Black-Scholes valuation model was determined to be $101,864 at the dates of grant and is recorded as deferred financing costs a long-term asset on the balance sheet and additional paid in capital. The warrants are being amortized over 5 years. For the year ended April 30, 2011 and 2010, the Company amortized to expense $21,540 and $10,172, 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 800,248  shares of our common stock (of which 200,000 was pledged by the Company) to secure our obligations under the Drinks Debenture (the “Pledged Shares”). As a direct result of the guarantees and shares of common stock provided by the above individuals, the Company agreed to issue shares of common stock totaling 300,124 with an estimated fair value totaling $675,279.  The estimated fair value of the stock commitment was accounted for as a deferred loan cost and a contribution to capital (due to shareholders), with deferred loan costs being amortized ratably over 48 months.





On July 14, 2009, the value of the Pledged Shares fell below the required amount and consequently the Investor delivered a notice of default to the Company. On August 31, 2009, the Investor and the Company agreed to the First Amendment to the Drink’s Debenture, which waived the default. Pursuant to the First Amendment, the outstanding balance of the debenture was increased by $400,000 and the debenture will carry an interest rate of 12% per annum.  In addition, a member of the Company’s board of directors pledged 84,216 shares of our common stock as security for our obligations under the debenture, which increased the total number of shares pledged for this purpose.  In return, the investor has prepaid $200,000 of the notes it issued to the Company in partial payment for the debenture and agreed that the provisions of the debenture relating to a 10% premium and the imposition of default interest will not apply in the event a “Triggering Event”, as defined in the debenture, was to occur in the future.





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





In addition, as a result of the default, 200,000 of the Company shares having an aggregate value of $450,000 that were issued in July, 2009 were transferred to the Investor.





On October 27, 2009, the Investor declared a second default under our $4,400,000 debenture because of the failure of the Pledged shares, to legally secure the debenture that had been acquired by St. George.  The Company has secured an agreement from the Investor not to enforce the default based on any decline in value of the pledge shares that has occurred in the past or that may occur prior to December 31, 2006.  Under the terms of such agreement, the Investor received title to 214,000 of non-Company pledged shares having a fair market value on that date of $160,500.  The fair value of these shares totaled $160,500 and has been reflected as a reduction of the Debenture payable and an addition to additional paid-in capital.





As a result of the depletion of the non-Company pledged shares, the Company agreed to issue and did issue in November 2009 and January 2010 an aggregate 1,200,373 shares of Company common stock to the individuals at a fair market value of $720,224.   Included in the total shares is 300,124 shares, which represent satisfaction of the original share commitment to the individuals at the inception of the Debenture agreement (see paragraph above).  The difference in the fair value of the 300,124 issued shares and the original estimated fair value of these shares in July 2009, reduced, as of November 2009 deferred loan costs as originally recorded, additional paid-in capital, and the related accumulated loan cost amortization.




At April 30, 2011, the drinks debenture, excluding the return of the 200,000 shares (post-reverse split) issued as collateral to our Investor in July 2009 in the amount of $450,000 that was previously treated as a reduction in our loan balance, was $1,351,173, offset by debenture debt discount of $1,030,719, investor notes receivable of $389,377 and deferred loan costs of $458,244 resulting in a net asset of deferred loan costs balance of $129,103, which has been reflected as a non-current asset in the accompanying consolidated balance sheet. The returned collateral is reflected separately in the consolidated balance sheet as an investor note payable in current liabilities. At April 30, 2010, offsetting of the Drinks Debenture of $2,835,953 was unamortized Debenture debt discount of $1,319,938 and investor notes receivable of $1,444,836 and deferred loan costs of $605,559 resulting in a net asset of deferred loan costs balance of $437,973, which balance is reflected as a non-current asset in the accompanying consolidated balance sheet.




F-15
 Table of Contents





10. OTHER ASSETS





In August 2008, the Company entered into a three-year agreement with an unrelated entity to provide marketing and promotional services for the Company.  Under the terms of the agreement, as consideration for the services to be provided, the Company is to issue warrants to purchase an aggregate of 23,334 shares of Company stock at an exercise price of $7.50. The Company determined, as of the grant date the warrants had an aggregate value of $6,730, which was being amortized over the three-year benefit period. As of April 30, 2011 and 2010 the warrants were fully amortized. As of April 30, 2011 and 2010, a warrant to purchase an aggregate of 18,334 shares of Company stock was issued and the balance of 5,000 remains to be issued.





On June 14, 2007, in connection with an endorsement agreement, the Company issued warrants to purchase 53,400 shares of the Company’s common stock at a price of $19.26 per share. The warrants may be exercised at any time up to June 14, 2017. The Company determined that the warrants had a value of $416,500, as of the date the warrants were granted, which is being amortized over the three-year term of the endorsement agreement. The warrants have cashless exercise provisions.  At April 30, 2011and 2010, the unamortized balance of these warrants was $-0- and $16,494, respectively. In addition, the Company has agreed to issue, as partial consideration for monthly consulting services, to a principal of one of the entities involved in the endorsement agreement, warrants to purchase 200 shares of the Company’s common stock per month at the monthly average market price.  At April 30, 2010, warrants to purchase 7,200 shares of the Company’s stock accrued under this agreement, of which a warrant for 3,600 shares was issued at exercise prices ranging from $2.85 to $31.80 per share of common stock. Each warrant issuance has an exercise period of 5 years from date of issuance.  At April 30, 2011, the agreement was terminated and the balance of 3,600 shares will not be issued.





11. NOTES AND LOANS PAYABLE





Notes and Loans Payable as of April 30, 2011and 2010 consisted of the following:




April 30,

2011


April 30,

2010Convertible note (a)

$
100,000


$
100,000Olifant note (b)


620,260



695,260Convertible promissory notes (c)


102,130



-Other (d)


252,024



41,9361,074,414



837,196Less current portion


874,414



437,196Long-term portion

$
200,000


$
400,000





(a):





On November 9, 2009, the Company issued an unsecured $100,000 convertible note that matured on November 9, 2010. Interest accrues at a rate of 12.5% per annum and is payable quarterly. At the option of the note holder, interest can be paid in either cash or shares of Company common stock based on the convertible note’s $0.06 conversion price. As additional consideration, the Company granted the note holder 16,667 shares of the Company’s common stock and agreed to register the shares by January 8, 2010 or pay to the note holder as damages additional shares of the Company’s common stock equal to 2.0% of the common shares issuable upon conversion of the convertible note. The Company also granted the note holder piggyback registration rights.  On June 28, 2010, the Company issued the note holder 8,889 shares of common stock with a fair value of $973 as damages for failing to timely register the 16,667 common shares. For the year ended April 30, 2011 and 2010, interest expense of $9,787 and $6,061, respectively was accrued and expensed.




F-16
 Table of Contents





On December 10, 2010, the convertible note payable in the amount of $100,000 was amended and extended for six months, and the Company continues its discussions with the note holder regarding additional consideration to be provided for extending the term of the note.





On November 9, 2009, the Company issued the 16,667 shares valued at $10,000, which the Company deemed a loan origination fee. At April 30, 2011 and 2010, $Nil and $5,222, respectively has been recorded as a deferred charge on the balance sheets and $10,000 and $4,778, respectively has been amortized to interest expense.





On November 9, 2009, an investor purchased a $309,839 past due Company Note. On November 13, 2009, the Company exchanged the past due Company Note for a new $447,500 Convertible Promissory Note. The new convertible promissory note is convertible at the note holder’s option using a conversion price based on the prevailing market prices. As of April 30, 2010, the Company issued the note holder 1,990,091 shares of Company common stock in satisfaction of conversions of note principal and interest expense of $7,928.





(b):





On January 15, 2009, (the “Closing”), the Company acquired 90% of the capital stock of Olifant U.S.A, Inc. (“Olifant”),  pursuant to a Stock Purchase Agreement (the “Agreement. The Company has agreed to pay the sellers $1,200,000 for its 90% interest: $300,000 in cash and common stock valued at $100,000 to be paid 90 days from the Closing date. The initial cash payment of $300,000 which was due 90 days from Closing, was reduced to $149,633, which was paid to the sellers in August 2009 together with Company common stock having an aggregate value of $100,000 based on the date of the Agreement.  The Company issued a promissory note for the $800,000 balance. The promissory note is payable in four annual installments, the first payment is due one year from Closing. Each $200,000 installment is payable $100,000 in cash and Company stock valued at $100,000 with the stock value based on the 30 trading days immediately prior to the installment date. The cash portion of the note accrues interest at a rate of 5% per annum. On January 15, 2010, the Company paid the first loan installment in the amount of $200,000 and $5,000 in interest. The Company issued 330,033 shares as payment for the stock portion of the installment, and at the election of the sellers, $63,000 in cash and 138,614 in common stock as payment of the cash and interest portion on the first installment. At April 30, 2011 and 2010 interest expense of $20,444 and $4,944 was accrued, respectively.





In connection with the Olifant Promissory Note, Company and the note holders amended the payment terms of the past due original promissory note regarding the second $200,000 note installment.





On January 18, 2011, in connection with the Olifant Promissory Note, the Company amended and restated a portion of the debt under a Wrap Around Agreement dated January 19, 2011, providing for the assignment and issuance of a Restated Convertible Promissory Note (the “First Restated Note) in the principal amount of $75,000 to an investor, such that the Company sold, with the note holders approval, $75,000 of the principal amount to an investor by issuing to the investor an 8% convertible promissory note due June 18, 2011. On January 18, 2011, the investor paid the note holders $75,000. As of April 30, 2011, interest of $4,342 has been expensed and accrued by the Company. The conversion features of the note require derivative accounting treatment. See note 12 - Derivative Liability.





The Company and the note holders further amended the payment terms of the second note installment such that the note holders agreed to defer to March 15, 2011, a second payment of $75,000 and to receive $20,000 of Company common stock (2,000,000 shares) which the Company issued on February 3, 2011 as full and final settlement of the second $200,000 installment pending timely receipt of the second $75,000 payment due March 15, 2011. On March 14, 2011, the Company amended and restated the a portion of the debt under a Wrap Around Agreement dated March 14, 2011, providing for the assignment and issuance of a Restated Convertible Promissory Note (the “Second Restated Note) in the principal amount of $75,000 to an investor. On March 14, 2011, the Company sold, with the noteholders approval, the second principal payment of $75,000 to an investor by issuing to the investor an 8% convertible promissory note due September 18, 2011. On March 15, 2011, in accordance with the terms of the amended payment terms, the investor paid the note holders the second $75,000 principal payment. See note 12 - Derivative Liability.  As of April 30, 2011, the Company issued an aggregate of 44,547,360 shares of the Company's common stock in settlement of the $75,000 convertible note.





(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. The Company accrued interest payable of $872 for the year ended April 30, 2011.  The conversion features of the note require derivative accounting treatment. See note 12 - Derivative Liability.




F-17
 Table of Contents





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%. April 30, 2011, the Company accrued interest payable of $3,208. The conversion features of the note require derivative accounting treatment. See note 11 - Derivative Liability.





On December 13, 2010, in connection with the settlement of accrued but unpaid salary compensation due to our former Vice President Sales, we issued a promissory note for $192,000. The note accrues interest at the annual rate of 6% and is due the earliest of thirty business days following the successful completion and receipt of a financing equal to or greater than one million dollars or January 1, 2012. At April 30, 2011, the Company accrued interest payable of $4,448.





(d):





On March 4, 2010, the Company issued to a shareholder 133,333 shares of its common stock with a fair value of $40,000 in full payment of the outstanding loan for financial consulting services.





On November 5, 2009, the Company borrowed $37,500 from an investor under an informal agreement for working capital purposes. The loan is payable on demand and is classified under notes and loans payable as a current liability on the balance sheet as of April 30, 2011 and 2010, respectively.





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.





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.  The conversion option liability was revalued at April 30, 2011 at $31,186 with changes from the initial fair values charged to expense during the period. The estimated values of the conversion options were determined using the Binomial Lattice option pricing model and the following assumptions:  Expected volatility of 285.33%;   Expected life (years) of .18; risk free interest rate of 0.40%; and dividend rate of 0.





Based upon ASC 840-15-25 (EITF Issue 00-19, paragraph 11) the Company has adopted a sequencing approach regarding the application of ASC 815-40 to its outstanding convertible securities. Pursuant to the sequencing approach, the Company evaluates its contracts based upon earliest issuance date.  Accordingly, sufficient shares are deemed available to satisfy the potential conversion of the conventional convertible notes issued prior to the convertible notes issued under the SPA during the fiscal third quarter of 2011.




F-18
 Table of Contents





13. ACCRUED EXPENSES





Accrued expenses consist of the following at April 30, 2011 and 2010:




April 30,

2011


April 30,

2010Payroll, board compensation and consulting fees owed to officers, directors and shareholders

$
1,272,479


$
1,220,392Other payroll and consulting fees


201,054



688,740Interest


730,110



405,394Other


62,500



429,532$
2,266,143


$
2,744,058





At April 30, 2010, other accrued expenses includes accruals for professional legal services , directors and officers liability insurance, public relations, marketing fees and business travel expenses.





14. STOCKHOLDERS' DEFICIENCY





Preferred stock





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





Common stock





The Company is authorized to issue 500,000,000 and 100,000,000 shares of common stock with par value $.001 per share as of April 30, 2011 and 2010, respectively. As of April 30, 2011 and 2011, the Company had 344,366,062 and 18,873,000 shares of common stock issued and outstanding, respectively.





On November 15, 2010, the Company’s amended its certificate of incorporation to affect a 15-to-1 reverse stock split was approved by Financial Industry Regulatory Authority and became effective. As a result of the reverse split, each 15 shares of Common Stock (the “Old Shares”) will become and be converted into one share of Common Stock (the “New Shares”), with stockholders who would receive a fractional share to receive such additional fractional shares as will result in the holder having a whole number of shares. All references to shares of common stock in the financial statements have been retroactively restated. Issued and outstanding shares as reported on the balance sheet at April 30, 2010 have been retroactively restated to give effect for the reverse stock split. Earnings per share calculations for year ended April 30, 2010 are based on the New Shares. As such, the total number of the common stock shares outstanding as of April 30, 2010 was 9,167,490 shares.





During the year ended April 30, 2011, the Company issued an aggregate of 221,267,153 shares of its common stock in settlement of notes payable and related accrued interest of $1,325,422 or approximately $0.006 per share.





During the year ended April 30, 2011, the Company issued an aggregate of 38,893,183 shares of its common stock in settlement of accrued liabilities of $547,186.





During the year ended April 30, 2011, the Company issued an aggregate of 66,332,999 shares of its common stock in legal settlements of $566,377.




F-19
 Table of Contents





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 April 30, 2011:





Warrants Outstanding

Weighted Average








Warrants ExercisableRemaining


Weighted





WeightedNumber


Contractual


Average


Number


AverageExercise Price


Outstanding


Life (years)


Exercise price


Exercisable


Exercise Price$
0.09



53,333



3.71


$
0.09



53,333


$
0.090.21



45,455



3.67



0.21



45,455



0.210.24



161,667



3.64



0.24



161,667



0.240.34



280,000



3.63



0.34



280,000



0.340.38



313,411



3.57



0.38



313,411



0.38.094



13,333



3.71



0.94



13,333



0.940.98



12,821



3.33



0.98



12,821



3.331.41



16,667



6.12



1.41



16,667



1.412.25



655,920



9.00



2.25



655,920



2.255.25



166,667



3.14



5.25



166,667



5.256.56



8,333



3.14



6.56



8,333



6.567.50



155,000



2.15



7.50



155,000



7.509.00



43,333



0.32



9.00



43,333



9.0018.75



47,222



0.50



18.75



47,222



0.5019.26



53,400



6.12



19.26



53,400



19.2645.00



29,630



.075



45.00



29,630



45.00Total



2,056,192



5.07







2,056,192





Transactions involving the Company’s warrant issuance are summarized as follows:




Number of

Shares


Weighted

Average Price

Per ShareOutstanding at April 30, 2009


429,629


$
12.75Issued


1,727,606



1.57Exercised


-



-Canceled or expired


-



-Outstanding at April 30, 2010


2,157,235



3.21Issued


-



-Expired


(101,043
)


(0.47
)Canceled


-



-Outstanding at April 30, 2011


2,056,192


$
3.25
  F-20
 Table of Contents





The value of the warrants on the date of grant was calculated using the Black-Scholes formula with the following assumptions: risk free – rate 2-4%, expected life of warrants –  5-10 years, expected stock volatility – 20-35%, expected dividend yield – 0%.





Options





The following table summarizes the options outstanding and related prices for the shares of the Company’s common stock issued as of April 30, 2011:




Options Outstanding

Weighted Average








Warrants ExercisableRemaining


Weighted





WeightedNumber


Contractual


Average


Number


AverageExercise Price


Outstanding


Life (years)


Exercise price


Exercisable


Exercise Price$
2.40



155,000



2.87


$
2.40



114,167


$
0.092.64



166,667



2.87



2.64



83,333



0.245.25



33,334



2.87



5.25



33,334



0.34Total



355,001



2.87







230,834


Transactions involving the Company’s options issuance are summarized as follows:




Number of

Shares


Weighted

Average Price

Per ShareOutstanding at April 30, 2009


-


$
-Issued


385,000



2.75Exercised


-



-Canceled or expired


(29,999
)


(2.40
)Outstanding at April 30, 2010


355,001



2.78Issued


-



-Expired


-Canceled


-



-Outstanding at April 30, 2011


355,001


$
2.78





The Company did not issue options for the years ended April 30, 2011 and 2010.




F-21
 Table of Contents





15. INCOME TAXES





No provision for income taxes is included in the accompanying statements of operations because of the net operating losses for the year ended April 30, 2011 and 2010, respectively. Holdings and Drinks previously filed income tax returns on a June 30 and December 31 tax year, respectively; however, both companies applied for and received a change in tax year to April 30 and file a federal income tax return on a consolidated basis. Olifant files income tax returns on a February 28 tax year. The consolidated net operating loss carry forward as of April 30, 2011 available to offset future years' taxable income is approximately $36,500,000, expiring in various years through 2031.





As of April 30, 2011 and 2010, components of the deferred tax assets are as follows:




2011



2010Net operating loss

$
12,682,000


$
11,560,000Compensation


543,000



542,000Other


200,000



200,00013,425,000



12,302,000Less valuation allowance


(13,425,000
)


(12,302,000
)$
—


$
—





A valuation allowance has been provided against the entire deferred tax asset due to the uncertainty of future profitability of the Company.





Management's position with respect to the likelihood of recoverability of these deferred tax assets will be evaluated each reporting period.





16.  RELATED PARTY TRANSACTIONS





Consulting and Marketing Fees





The Company incurred fees for services rendered related to sales and marketing payable to a limited liability company which was controlled by a member of the Company’s board of directors and previous chairman of the board. On April 28, 2010, the Company issued 37,578 shares of its common stock in satisfaction of $84,550 of consulting fees.





In fiscal 2003, we entered into a consulting agreement with a company wholly owned by a member of the Company's board of directors. Under the agreement, the consulting company is compensated at the rate of $100,000 per annum. On April 29,2010, in accordance with an agreement made in October 2009 to settle the outstanding amount due of $306,243, the Company issued a warrant to acquire 396,787 of our common stock.





In December 2002, the Company entered into a consulting agreement with one of its shareholders which provided for $600,000 in fees payable in five fixed increments over a period of 78 months. The agreement expired on June 9, 2009. Under this agreement, as of April 30, 2011 and 2010, amounts owed to this shareholder aggregated $-0- and $43,151, respectively. The Company has an informal agreement with the shareholder pursuant to which he has the option of converting all or a portion of the consulting fees owed him into shares of Holding's common stock at a conversion price to be agreed upon. In March 2009, the consultant elected to convert $120,000 due him for consulting fees into shares of Company stock at a price of $5.25 per share resulting in the Company issuing 22,857 shares to him.  In February 2008, the consultant elected to convert $190,000 due him for consulting fees into shares of Company common stock at a price of $7.50 per share resulting in the Company issuing 25,333 shares to him. Each of the conversions was at a premium to the market price of the Company’s common on the date of the elections to convert.




F-22
 Table of Contents





In October 2009, upon the resignation of Brian Kenny as VP Marketing of the Company, we entered into a marketing consulting agreement with a company controlled by him to provide marketing services to the Company at the annual rate of $144,000.  Brian Kenny is the son of our CEO, J. Patrick Kenny. For the fiscal year ended April 30, 2010, we issued 305,467 options in aggregate which vested 100% upon grant at a value of $88,000 for marketing consulting services he provided the Company.





On October 20, 2009, the Company reached agreements with its Chief Executive Officer and members of its Board of Directors to satisfy obligations owed to them, in the aggregate amount of $1,002,450 for salary, director fees, consulting fees and for satisfaction of a portion of an outstanding loan and the interest accrued thereon, by issuing to them 117,574 shares of our common stock and warrants to acquire 655,920 shares of our common stock. Under this arrangement, the valuation of the common stock and the exercise price of the warrants was $2.25 a share.  Fifty percent of the warrants can be exercised at anytime during the ten-year term and the other 50 percent will only be exercisable when the Company has achieved positive EBITDA for two successive quarters.  If this profitably standard is not realized during the term of the warrants, 50 percent of the warrants will be forfeited. On April 28 and 29, 2010, the Company issued 117,574 shares of common stock in satisfaction of $264,550 of director fees, consulting fees and $130,000 of the Chief Executive Officer’s past-due salary and 9,838,793 warrants in satisfaction of  $506,243 of director fees and consulting fees.





Legal Fees





On March 12, 2009, the Company granted to Fredrick Schulman, a member of our board of directors, options to purchase 600,000 shares of our Company stock, under our Plan, for legal services he provided the Company. The fair market value of the options issued, which vested 100% upon grant, aggregated $54,000.  On February 11, 2010, the Company also issued 26,324 shares to our director with a fair value of $7,897 for legal services he provided the Company.





Royalty Fees





In connection with the Company's distribution and licensing agreements with its equity investee the Company incurred royalty expenses for the years ended April 30, 2011 and 2010 of approximately $-0- and $74,027, respectively.  The operations and the net assets are immaterial.





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 April 30, 2011, the Company has borrowed and our CEO has loaned various amounts up to $813,035 to the Company for working capital purposes at an annual interest rate of 12%. As of April 30, 2011 and 2010, amounts owed to our CEO on these loans including accrued and unpaid interest aggregated $657 and $154,670, respectively. For the years ended April 30, 2011 and 2010, interest incurred on these loans aggregated $7,884 and $38,231, respectively.





17. CUSTOMER CONCENTRATION





For the years ended April 30, 2011 and 2010, our largest customer accounted for 12% and 18%, respectively of our sales and for the year  ended 2011 one other customer accounted for 10% or more of our sales.





18. COMMITMENTS AND CONTINGENCIES





Lease





The Company leases office space under an operating lease, with minimum annual rentals of $50,000 through September, 2009 which was renewed for a two year period through September 2011with minimum annual rentals of $36,000. The Company leased additional office space under an operating lease, which expired in March 2009 that required minimal annual rental payments of $51,600.




F-23
 Table of Contents





Rent expense for the years ended April 30, 2011 and 2010 was approximately, $42,848 and $25,624, respectively. Rent expense for 2010 is net of a landlord credit of approximately $13,000.





Future minimum payments for all leases are approximately as follows:





Years EndingApril 30,

Amount2012


15,000





License Agreement





The Company under a non-documented arrangement with the licensor is continuing to sell the product both domestically and internationally. The Company and licensor are currently engaged in active discussion to both enhance the marketing of the brand and to amend the agreement under mutually beneficial terms.





In 2008 the Company entered into a licensing agreement with Vetrerie Bruni S.p.A. (“Bruni”), which has the patent to the Trump Vodka bottle design. The agreement is retroactive to January 1, 2008, and calls for annual minimum royalties of $150,000. Royalties are due on a per bottle basis on bottles produced by another bottle supplier of approximately 18% of the cost of such bottles.  The agreement terminates upon the expiration of the patent or the expiration of the Company’s license agreement with Trump Marks LLC. Due to a dispute with respect to the pricing and quantities of glass ordered and the source of readily available and more efficient alternative producers the Company entered into a dispute with Bruni Glass resulting in litigation which was resolved with a settlement in October 2009. This settlement resulted in the reduction of the Company’s annual glass royalty obligation and a settlement of the outstanding balance the Company owed Bruni. In conjunction with the legal settlement, the Company has accrued $150,000,  payable in installments over 12 months from February 2010 forward which if paid in full by August 2010 reverts to the amount of $120,000 in satisfaction of the outstanding balance.  As of April 30, 2011, the outstanding unpaid balance was $125,000.  Additionally, the annual royalty going forward has been lowered by as much as 75% depending on utilization levels.





In February 2008, we entered into a joint venture with Grammy Award-winning producer and artist, Dr. Dre. The Company and Dr. Dre have formed the joint venture to identify, develop, and market premium alcoholic beverages; The deal is under the umbrella of the agreement between the Company and Interscope Geffen A&M Records.  Our Leyrat Cognac is the joint ventures’ first beverage. In January 2009, the Company launched its Leyrat Estate Bottled Cognac which it imports from a 200 year old distillery in Cognac, France. The Company granted 10% of its 50% interest in the brand to the producer of the product, leaving us with a 45% interest, in return for the rights to distribute the product in the United States. The Company has 5% of the rights for the brand in Europe. The Company continues to work toward a major product launch agreeable between the parties.





Our license with respect to the Kid Rock related trademarks currently requires payments to Drinks Americas based upon volume through the term of the agreement.





Other Agreements





The Company has modified its agreement with a foreign distributor, through December 2023, to distribute our products in their country. The agreement requires the distributor to assume procurement of component parts, production, distribution and funding for approved marketing and promotion for the term of the agreement. The distributor is to pay the Company a quarterly fee no less than one fourth of $150,000 and certain incremental payments for set volume levels. In return for the fee and assumption of all financial support in the territory, the Company will be the exclusive distributor in Israel over the term of the agreement with the rights to be exclusive distributor in their country. The distributor is in the process of purchasing component parts for its own production. It is also anticipated that the Company may purchase up to five containers of product or 5,000 cases from the Company’s current inventory as a precursor to its own production in order to accelerate market entry. The Company received a prepayment $84,970 and recognized $21,243 for shipments in the fourth quarter of 2010. The balance is recorded in deferred revenue on the balance sheet at April 30, 2010.




F-24
 Table of Contents





Effective February 15, 2010, the Company entered into an exclusive agreement with Mexcor, Inc., to promote and


distribute in the United States, the Company’s portfolio of brands, as defined. The initial term of the agreement is for five years, requires a minimum net sales performance by Mexcor, which when attained, will automatically renew for an additional ten years. Under the terms of the agreement, the Company has agreed to issue the principal of the business 12 million shares of Company common stock in exchange for consulting services.





Furthermore, the Company shall earn and Mexcor shall pay, a royalty fee on a per case or case equivalent basis on all Company products distributed by Mexcor which royalty fee will increase by ten percent on August 12, 2011, with additional ten percent increases (compounded) on August 15th of each successive year during the initial term of the agreement. Additionally, the Company shall earn $10.00 for each case of Damiana product, as defined, distributed by Mexcor. For the first full twenty-one calendar months following the effective date, Mexcor will pay the Company the greater of the per case royalty fees described above or the following monthly minimum royalties; $20,000, for the first six months; $35,000, for months 7-9 and $50,000 for months 10-21. The minimum monthly royalties are payable on the 15th day of that month.





Additionally, the Company will issue to Mexcor, warrants to acquire 133,333 shares of the Company’s common stock at such time Mexcor realizes the minimum net sales requirements under the initial term. The Company has further agreed to issue Mexcor a warrant to acquire an additional 1333,333 shares of Company common stock at such time Mexcor attains a second net sales performance level based on a twelve-month look-back period provided such performance criteria are satisfied during the initial term. Finally, the Company has agreed to issue Mexcor additional financial incentives payable in cash or stock and warrants for the attainment of certain volume or business metrics.





Litigation





On July 29, 2010, we entered into a settlement agreement with Socius CG II, Ltd. (“Socius”) pursuant to which we agreed to issue 2,586,667 shares of our common stock in exchange for satisfaction of the claim by Socius for $334,006. This settlement agreement required court approval before the issuance of such stock because it involved the payment of the settlement in the form of the Company’s common stock in reliance upon the Section 3(a) (10) exemption from the registration requirements of Section 5 of the Securities Act of 1933, as amended. The court ultimately approved the settlement agreement and the issuance of the 2,586,667 shares to Socius as exempt from registration pursuant to the Section 3(a) (10) registration exemption.





Richard Shiekman v. Drinks Americas, Inc., Drinks Holdings, Ltd and J Patrick Kenny.Connecticut Superior Court for Judicial District of Fairfield at Bridgeport.  In this action, Plaintiff filed an application for prejudgment remedy seeking in excess of $300,000 in unpaid wages, commissions and expenses.  In lieu of a prejudgment remedy, the Company provided the Plaintiff with Company stock to be held subject to further order of the court, as security for the Plaintiff's claims.  On April 26, 2011, the matter was fully resolved, all parties withdrew their claims and exchanged releases, and Plaintiff returned the stock previously pledged.  The settlement required the Company to pay Shiekman a total of $75,000 on or before July 15, 2011 or a total of $100,000 on or before September 15, 2011.  Prior to July 14, 2011, the Company (through its insurer) paid $32,500 toward the settlement.  On July 14, 2011, subsequent to the date of the financial statements, the Company paid $10,000 towards the settlement.  At that time, Shiekman agreed that as long as the Company pays an additional $45,000 by September 1, 2011, he would consider the settlement paid in full, for a total of $87,500.  The Company has fully accrued for all monies due as of April 30, 2011.





Niche Media v. Drinks Americas, Inc., Connecticut Superior Court of the Judical District of Stamford Norwalk at Stamford.  In this action, Plaintiff filed suit for unpaid advertising and claimed approximately $130,000 plus accruing interest and attorney fees.  In March 2011, the case was settled and the Plaintiff withdrew the case in exchange for the Company's agreement to pay $90,000 over 29 months commencing June 2011.  The Company has fully accrued for all monies due as of April 30, 2011.





Total Quality Logistics Inc. v. Drinks Americas Inc.,Connecticut Superior Court for Judicial District of New Haven at New Haven.  In this action, Plaintiff filed suit for unpaid logistics fees and claims approximately $20,000.  The matter settled in November 2010, requiring the Company to pay $9,600 over the course of several months.  As of July 31, 2011, subsequent to the financial statements, the Company fulfilled its obligations under the settlement and the matter was paid in full.  The Company has fully accrued for all monies due as of April 30, 2011.





Wenneker Distilleries v. Olifant USA, Inc. and Drinks America, Inc.,United States District Court, Middle District of Pennsylvania.In this action, the Plaintiff filed suit for unjust enrichment stemming directly from a stock purchase agreement entered into by Olifant USA, Inc. and Drinks Americas, Inc on January 15, 2009 and unpaid dues to the Plaintiff for goods delivered to Olifant USA, Inc. in 2008.  The total amount sought from Drinks Americas, Inc. is $225,894.34 plus interest and cost.  The Company believes this claim is without merit and will defend vigorously.




F-25
 Table of Contents





Jeffrey Daub.  This matter involves a claim by Jeffrey Daub, an ex-employee, for payment of deferred salary.  The matter was settled with the Plaintiff agreeing to a payment plan containing fourteen payments with the final payment due September 1, 2012 for a total of $140,000.  The Company has fully accrued for all monies due as of April 30, 2011.





Darrell Wright v. Drinks Americas,Civil Court, NY County.  In this action, the Plaintiff filed suit for $18,000 for alleged unpaid wages and/or commissions and expenses.  The Company as responded denying any liability.  As of April 30, 2011, the Company has fully accrued for all monies possibly due.





Other than the items discussed above, we believe that the Company is currently not subject to litigation, which, in the opinion of our management, is likely to have a material adverse effect on the Company.





19. SUBSEQUENT EVENTS





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





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





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





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





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





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




F-26
 Table of Contents