UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D. C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 or 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2005
Commission file number 333-63432
Atlantic Wine Agencies Inc.
(Exact name of small business issuer as specified in its charter)
Florida 65-110237
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Golden Cross House
8 Duncannon Street, London, United Kingdom WC2N 4JF
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: 011-44-207-484-5005
(Issuer's telephone number)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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
|_|
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
The number of shares of the issuer's outstanding common stock, which is the only
class of its common equity, on February 14, 2006 was 84,838,077.
ITEM 1 FINANCIAL STATEMENTS
Description Page
No.
FINANCIAL INFORMATION:
Financial Statements
Consolidated Balance Sheets at December 31, 2005
(Unaudited) 3
Consolidated Statement of Operations for the Nine Months Ended December 31, 2005 and 2004,
respectively (Unaudited) 4
Consolidated Statements of Cash Flows for the Nine Months Ended December 31, 2005 and 2004,
respectively (Unaudited) 5
Notes to Consolidated Financial Statements (Unaudited) 6
2
ITEM 1. FINANCIAL STATEMENTS
ATLANTIC WINE AGENCIES, INC. and SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2005
CURRENT ASSETS
Cash $ 25,822
Accounts receivable 607,678
Inventory 400,657
----------
Total Current Assets 1,034,157
OTHER ASSETS
Property, plant and equipment, net 2,576,201
Trademarks, net 40,012
===========
$3,650,370
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 211,452
Due to factoring agent 267,221
-----------
Total Current Liabilities 478,673
LONG-TERM DEBT
Due to principal stockholders 940,000
STOCKHOLDERS' EQUITY
Common stock authorized 150,000,000
shares; $0.00001 par value; issued
and outstanding 84,838,077 shares 849
Additional contributed capital 6,536,028
Accumulated other comprehensive income 109,168
Accumulated deficit (4,414,348)
-----------
Total Stockholders' Equity 2,231,697
===========
$ 3,650,370
See accompanying notes to financial statements.
3
ATLANTIC WINE AGENCIES, INC. and SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
December 31, December 31, December 31, December 31,
2005 2004 2005 2004
------------ ------------ ------------ ------------
(Restated) (Restated)
NET SALES $ 739,792 $ (6,980) $ 1,071,152 $ 127,893
COSTS AND EXPENSES-
Cost of goods sold 781,866 18,571 1060,006 119,019
Selling, general and administrative 603,924 404,561 1,513,569 785,196
Stock based compensation 536,500
Depreciation and amortization 58,581 22,312 93,969 30,191
Other expenses 256 2,404 5,391 2,404
------------ ------------ ------------ ------------
Total Costs and Expenses 1,444,627 447,848 2,672,935 1,473,310
------------ ------------ ------------ ------------
NET LOSS $ (704,835) $ (454,828) $ (1,601,783) $ (1,345,417)
============ ============ ============ ============
NET (LOSS) PER COMMON SHARE -
(Basic and diluted) $ (0.01) $ (0.01) $ (0.02) $ (0.02)
============ ============ ============ ============
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 84,838,077 85,830,887 84,838,077 85,830,887
============ ============ ============ ============
See accompanying notes to consolidated financial statements.
4
ATLANTIC WINE AGENCIES, INC. and SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended
December 31,
CASH FLOWS FROM OPERATING ACTIVITIES 2005 2004
----------- -----------
(Restated)
Net loss for period $(1,601,783) $(1,345,417)
Non-cash items included in net loss:
Stock based compensation 536,500
Depreciation and amortization 93,969 30,191
Changes in operating assets and liabilities:
Accounts receivable (570,623) (2,213,439)
Inventory 1,142,800 (1,522,230)
Receivable from officer 48,761
Prepaid and other 43,960
Accounts payable 110,071 1,608,689
Factoring account 267,221
Accrued expenses (113,752) 1,799,082
Accrued payroll taxes (65,181) 1,469,899
----------- -----------
Net Cash Provided by (Used in) Operating
Activities (644,557) 363,275
CASH FLOWS FROM INVESTING ACTIVITIES
Net Disposals (Purchase) of Property, Plant and
Equipment 87,831 (2,899,645)
----------- -----------
Net Cash Provided by (Used in) Investing Activities 87,831 (2,899,645)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net capital contribution 505,228 2,723,880
Due to Dominion (344,381) --
----------- -----------
Net Cash Provided by Financing Activities 160,847 2,723,880
----------- -----------
EFFECT OF RATE CHANGE ON CASH 324,214
NET INCREASE (DECREASE) IN CASH (71,665) 187,510
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 97,487
----------- -----------
CASH AT END OF PERIOD $ 25,822 $ 187,510
=========== ===========
5
See accompanying notes to financial statements.
ATLANTIC WINE AGENCIES, INC. and SUBSIDIARIES
UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005
NOTE A - BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary in order to make the financial statements not
misleading have been included. Results for the nine months ended December
31, 2005 are not necessarily indicative of the results that may be
expected for the year ending March 31, 2006. For further information,
refer to the financial statements and footnotes thereto included in the
Atlantic Wine Agencies' Inc. annual report on Form 10-KSB for the year
ended March 31, 2005.
NOTE B - GOING CONCERN
As indicated in the accompanying financial statements, the Company has
incurred cumulative net operating losses of $4,414,348 since inception and
is considered a company in the development stage. Management's plans
include the raising of capital through the equity markets to fund future
operations and the generating of revenue through its business. Failure to
raise adequate capital and generate adequate sales revenues could result
in the Company having to curtail or cease operations. Additionally, even
if the Company does raise sufficient capital to support its operating
expenses and generate adequate revenues, there can be no assurances that
the revenue will be sufficient to enable it to develop business to a level
where it will generate profits and cash flows from operations. These
matters raise substantial doubt about the Company's ability to continue as
a going concern. However, the accompanying financial statements have been
prepared on a going concern basis, which contemplates the realization of
assets and satisfaction of liabilities in the normal course of business.
These financial statements do not include any adjustments relating to the
recovery of the recorded assets or the classification of the liabilities
that might be necessary should the Company be unable to continue as a
going concern.
NOTE C - DUE TO PRINCIPAL STOCKHOLDERS
At December 31, 2005, principal stockholders have advanced the Company
$940,000 for working capital. Such loans are non-interest bearing and have
no specific maturity date for repayment. The principal stockholders have
additionally contributed to capital approximately $1,258,787 in previously
advanced loans.
NOTE D - RECENT ACCOUNTING PRONOUNCEMENTS
In November 2004, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 151 (SFAS 151), "Inventory
Costs." SFAS 151 amends the guidance in APB No. 43, Chapter 4, "Inventory
Pricing," to clarify the accounting for abnormal amounts of idle facility
expense, freight, handling costs, and wasted material (spoilage). SFAS 151
requires that those items be recognized as current period charges
regardless of whether they meet the criteria of "so abnormal." In
addition, SFAS 151 requires that allocation of fixed production overheads
to the costs of conversion be based on the normal capacity of the
production facilities. SFAS 151 is effective for financial statements
issued for fiscal years beginning after June 15, 2005. The adoption of
SFAS 151 is not expected to have a material effect on the Company's
financial position or results of operations.
6
ATLANTIC WINE AGENCIES, INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005
NOTE D - RECENT ACCOUNTING PRONOUNCEMENTS (Continued)
In December 2004, the FASB issued Statement of Financial Accounting
Standards No. 153 (SFAS 153), "Exchanges of Non-monetary Assets." SFAS 153
amends the guidance in APB No. 29, "Accounting for Non-monetary Assets."
APB No.29 was based on the principle that exchanges of non-monetary assets
should be measured on the fair value of the assets exchanged. SFAS 153
amends APB No. 29 to eliminate the exception for non-monetary exchanges of
similar productive assets and replaces it with a general exception for
exchanges of non-monetary assets that do not have commercial substance if
the future cash flows of the entity are expected to change significantly
as a result of the exchange. SFAS 151 is effective for financial
statements issued for fiscal years beginning after June 15, 2005. The
adoption of SFAS 153 is not expected to have a material effect on the
Company's financial position or results of operations.
In December 2004, the FASB revised Statement of Financial Accounting
Standards No. 123 (SFAS 123(R)), "Accounting for Stock-Based
Compensation." The SFAS 123(R) revision established standards for the
accounting for transactions in which t 6 6 an entity exchanges its equity
instruments for goods or services and focuses primarily on accounting for
transactions in which an entity obtains employee services in share-based
payment transactions. It does not change the accounting guidance for
share-based payment transactions with parties other than employees. For
public entities that do not file as small business issuers, the revisions
to SFAS 123 are effective as of the beginning of the first interim or
annual reporting period that begins after June 15, 2005. For public
entities that file as small business issuers, the revisions to SFAS 123(R)
are effective as of the beginning of the first interim or annual reporting
period that begins after December 15, 2005. For non-public entities, the
revisions to SFAS 123 are effective as of the beginning of the first
annual reporting period that begins after December 15, 2005. Management
has not yet determined the effects of adopting this statement on the
Company's financial position or results of operations.
In May 2005, the FASB issued SFAS no. 154, "Accounting Changes and Error
Corrections ("SFAS No. 154") which replaces APB Opinion No. 20,
"Accounting Changes" and SFAS No. 3, "Reporting Accounting Changes in
Interim Financial Statements-An Amendment of ABP Opinion No. 28. SFAS No.
154 provides guidance on the accounting for and reporting of accounting
changes and error corrections. Specially, this statement requires
"retrospective application" of the direct effect foe a voluntary change in
accounting principle to prior periods' financial statements, if it is
practical to do so. SFAS No. 154 also strictly defines the term
"restatement" to mean the correction of an error revising previously
issued financial statements. SFAS No. 154 is effective for accounting
changes and corrections of errors made in fiscal years beginning after
December 15, 2005 and are required to be adopted by the Company in the
first quarter of fiscal year 2007. Although we will continue to evaluate
the application of SFAS No. 154, management does not currently believe
adoption will have a material impact on our results of operations,
financial position or cash flows.
7
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operation
Atlantic Wine Agencies current quarter reflects major growth in revenue and
increased trading both in South Africa and Europe this current year. However due
to aggressive global trading conditions, oversupply of fruit from the New world
and tough trading conditions within the South African sector AWA has had to
compromise with lower margin in sales. UK trading was affected by the
administration of UNWINS - the largest off trade retailer in the SE of England,
formally 382 stores. Despite administration process sales were insured but
resulted in loss of margin to UK business.
UK strategy will now focus on consolidating an exclusive agency agreement with
Hayman Barwell Jones - an independent fine wine shipper based in Ipswich and
London. HBJ will service current trade clients in the UK and will continue to
develop new route to market through their extensive sales team allowing UK
overheads to be reduced in the new financial year.
There has been major investment in SA's Mount Rozier estate. This will
demonstrate positive net asset value growth at year end. Initial indications
from Colliers international have already demonstrated this.
The 2006 vintage promises to be excellent in quality and has benefited directly
from Jaco Mouton's (viticulturist) long term fruit purchasing agreements. This
will prove beneficial to the business and should produce exceptional Domaine
wines from the Estate.
RESULTS OF OPERATIONS
We are currently in the early stages of our first sales cycle and generated
$1,071,152 for the nine months ended December 31, 2005 compared to $127,893 for
the nine months ended December 31, 2004, respectively. Total costs and expenses
for the nine months ended December 31, 2005 were $2,672,935 as compared to
$1,473,310 for the nine months ended December 31, 2004. Our net loss for the
nine months ended December 31, 2005 as compared to the nine months ended
December 31, 2004, was $1,601,783 and $1,345,417, respectively. The primary
reason for the increase in losses was a result of increased sales and marketing,
and other administrative costs in 2005.
We have financed our operations to date primarily through loans made to us by
our shareholders and their affiliates.
Our wine distribution began in earnest during this reporting period and we
anticipate significant sales during the following quarters as a result of our
increased presence in the marketplace.
LIQUIDITY AND CAPITAL RESOURCES
For the nine months ended December 31, 2005, net cash used to fund operating
activities totaled $505,228 as compared to $2,723,880 for the corresponding nine
months ended December 31, 2004. Net cash utilized by investing activities for
the nine month period ended December 31, 2005 totaled $87,831 compared to
$2,899,645 for the nine months ended December 31, 2004.
The cash available at December 31, 2005 was $25,822 as compared to $187,510 for
the corresponding nine months ended December 31, 2004.
8
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Company's discussion and analysis of its financial condition and results of
operations are based upon the financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States.
The preparation of these financial statements requires the Company to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosure of contingent assets and
liabilities. On an on-going basis, the Company evaluates its estimates,
including those related to bad debts, income taxes and contingencies and
litigation. The Company bases its estimates on historical experience and on
various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions.
Item 3. Controls and Procedures.
(a) Our principal executive officer and principal financial officer
has evaluated the effectiveness of our disclosure controls and procedures
(as defined in Exchange Act Rules 13a-14 and 15d-14) as of a date within
90 days prior to the filing date of this quarterly report and has
concluded that our disclosure controls and procedures are adequate.
(b) There were no significant changes in our internal controls or in
other factors that could significantly affect these controls subsequent to
the date of their evaluation, including any corrective actions with regard
to significant deficiencies and material weaknesses.
(c) Not applicable
PART II
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
a. Exhibit Index
Exhibit 99.1 Certification of President and Principal Financial Officer
9
Exhibit 99.2 Certification of President and Principal Financial Officer
b. Reports on Form 8-K None.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ATLANTIC WINE AGENCIES INC.
/s/ Adam Mauerberger
----------------------------------------
Name: Adam Mauerberger
Title: President, Chief Financial Officer and Chairman of the Board
Date: February 15, 2006
10