10-Q 1 drinksamericas10q073112.htm drinksamericas10q073112.htm


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

 
FORM 10-Q
 

 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
   
For the quarterly period ended July 31, 2012
   
OR
   
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from _______________ to ____________

Commission File Number:  000-19086
 
Drinks Americas Holdings, Ltd.
(Exact name of registrant as specified in its charter)
 
Delaware
 
87-0438825
(State or other jurisdiction of incorporation or
organization)
 
(I.R.S. Employer Identification No.)
     
4101 Whiteside St.
   
Los Angeles, Ca.
 
90063
(Address of principal executive offices)
 
(Zip Code)
 
(323) 266-8765
(Registrant’s telephone number, including area code)
 
372 Danbury Road, Suite 163, Wilton, Connecticut 06897
(Former name, former address and former fiscal year, if changed since last report)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes   x   No ¨
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x   No   ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
¨   Large accelerated filer
¨    Accelerated filer
¨   Non-accelerated filer
x   Smaller reporting company
  
  
(Do not check if smaller reporting company)
  
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
 
As of September 25, 2012, the number of shares outstanding of the registrant’s common stock, $0.001 par value, was 21,279,339.
 
 
DRINKS AMERICAS HOLDINGS, LTD. AND AFFILIATES

FORM 10-Q

FOR THE QUARTER ENDED JULY 31, 2012

TABLE OF CONTENTS

     
Page
PART 1     FINANCIAL INFORMATION
 
3
    
   
   
Item 1.
 
3
       
   
3
    
     
   
4
       
   
5
   
     
   
6
       
Item 2.
 
19
       
Item 3.
 
21
       
Item 4.
 
21
       
PART II   OTHER INFORMATION
 
22
       
Item 1.
 
22
       
Item 1A
 
22
       
Item 2.
 
22
       
Item 3.
 
22
       
Item 4.
 
22
       
Item 5.
 
22
       
Item 6.
 
23
       
 
24

 
PART I – FINANCIAL INFORMATION
 
Item 1.   Financial Statements
 
DRINKS AMERICAS HOLDINGS, LTD., AND AFFILIATES
 CONDENSED CONSOLIDATED BALANCE SHEETS
 
   
   
July 31,
   
April 30,
 
   
2012
   
2012
 
   
(unaudited)
       
ASSETS
           
Current assets:
           
Cash and cash equivalents
  $ 368,185     $ 295,403  
Accounts receivable, net of allowance for doubtful accounts of $146,365 and $138,491
    528,418       739,565  
Inventory
    -       841,401  
Other current assets
    -       61,574  
  Total current assets
    896,603       1,937,943  
                 
Property and equipment, net of accumulated depreciation
    11,256       13,518  
                 
Other assets:
               
Investment in equity investees
    102,345       102,345  
Intangible assets, net of accumulated amortization
    5,178,652       5,193,355  
Deposits
    6,225       6,225  
Other assets
    46,717       48,550  
  Total other assets
    5,333,939       5,350,475  
                 
Total assets
  $ 6,241,798     $ 7,301,936  
                 
LIABILITIES AND EQUITY
               
                 
Current liabilities:
               
Accounts payable
  $ 2,303,125     $ 2,889,969  
Accrued expenses
    731,517       900,929  
Due to factor
    115,309       -  
Operating line of credit, related party
    415,946       215,946  
Investor note payable
    510,000       793,000  
Notes and loans payable, net of long term portion
    369,508       392,008  
Due to related party
    100,901       -  
  Total current liabilities
    4,546,306       5,191,852  
                 
Long term debt:
               
Deferred rent payable
    5,554       2,735  
                 
  Total liabilities
    4,551,860       5,194,587  
                 
Commitments and contingencies
    -       -  
                 
Equity:
               
Preferred stock, $0.001 par value; 1,000,000 shares authorized:
               
Series A Convertible: $0.001 par value; 10,544 shares issued and outstanding as of July 31, 2012 and April 30, 2012
    11       11  
Common stock, $0.001 par value; 900,000,000 shares authorized; 21,279,339 shares issued and outstanding as of July 31, 2012 and April 30, 2012
    21,279       21,279  
Additional paid in capital
    50,693,762       50,672,809  
Accumulated deficit
    (49,024,682 )     (48,586,318 )
  Total Drinks Americas Holdings, Ltd stockholders' equity
    1,690,370       2,107,781  
Equity attributable to non-controlling interests
    (432 )     (432 )
  Total equity
    1,689,938       2,107,349  
                 
Total Liabilities and Equity
  $ 6,241,798     $ 7,301,936  
 
The accompanying notes are an integral part of these consolidated financial statements
 

DRINKS AMERICAS HOLDINGS, LTD., AND AFFILIATES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
 
   
Three months ended July 31,
 
   
2012
   
2011
 
Sales, net
  $ 1,289,938     $ 148,080  
                 
Cost of sales
    996,781       132,782  
                 
Gross margin
    293,157       15,298  
                 
Selling, general and administrative expenses
    701,334       514,494  
  Total operating expenses
    701,334       514,494  
                 
Net loss from operations
    (408,177 )     (499,196 )
                 
Other income (expense):
               
  Interest, net
    (29,699 )     (112,188 )
  Loss on change in fair value of derivative
    -       (29,384 )
  Other expense
    -       (3,483 )
 (Loss) gain on settlement of accounts payable
    (488 )     17,505  
  Gain on disposal of product line
    -       280,478  
Total other income (expense)
    (30,187 )     152,928  
                 
Net loss before non controlling interests
    (438,364 )     (346,268 )
                 
Net loss attributable to non controlling interest
    -       -  
                 
Net loss
  $ (438,364 )   $ (346,268 )
                 
Net loss per common share, basic and diluted
  $ (0.02 )   $ (0.21 )
                 
Weighted average number of common shares outstanding, basic and diluted
    21,279,339       1,629,030  
                 
 
The accompanying notes are an integral part of these consolidated financial statements
 

DRINKS AMERICAS HOLDINGS, LTD., AND AFFILIATES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
 
   
Three months ended July 31,
 
   
2012
   
2011
 
CASH FLOWS FROM OPERATING ACTIVITIES:
           
Net loss
  $ (438,364 )   $ (346,268 )
Adjustments to reconcile net loss to net cash used in operating activities:
               
Depreciation and amortization
    18,798       166,055  
Bad debt expense
    7,874       -  
Stock compensation
    20,953       20,955  
Non cash interest income
    -       (4,907 )
Gain on sale of interest in product line
    -       (280,478 )
Gain on change in fair value of derivative liability
    -       29,384  
Changes in operating assets and liabilities:
               
Accounts receivable
    203,273       17,785  
Inventories
    841,401       50,138  
Other current assets
    61,574       6,570  
Accounts payable
    (586,844 )     (56,429 )
Accrued expenses
    (169,412 )     159,492  
Deferred rent payable
    2,819       -  
  Net cash used in operating activities
    (37,928 )     (237,703 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
    -       -  
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Net change in cash overdraft
    -       8,962  
Proceeds from line of credit
    200,000       -  
Proceeds from factoring of accounts receivable
    115,309       -  
Proceeds (repayments) from related party
    100,901       (657 )
Proceeds from issuance of notes payable
    -       227,475  
Repayments of notes payable
    (305,500 )     -  
  Net cash provided from financing activities
    110,710       235,780  
                 
Net (decrease) increase in cash and cash equivalents
    72,782       (1,923 )
Cash and cash equivalents-beginning of the period
    295,403       1,923  
                 
Cash and cash equivalents-end of period
  $ 368,185     $ -  
                 
Supplemental disclosure of non-cash investing and financing activities:
               
Interest paid
  $ 16,619     $ -  
Taxes paid
  $ -     $ -  
Satisfaction of note and interest payable by issuance of common stock
  $ -     $ 57,515  
Payment of accounts payable and accrued expenses with shares of common stock
  $ -     $ 463,251  
Common stock issued acquire trademark
  $ -     $ 240,000  
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
 

DRINKS AMERICAS HOLDINGS, LTD., AND AFFILIATES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2012
 
1. BASIS OF PRESENTATION AND NATURE OF BUSINESS

Basis of Presentation

On March 9, 2005 the shareholders of Drinks Americas, Inc. ("Drinks") a company engaged in the business of importing and distributing unique, premium alcoholic and non-alcoholic beverages to beverage wholesalers throughout the United States, acquired control of Drinks Americas Holdings, Ltd. ("Holdings" or the "Company "). Holdings and Drinks was incorporated in the state of Delaware on February 14, 2005 and September 24, 2002, respectively. On March 9, 2005 Holdings merged with Gourmet Group, Inc. ("Gourmet"), a publicly traded Nevada corporation, which resulted in Gourmet shareholders acquiring 1 share of Holdings' common stock in exchange for 10 shares of Gourmet's common stock. Both Holdings and Gourmet were considered "shell" corporations, as Gourmet had no operating business on the date of the share exchange, or for the previous three years. Pursuant to the June 9, 2004 Agreement and Plan of Share Exchange among Gourmet, Drinks and the Drinks' shareholders, Holdings, with approximately 16,232 shares of outstanding common stock, issued approximately 180,656 of additional shares of its common stock on March 9, 2005 (the "Acquisition Date") to the common shareholders of Drinks and to the members of its affiliate, Maxmillian Mixers, LLC ("Mixers"), in exchange for all of the outstanding Drinks' common shares and Mixers' membership units, respectively. As a result Maxmillian Partners, LLC ("Partners") a holding company which owned 99% of Drinks' outstanding common stock and approximately 55% of Mixers' outstanding membership units, became Holdings' controlling shareholder with approximately 87% of Holdings' outstanding common stock. For financial accounting purposes this business combination has been treated as a reverse acquisition, or a recapitalization of Partners' subsidiaries (Drinks and Mixers).
 
Subsequent to the Acquisition Date, Partners, which was organized as a Delaware limited liability company on January 1, 2002 and incorporated Drinks in Delaware on September 24, 2002, transferred all its shares of holdings to its members as part of a plan of liquidation.

On January 15, 2009, Drinks acquired 90% of Olifant U.S.A Inc. (“Olifant”), a Connecticut corporation, which owns the trademark and brand names and holds the worldwide distribution rights (excluding Europe) to Olifant Vodka and Gin.  During the year ended April 30, 2012, the Company reduced its ownership to 48% of Olifant recognizing a gain on disposal of product line of $280,478. In conjunction with the ownership reduction to 48%, the Company eliminated the remaining outstanding debt obligation of $600,000 and transitioned to the equity method of accounting.
 
Our license agreement with respect to Kid Rock’s BadAss Beer and related trademarks currently requires payments to Drinks Americas based upon volume through the term of the agreement.
 
Nature of Business

Through our majority-owned subsidiaries, Drinks imports, distributes and markets unique premium wine and spirits and alcoholic beverages to beverage wholesalers throughout the United States and internationally.

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

DRINKS AMERICAS HOLDINGS, LTD., AND AFFILIATES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2012
 
Upon the completion of the purchase of the Initial Issuance and the Additional Shares and until one (1) year from the date of the completion of the close of the transaction, the Company agreed not to issue any additional shares of the Company without prior written consent of the Purchaser, provided that the Company may issue certain exempt issuances without the prior written consent of the Purchaser in accordance with the terms of the Purchase Agreement.

During the year ended April 30, 2012, the Company issued an additional aggregate of 10,329,602 shares of its common stock to acquire the right to sell and distribute the products that Worldwide Beverages licensed to the company.   The trademarks were recorded at the fair value of the issued underlying common stock of $4,870,391.  In addition, the Company received $1.5 million in product at no cost to be sold with a wholesale markup of 40% for a revenue value of $2,100,000, as capital contribution for 49% of the Company and additional forward going inventory at substantially reduced pricing with ongoing and extended credit terms.  The inventory is credited as a payment towards WBI acquiring up to 49% ownership of the Company's common stock.  The fair value of the product received is recorded as inventory with the offset recorded as a common stock subscription.
 
2. SIGNIFICANT ACCOUNTING POLICIES

Principles of consolidation

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

In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. However, the results from operations for the three months ended July 31, 2012, are not necessarily indicative of the results that may be expected for the year ending April 30, 2013. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated April 30, 2012 financial statements and footnotes thereto included in the Company's Form 10-K filed with the SEC.

The condensed consolidated financial statements as of April 30, 2012 have been derived from the audited consolidated financial statements at that date but do not include all disclosures required by the accounting principles generally accepted in the United States of America.

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

Revenue Recognition
 
The Company recognizes revenues when title passes to the customer, which is generally when products are shipped. The Company recognizes royalty revenue based on its license agreements with its distributors, which typically is the greater of either the guaranteed minimum royalties payable under our license agreement or a royalty rate computed on the net sales of the distributor shipments to its customers.
 
The Company recognizes revenue dilution from items such as product returns, inventory credits, discounts and other allowances in the period that such items are first expected to occur. The Company does not offer its clients the opportunity to return products for any reason other than manufacturing defects. In addition, the Company does not offer incentives to its customers to either acquire more products or maintain higher inventory levels of products than they would in ordinary course of business. The Company assesses levels of inventory maintained by its customers through communications with them. Furthermore, it is the Company's policy to accrue for material post shipment obligations and customer incentives in the period the related revenue is recognized.
 
 
DRINKS AMERICAS HOLDINGS, LTD., AND AFFILIATES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2012
 
Accounts Receivable
 
Accounts receivable are recorded at original invoice amount less an allowance for uncollectible accounts that management believes will be adequate to absorb estimated losses on existing balances. Management estimates the allowance based on collectability of accounts receivable and prior bad debt experience. Accounts receivable balances are written off upon management's determination that such accounts are uncollectible. Recoveries of accounts receivable previously written off are recorded when received. Management believes that credit risks on accounts receivable will not be material to the financial position of the Company or results of operations at July 31, 2012 and April 30, 2012, the allowance for doubtful accounts was $146,365 and $138,491, 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. During the three months ended July 31, 2012, the Company ceased carrying inventory, as the sale is made, the Company purchases and ships directly from manufacturer/wholesaler to the customer.
 
Impairment of Long-Lived Assets

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate the carrying amounts of such assets may not be recoverable. The Company's policy is to record an impairment loss at each balance sheet date when it is determined that the carrying amount may not be recoverable. Recoverability of these assets is based on undiscounted future cash flows of the related asset. For the three months ended July 31, 2012, the Company concluded that there was no impairment.
 
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. 

During the year ended April 30, 2012 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, 2012. The test indicated that the recorded remaining book value of certain intangible assets did not exceed its fair value for the year ended April 30, 2012.  Considerable management judgment is necessary to estimate the fair value.  Accordingly, actual results could vary significantly from management’s estimates.
 
 
DRINKS AMERICAS HOLDINGS, LTD., AND AFFILIATES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2012
 
Income Taxes
 
The Company accounts for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis.  The effect on deferred tax assets and liabilities of a change in tax laws is recognized in the results of operations in the period the new laws are enacted.  A valuation allowance is recorded to reduce the carrying amounts of deferred tax assets unless, it is more likely than not, that such assets will be realized. The Company has recognized no adjustment for uncertain tax provisions.
 
Stock Based Compensation

The Company accounts for stock-based compensation using the modified prospective approach. The Company recognizes in the statement of operations the grant-date fair value of stock options and other equity based compensation issued to employees and non-employees.
 
Earnings (Loss) Per Share
 
The Company computes earnings (loss) per share whereby basic earnings (loss) per share is computed by dividing net income (loss) attributable to all classes of common shareholders by the weighted average number of shares of all classes of common stock outstanding during the applicable period. Diluted earnings (loss) per share is determined in the same manner as basic earnings (loss) per share except that the number of shares is increased to assume exercise of potentially dilutive and contingently issuable shares using the treasury stock method, unless the effect of such increase would be anti-dilutive. For the three months ended July 31, 2012 and 2011, the diluted earnings per (loss) share amounts equal basic earnings (loss) per share because the Company had net losses or the impact of the assumed exercise of contingently issuable shares would have been anti-dilutive.
 
Use of Estimates
 
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. Actual results could differ from those estimates.

Fair Value

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

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.
 

DRINKS AMERICAS HOLDINGS, LTD., AND AFFILIATES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2012
 
3. GOING CONCERN MATTERS

The accompanying consolidated financial statements have been prepared on a basis that assumes the Company will continue as a going concern.  As of July 31, 2012, the Company has shareholders' equity of $1,690,370 applicable to controlling interest compared with $2,107,781 applicable to controlling interest for the year ended April 30, 2012, current liabilities exceeded current assets (working capital deficit) by $3,649,703 as of July 31, 2012 and has incurred significant operating losses and negative cash flows since inception. For the three months ended July 31, 2012, the Company sustained a net loss of $438,364 compared to a net loss of $346,268 for the three months ended July 31, 2011 and used cash of approximately $37,928 in operating activities for the three months ended July 31, 2012 compared with approximately $238,000 for the three months ended July 31, 2011. With our relationship with WBI, we believe our liquidity will improve.  In addition, the increased sales revenues have helped.  In the event, if we are not able to increase our working capital, we will not be able to implement or may be required to delay all or part of our business plan, and our ability to attain profitable operations, generate positive cash flows from operating and investing activities and materially expand the business will be materially adversely affected. The accompanying consolidated financial statements do not include any adjustments relating to the classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the company be unable to continue in existence.
 
4. ACCOUNTS RECEIVABLE

Accounts Receivable as of July 31, 2012 and April 30, 2012 consist of the following:
 
   
July 31,
2012
   
April 30,
2012
 
   
(unaudited)
       
Accounts receivable
 
$
674,783
   
$
878,056
 
Allowances
   
(146,365
)
   
(138,491 
)
   
$
528,418
   
$
739,565
 
 
5. INVENTORIES
 
Inventories as of July 31, 2012 and April 30, 2012 consist of the following:
 
  
 
July 31,
2012
   
April 30,
2012
 
   
(unaudited)
         
Raw Materials
 
$
-
   
$
20,431
 
Finished goods
   
-
     
820,970
 
   
$
-
   
$
841,401
 
 
All raw materials used in the production of the Company's inventories are purchased by the Company and delivered to independent production contractors.  During the three months ended July 31, 2012, the Company ceased carrying inventory, as the sale is made, the Company purchases and ships directly from manufacturer/wholesaler to the customer.

DRINKS AMERICAS HOLDINGS, LTD., AND AFFILIATES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2012
 
6. OTHER CURRENT ASSETS
 
Other Current Assets as of July 31, 2012 and April 30, 2012 consist of the following:
 
  
 
July 31, 
2012
   
April 30,
 2012
 
   
(unaudited)
       
Employee advances
 
$
-
   
$
46,659
 
Prepaid Other
   
-
     
14,915
 
   
$
-
   
$
61,574
 
 
Prepaid other are comprised of prepaid marketing fees, employee travel advances and expenses.
  
7. PROPERTY AND EQUIPMENT
 
Property and equipment as of July 31, 2012 and April 30, 2012consist of the following:
 
  
Useful
Life
 
July 31,
2012
   
April 30,
2012
 
  
   
(unaudited)
       
Computer equipment
5 years
 
$
8,401
   
$
8,401
 
Furniture & fixtures
5 years
   
44,028
     
44,028
 
Automobiles
5 years
   
27,136
     
27,136
 
Production molds & tools
5 years
   
92,400
     
92,400
 
       
171,965
     
171,965
 
Accumulated depreciation
     
(160,709
)
   
(158,447
)
     
$
11,256
   
$
13,518
 
 
Property and equipment are stated at cost. When retired or otherwise disposed, the related carrying value and accumulated depreciation are removed from the respective accounts and the net difference less any amount realized from disposition, is reflected in earnings. For financial statement purposes, property and equipment are recorded at cost and depreciated using the straight-line method over their estimated useful lives of 5 years.

Depreciation expense for the three months ended July 31, 2012 and 2011 was $2,262 and $5,877, respectively.
 
 
 DRINKS AMERICAS HOLDINGS, LTD., AND AFFILIATES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2012
 
8. INTANGIBLE ASSETS
 
Intangible assets include the acquisition costs of trademarks, license rights and distribution rights for the Company’s alcoholic beverages.
 
As of July 31, 2012 and April 30, 2012, intangible assets are comprised of the following:
 
  
 
July 31,
2012
   
April 30,
2012
 
   
(unaudited)
       
Trademark and license rights of Rheingold beer
   
230,000
     
230,000
 
Worldwide Beverages agreement
   
4,870,391
     
4,870,391
 
Other trademark and distribution rights
   
475,000
     
475,000
 
     
5,575,391
     
5,575,391
 
Accumulated amortization
   
(399,001
)
   
(382,036
)
   
$
5,178,652
   
$
5,193,355
 
 
Amortization expense for the three months ended July 31, 2012 and 2011 was $16,965 and $14,703, respectively.
 
Investment in equity investees represents the Company's investment in Old Whiskey Rivers and is recorded at fair value.  There were immaterial changes in valuation for the three months ended July 31, 2012.

9. INVESTOR NOTE PAYABLE
 
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.    
 
On December 13, 2011, the Company and the Investor entered into a Forbearance Agreement (the “Forbearance Agreement”) whereby the Investor agreed to forbear from enforcing the Investor’s remedial rights under the Loan Documents until January 1, 2013 (the “Forbearance Agreement”).  Pursuant to the Forbearance Agreement, the Debenture will remain in full force and effect and, as a result of certain defaults under the Loan Documents, the outstanding amount owed under the Debenture, including interest, fees, penalties and legal fees, was agreed to be no less than $2,000,000, with interest, fees and penalties continuing to accrue (the “Debenture Balance”).  Notwithstanding the Debenture Balance, the Company and the Investor agreed to a payoff balance of $1,126,360 (the “Forbearance Amount”), which Forbearance Amount shall accrue interest at a rate of 8% per annum, commencing on December 13, 2011.  So long as the Company complies with the terms of the Forbearance Agreement and no further defaults occur under the Loan Documents, the Company’s obligation will be entirely satisfied upon due payment of the Forbearance Amount in accordance with the following schedule of fixed cash payments:

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

 
DRINKS AMERICAS HOLDINGS, LTD., AND AFFILIATES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2012
 
On October 5, 2011 the Company paid the Investor $50,000 and shortly thereafter a final issuance of 77,280 shares of Common Stock which payment and issuance were credited to the Debenture Balance and the Forbearance Amount and were reflected in the amounts owed under the Debenture Balance and the Forbearance Amount.
 
In the event that the Company does not comply with all of its obligations or a default occurs under the Forbearance Agreement or the Loan Documents (a “Future Default”), the outstanding balance under the Debenture will be deemed to be the Debenture Balance with all accrued interest, fees and penalties, less any payments made in accordance with the payment schedule.  In the event of a Future Default, the Investor will have a right to convert all or part of the Debenture Balance for shares of Common Stock.  Accordingly, the Company agreed to reserve 400,000 shares of Common Stock for issuance to the lender upon such conversion.  In addition, the Company entered into an Escrow Agreement whereby the Company agreed to deliver 400,000 shares (the “Forbearance Conversion Shares”) to be held in escrow.  In the event of certain defaults under the Forbearance Agreement or the Debenture, the Investor will have the right to receive the Forbearance Conversion Shares, which right was memorialized in that certain letter containing Irrevocable Instructions to Transfer Agent, dated December 13, 2011.  Pursuant to the Forbearance Agreement, the Company also consented to a Judgment by Confession whereby the Company agreed to allow a court of proper jurisdiction to enter a Judgment against the Company in favor of the Investor.

10. LINE OF CREDIT, RELATED PARTY

As of July 31, 2012 and April 30, 2012, the Company has outstanding $415,946 and $215,946 on a $660,000 line of credit, unsecured at 15% per annum, due upon demand, respectively.  The line of credit is provided by a current note holder and board member of the Company.  For the three months ended July 31, 2012, the Company paid $5,489 as interest expense.

11. NOTES AND LOANS PAYABLE
 
Notes and Loans Payable as of July 31, 2012 and April 30, 2011 consisted of the following: 
 
  
 
July 31,
2012
   
April 30, 
2012
 
   
(unaudited)
       
Note Payable (a)
 
$
192,000
   
$
192,000
 
Note Payable (b)
   
145,008
     
145,008
 
Note Payable (c)
   
32,500
     
55,000
 
     
369,508
     
392,008
 
Less current portion
   
369,508
     
392,008
 
                 
Long-term portion
 
$
-
   
$
-
 
 
(a):

On December 13, 2010, in connection with the settlement of accrued but unpaid salary compensation due to our former Vice President of Sales, we issued a promissory note for $192,000. The note accrues interest at the annual rate of 6% and is due the earliest of thirty business days following the successful completion and receipt of a financing equal to or greater than one million dollars or January 1, 2012. At July 31, 2012, the Company accrued interest payable of $13,056.
 

DRINKS AMERICAS HOLDINGS, LTD., AND AFFILIATES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2012
 
(b):

As of July 31, 2012, the Company has borrowed an aggregate of $250,000 net of 104,992 of repayments, from an investor under an informal agreement for working capital purposes.  The loan is payable on demand and is classified under notes and loans payable as a current liability of $145,008 as of July 31, 2012 and April 30, 2012.  Interest is paid on a monthly basis.
 
(c):
 
In December 2011, in connection with the settlement of accrued but unpaid salary compensation due to an ex-employee, we agreed to a payment plan containing fourteen payments with the final payment due September 1, 2012 for a total of $140.000. Balance due under this agreement as of July 31, 2012 and April 30, 2012 was $32,500 and $55,000, respectively.

12. DUE TO FACTOR

On June 18, 2012, the Company entered a recourse factoring agreement expiring six months from execution.  The factoring agreement advances 80% of approved invoices.  The factoring agreement is secured by continuing lien on   accounts receivable, contract rights, instruments, chattel paper, general intangibles and inventory.

13. ACCRUED EXPENSES
 
Accrued expenses consist of the following at July 31, 2012 and April 30, 2012:
 
  
 
July 31,
2012
   
April 30, 
2012
 
   
(unaudited)
       
Payroll, board compensation and consulting fees owed to officers, directors and shareholders
 
$
588,198
   
$
770,690
 
Other payroll and consulting fees
   
 6,563
     
6,563
 
Interest
   
53,930
     
40,850
 
Other
   
82,826
     
 82,826
 
   
$
731,517
   
$
900,929
 
 
 
DRINKS AMERICAS HOLDINGS, LTD., AND AFFILIATES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2012
 
14. WARRANTS AND OPTIONS

Warrants

The following table summarizes the warrants outstanding and related prices for the shares of the Company’s common stock issued as of July 31, 2012:
 
           
Warrants Outstanding
Weighted Average
               
Warrants Exercisable
 
           
Remaining
   
Weighted
         
Weighted
 
     
Number
   
Contractual
   
Average
   
Number
   
Average
 
Exercise Price
   
Outstanding
   
Life (years)
   
Exercise price
   
Exercisable
   
Exercise Price
 
 $
23.44
     
213
     
2.46
   
 $
23.44
     
213
   
 $
23.44
 
 
51.56
     
182
     
2.42
     
51.56
     
182
     
51.56
 
 
59.78
     
647
     
2.39
     
59.78
     
647
     
59.78
 
 
84.38
     
1,120
     
2.38
     
84.38
     
1,120
     
84.38
 
 
93.75
     
1,254
     
2.32
     
93.75
     
1,254
     
93.75
 
 
234.38
     
53
     
2.08
     
234.38
     
53
     
234.38
 
 
243.75
     
51
     
2.08
     
243.75
     
51
     
243.75
 
 
351.56
     
67
     
4.87
     
351.56
     
67
     
351.56
 
 
562.50
     
2,624
     
7.75
     
562.50
     
2,624
     
562.50
 
 
1,312.50
     
667
     
1.89
     
1,312.50
     
667
     
1,312.50
 
 
1,640.00
     
33
     
1.89
     
1,640.00
     
33
     
1,640.00
 
 
1,875.00
     
620
     
0.90
     
1,875.00
     
620
     
1,875.00
 
 
4,815.00
     
213
     
4.87
     
4,815.00
     
213
     
4,815.00
 
Total
     
7,744
     
3.82
             
7,744
         

Transactions involving the Company’s warrant issuance are summarized as follows:
 
   
Number of
Shares
   
Weighted
Average Price
Per Share
 
Outstanding at April 30, 2011
   
8,225
   
$
812.50
 
Issued
   
-
     
-
 
Expired
   
(81
)
   
(697.50
)
Canceled
   
-
     
-
 
Outstanding at April 30, 2012
   
7,744
     
812.50
 
Issued
   
-
     
-
 
Expired
   
-
         
Canceled
   
-
     
-
 
Outstanding at July 31, 2012
   
7,744
   
$
812.50
 

 
 DRINKS AMERICAS HOLDINGS, LTD., AND AFFILIATES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2012
 
Options
 
The following table summarizes the options outstanding and related prices for the shares of the Company’s common stock issued as of July 31, 2012:
 
           
Options Outstanding
Weighted Average
               
Warrants Exercisable
 
           
Remaining
   
Weighted
         
Weighted
 
     
Number
   
Contractual
   
Average
   
Number
   
Average
 
Exercise Price
   
Outstanding
   
Life (years)
   
Exercise price
   
Exercisable
   
Exercise Price
 
 $
600.00
     
620
     
1.62
   
 $
600.00
     
465
   
 $
600.00
 
 
660.00
     
667
     
1.62
     
660.00
     
 500
     
660.00
 
 
1,312.50
     
133
     
1.62
     
1,312.50
     
133
     
1,312.50
 
Total
     
1,420
     
1.62
             
1,098
         
 
Transactions involving the Company’s options issuance are summarized as follows:
 
   
Number of
Shares
   
Weighted
Average Price
Per Share
 
Outstanding at April 30, 2011
   
1,420
   
$
695.00
 
Issued
   
-
     
-
 
Exercised
   
-
     
-
 
Canceled or expired
   
-
     
-
 
Outstanding at April 30, 2012
   
1,420
     
695.00
 
Issued
   
-
     
-
 
Expired
   
-
         
Canceled
   
-
     
-
 
Outstanding at July 31, 2012
   
1,420
   
$
695.00
 

The Company did not issue options during the three months ended July 31, 2012.
 

 DRINKS AMERICAS HOLDINGS, LTD., AND AFFILIATES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2012
 
15.  RELATED PARTY TRANSACTIONS

Due to Stockholders

The Company is obligated to issue shares of its common stock to several of its stockholders in connection with its June 2009 debt financing (see Note 9).

During the three months ended July 31, 2012, the Company incurred$117,086, net of repayments of $16,185, to the Company's CEO for incurred past expenses.   

As described in Note 10 above, a note holder and board member provides a $660,000 line of credit, of which $415,946 is being utilized. For the three months ended July 31, 2012, the Company has paid $5,489 of interest on the credit line.

Please refer to the Company's filed 10-K for the year ended April 30, 2012 for additional related party transactions.
 
16. CUSTOMER CONCENTRATION
 
For the three months ended July 31, 2012, five and one of our largest customers accounted for 29% and 35%, of the Company's sales, respectively, and seven and one customers accounted for 44% and 10%, respectively of the Company's accounts receivable as of July 31, 2012 and April 30, 2012, respectively. For the three months ended July 31, 2011, our largest customer accounted for 35% of our sales
.
The company’s national spirits sales are generally done through the top five spirits and wine distributing companies in the nation, Glazers, Southern Wine and Spirits, Republic National Distributing Company, Johnson Brothers Distributing Company and Youngs Market. The company’s beer business is done primarily through a network of Anhueser Busch and Miller and Coors Brewing company distributors in 15 states.

17. SUBSEQUENT EVENTS

On August 30, 2012, the Company entered into Amendment No. 2 (the “Amendment”) to that certain License Agreement Date June 27, 2011 with Worldwide Beverage Imports, LLC.  Pursuant to the Amendment (i) the Company is now permitted to sell and distribute WBI licensed spirits in all states of the United States, including California; and (ii) the Company’s right to an exclusive license to use and display certain trademarks, service marks, and trade names which are applicable to WBI products was made into a non-exclusive license.  The exclusive distribution license for WBI products was not altered.

In consideration for and as an inducement to enter into the Amendment, the Company agreed to transfer 2,750,000 shares of the Company’s common stock and 250,000 shares of the Company’s Series D Preferred Stock, which was newly designated on August 30, 2012, to WBI (the “Holder”).
 

DRINKS AMERICAS HOLDINGS, LTD., AND AFFILIATES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2012
 
The Series D Preferred Stock vote as a single class with the common stock of the Company and the holders of the Series D Preferred Stock hold the number of votes equal to 100 times the number of shares of Series D Preferred Stock.  Upon liquidation, the holders of the Series D Preferred Stock have the right to receive, prior to any distribution with respect to the Company’s common stock, but subject to the rights of the holders of the Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock, the Stated Value (plus any other fees or liquidated damages payable thereon).
 
Provided that the Holder and the Holder’s affiliates have been relieved of their personal guarantees on behalf of the Company and all debt to the Holder and the Holder’s affiliates is paid in full, the Series D Preferred Stock shall automatically be converted into 250,000 shares of the Company’s Common Stock, if, at any time, (i) the Holder and the Holder’s affiliates reduces its ownership of the Company’s Common Stock below 50% of 10,229,602 shares, the number of shares the Holder and the Holder’s affiliates held on August 23, 2012 and the concentration of Common Stock has not exceeded 20% of 10,229,602 shares by any other individual or affiliate group; or (ii) the total number of the Company’s common stock shareholders exceeds 1,000 shareholders.
 
On September 14, 2012, pursuant to a separation and release agreement, J. Patrick Kenny resigned his positions as the Company’s Chief Executive Officer, Chief Financial Officer and Principal Accounting Officer, as well as his position serving on the Company’s board of directors.  Mr. Kenny’s resignation was not due to any disagreement with the Company on any matter relating to the Company’s operations, policies or practices.
 
On September 14, 2012, Federico Cabo was appointed by unanimous consent of the Board of Directors to serve as the Company’s Chief Executive Officer and President.  Concurrently, Steven Dallas was appointed to serve as the Company’s interim Chief Financial Officer.
 
Subsequent events have been evaluated through September 25, 2012, a date that the financial statements were issued.
 
 
Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 
Unless otherwise indicated or the context otherwise requires, all references in this Report on Form 10-Q to “we”, “us”, “our” and the “Company” are to Drinks Americas Holdings, Ltd., a Delaware corporation and formerly Gourmet Group, Inc., a Nevada corporation, and its majority owned subsidiaries Drinks Americas, Inc., Drinks Beers, Drinks Global Imports, LLC, D.T. Drinks, LLC, and Maxmillian Mixers, LLC and Maxmillian Partners, LLC.
 
Cautionary Notice Regarding Forward Looking Statements
 
The disclosure and analysis in this Report contains some forward-looking statements. Certain of the matters discussed concerning our operations, cash flows, financial position, economic performance and financial condition, in particular, future sales, product demand, competition and the effect of economic conditions include forward-looking statements within the meaning of section 27A of the Securities Act of 1933, referred to herein as the Securities Act, and Section 21E of the Securities Exchange Act of 1934, referred to herein as the Exchange Act.
 
Statements that are predictive in nature, that depend upon or refer to future events or conditions or that include words such as "expects," "anticipates," "intends," "plans," "believes," "estimates" and similar expressions, are forward-looking statements. Although we believe that these statements are based upon reasonable assumptions, including projections of orders, sales, operating margins, earnings, cash flow, research and development costs, working capital, capital expenditures, distribution channels, profitability, new products, adequacy of funds from operations and other projections, and statements expressing general optimism about future operating results, and non-historical information, they are subject to several risks and uncertainties, and therefore, we can give no assurance that these statements will be achieved.
 
Readers are cautioned that our forward-looking statements are not guarantees of future performance and the actual results or developments may differ materially from the expectations expressed in the forward-looking statements.
 
As for the forward-looking statements that relate to future financial results and other projections, actual results will be different due to the inherent uncertainty of estimates, forecasts and projections and may be better or worse than projected. Given these uncertainties, you should not place any reliance on these forward-looking statements. These forward-looking statements also represent our estimates and assumptions only as of the date that they were made. We expressly disclaim a duty to provide updates to these forward-looking statements, and the estimates and assumptions associated with them, after the date of this filing to reflect events or changes in circumstances or changes in expectations or the occurrence of anticipated events.
 
We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future events or otherwise. In addition, forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our Company's historical experience and our present expectations or projections. These risks and uncertainties include, but are not limited to, those described in Part II, "Item 1A. Risk Factors" and elsewhere in this report and in our Annual Report on Form 10-K for the year ended April 30, 2012, and those described from time to time in our future reports filed with the Securities and Exchange Commission.  This discussion is provided as permitted by the Private Securities Litigation Reform Act of 1995.
 
Introduction
 
The following discussion and analysis summarizes the significant factors affecting: (1) our consolidated results of operations for the three months ended July 31, 2012, compared to the three months ended July 31, 2011, and (2) our liquidity and capital resources. This discussion and analysis should be read in conjunction with the consolidated financial statements and notes included in Item 1 of this Quarterly Report on Form 10-Q, and the audited consolidated financial statements and notes included  in our Annual Report Form 10-K, filed on August 14, 2012.
 
 
Results of Operations
 
Three Months Ended July 31, 2012 Compared to Three Months Ended July 31, 2011
 
Net Sales: Net sales were approximately $1,290,000 for the three months ended July 31, 2012 compared to net sales of approximately $148,000 for the same period last year, an increase of 771% as a result of the Company’s sales of products from the Drinks WBI transaction and the companies access to production credit that arises from the deal whereby the company is no longer impeded from production limited by access to capital. The company’s KAH Tequila is the primary driver of revenue growth for the company.
 
Gross Margin:  Gross margin was $293,157, or 22.7% of net sales for the three months ended July 31, 2012 compared to gross margin of $15,298, or 10.3% of net sales for the three months ended July 31, 2011. 
 
Selling, General and Administrative Expenses: Selling, general and administrative expenses totaled approximately $701,000 for the three months ended July 31, 2012, compared to $514,000 for the three months ended July 31, 2011, an increase of approximately $187,000, or 36.4%, attributable to additional selling costs due increased sales volumes.
 
Interest expense:  Interest expense for the three months ended July 31, 2012 was approximately $30,000 compared to $112,000 for the same period last year, a net decrease of $82,000 or 73%.  This decrease is predominantly due to our access to production through our WBI transaction and a reduction in the cost of financing our outstanding liabilities as compared to prior year.
 
Loss on change in fair value of derivative:  During the three months ended July 31, 2011, we were required to bifurcate the conversion option embedded in certain convertible promissory notes and record at fair value each reporting period as a liability.  During the three months ended July 31, 2011, we recorded a loss on change in fair value of $29,384 as compared to Nil the same period current year.
 
Loss (gain) on settlement of debt:  During the three months ended July 31, 2012, we negotiated and settled outstanding debt, primarily trade vendors.  As such, we recognized a loss on settlement of debt of approximately $500 for the three months ended July 31, 2012 compared to a gain of approximately $18,000 the same period last year.
 
Gain on disposal of product line:  During the three months ended July 31, 2011, we exchanged 42% of our interest in Olifant U.S.A, Inc. for the cancellation of our remaining outstanding debt obligation and related accrued interest.  With the exchange, we reduced our ownership to 48% and realized a gain on sale of the product line of approximately $280,478 compared to Nil for the three months ended July 31, 2012.
 
Financial Liquidity and Capital Resources
 
Our accompanying consolidated financial statements have been prepared on a basis that assumes the Company will continue as a going concern. As of July 31, 2012, the Company has shareholders' equity of approximately $1,690,000 applicable to controlling interests compared with $2,108,000 applicable to controlling interests at April 30, 2012, and working capital deficiency of approximately $3,650,000 as of July 31, 2012 and has incurred significant operating losses and negative cash flows since inception. For the three months ended July 31, 2012, the Company sustained an operating loss of approximately $408,000 compared to an operating loss of $499,000 for the three months ended July 31, 2011 and used cash of approximately $38,000 in operating activities for the three months ended July 31, 2012 compared with approximately $238,000 for the three months ended July 31, 2011. We have converted certain liabilities into equity.   The accompanying consolidated financial statements do not include any adjustments relating to the classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the company be unable to continue in existence.
 
We will need to continue to manage carefully our working capital and our business decisions will continue to be influenced by our working capital requirements.
 
Net Cash Used in Operating Activities: Net cash used in operating activities for the three months ended July 31, 2012 was approximately $38,000, primarily from our loss of approximately $438,000 net with non cash activities of approximately $19,000 depreciation and amortization, $21,000 stock based compensation, $352,000 changes in operating assets and sundry other non cash activities (primarily decreases in our accounts receivable and inventory). We have to date funded some of our operations predominantly through loans from shareholders, officers and investors.
 
Net Cash provided by Investing Activities: Nil for the three months ended July 31, 2012 and 2011.

 
Net Cash provided by Financing Activities: Net cash provided by financing activities for the three months ended July 31, 2012 was approximately $111,000 primarily from net proceeds from line of credit of $200,000, related party loan of $101,000 and factoring of our accounts receivable of $115,309,  net with repayments of $305,500. Net cash provided by  financing activities for the three months ended July 31, 2011 was $236,000 primarily from net proceeds from debt and notes payable.
 
Based on our current operating activities and plans, we believe our existing financings will enable us to meet our anticipated cash requirements for at least the next six months.
 
Impact of Inflation
 
Although management expects that our operations will be influenced by general economic conditions, we do not believe that inflation has had a material effect on our results of operations.
 
Seasonality
 
Generally, the second and third quarters of our fiscal year (August-January) are the periods that we realize our greatest sales as a result of sales of alcoholic beverages during the holiday season. During the fourth quarter of our fiscal year (February-April), we generally realize our lowest sales volume as a result of our distributors decreasing their inventory levels, which typically remain on hand after the holiday season.
 
Item 3.    Quantitative and Qualitative Disclosures About Market Risk.
 
Not applicable to smaller reporting companies
 
Item 4.    Controls and Procedures.
 
Disclosure Controls and Procedures  
 
We have adopted and maintain disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to provide reasonable assurance that information required to be disclosed in our reports under the Exchange Act, is recorded, processed, summarized and reported within the time periods required under the SEC's rules and forms and that the information is gathered and communicated to our management, including our Chief Executive Officer (Principal Executive Officer) and our Chief Financial Officer (Principal Financial Officer), as appropriate, to allow for timely decisions regarding required disclosure.
 
Our Chief Executive Officer and our interim Chief Financial Officer evaluated the effectiveness of our disclosure controls and procedures as of July 31, 2012, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of July 31, 2012, our Chief Executive Officer and our interim Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were ineffective due to the Company’s inability to file this quarterly report within the period specified by the SEC.  However, the Company believes that because the Company has recently segregated the Chief Executive Officer and Chief Financial Officer functions and because it expects to hire qualified accounting personnel to keep the books and records of the Company, our disclosure controls and procedures, going forward, will be effective to provide reasonable assurance that information required to be declared by us in reports that we file with or submit to the Securities and Exchange Commission (the “SEC”) is (1) recorded, processed, summarized, and reported within the periods specified in the SEC’s rules and forms and (2) accumulated and communicated to our management, including our Chief Executive Officer, to allow timely decisions regarding required disclosure.  
 
Changes in Internal Control Over Financial Reporting
 
There were no changes in our internal control over financial reporting as defined in Rule 13a-15 under the Exchange Act that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 

PART II – OTHER INFORMATION
Item 1.    Legal Proceedings.
 
There have been no material changes in legal proceeds previously disclosed in our Annual Report on Form 10-K for the year ended April 30, 2012.

Item 1A.  Risk Factors.
 
There have been no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended April 30, 2012.
 
Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds.
 
None 

Item 3.    Defaults Upon Senior Securities.
 
None.
 
Item 4.    Mine Safety Disclosures.
  
Not Applicable.
 
Item 5.    Other Information.
 
None.
 

Item 6.    Exhibits.
 

   
101 INS
XBRL Instance Document*
   
101 SCH
XBRL Taxonomy Extension Schema Document*
   
101 CAL
XBRL Taxonomy Extension Calculation Linkbase Document*
   
101 DEF
XBRL Taxonomy Extension Definition Linkbase Document*
   
101 LAB
XBRL Taxonomy Extension Label Linkbase Document*
   
101 PRE
XBRL Taxonomy Extension Presentation Linkbase Document*

* Pursuant to Rule 405(a)(2) of Regulation S-T, the registrant is relying upon the applicable 30-day grace period for the initial filing of its first Interactive Data File required to contain detail-tagged footnotes or schedules. The registrant intends to file the required detail-tagged footnotes or schedules by the filing of an amendment to this Quarterly Report on Form 10-Q within the 30-day period.
 
 
SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
DRINKS AMERICAS HOLDINGS, LTD.
 
       
September 25, 2012
By:
/s/ Federico Cabo
 
   
Federico Cabo
Chief Executive Officer
 

September 25, 2012
By:
/s/ Steven Dallas
 
   
Steven Dallas
Interim Chief Financial Officer
(Principal Accounting Officer)