10-K 1 drinksamerica10k043012.htm drinksamerica10k043012.htm
 
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 EXCHANGE ACT OF 1934

For the fiscal year ended April 30, 2012

o TRANSITION REPORT UNDER 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 small business issuer as specified in its charter)

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

4101 Whiteside Street
Los Angeles, CA 90063
 (Address of principal executive offices)

(323) 266-8765
(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 o
   
Non-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, 2011 was approximately $1,032,214.  The registrant had 2,184,442 shares of common stock outstanding at October 31, 2011.
 
As of August 10, 2012, there were 21,279,339 shares of Common Stock, par value $0.001 per share, outstanding.
 
 
DRINKS AMERICAS HOLDINGS, LTD.

FORM 10-K

Table of Contents

PART I
     
Item 1.
  5
     
Item 1A.
  12
     
Item 1B.
  16
     
Item 2.
  17
     
Item 3.
  17
     
Item 4.
  18
     
PART II
     
Item 5.
  18
     
Item 6.
20
     
Item 7.
  21
     
Item 7A.
 24
     
Item 8.
24
     
Item 9.
  24
     
Item 9A.
  24
     
Item 9B.
 25
     
PART III
     
Item 10.
25
     
Item 11.
  28
     
Item 12.
  29
     
Item 13.
  32
     
Item 14.
  33
     
PART IV
     
Item 15.
34
     
  36
 
 
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”, “Drinks”, “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 100% owned New York limited liability company, Drinks Global Imports, LLC,  (v) our 100% owned New York Limited Liability Company, DT Drinks, LLC, (vi) our 48% owned Connecticut subsidiary, Olifant U.S.A, Inc. (which we acquired on January 15, 2009), (vii) our 100% owned Delaware subsidiary, Drinks Americas Beers, Inc., and (viii) our 100% owned Delaware subsidiary, Drinks Americas Waters, LLC.
 
Drinks Americas Holdings, Ltd. Organizational Chart
 
 
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.
 
 
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 1 for 15 reverse split of issued and outstanding shares of common stock of the Company without changing par value of the stock.  On December 27, 2011, the Company affected a 1 for 250 reverse split of its issued and outstanding shares of common stock of the Company without changing par value of the stock.  All information contained in this Annual Report on Form 10-K reflect post-split share adjustments for both reverse stock splits.

BUSINESS OVERVIEW

Based in Los Angeles, California, 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 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 through a licensing agreement with Worldwide Beverage Imports, LLC, a Nevada limited liability company (“WBI”).
 
Prior to our licensing agreement with WBI, the expansion of our business had been negatively affected by insufficient working capital. As a result, we 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. In June 2011, our acquisition of the licensing rights to WBI brands and products put in place favorable invoicing terms that provided the Company accelerated access to production.
 
 
Our strategy is to take advantage of the world-wide growth of premium spirits and alcoholic beverages, 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 with whom we do business, allowing us to increase our distribution throughout the entire United States and to expand internationally.  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 to which Drinks acquired the licensed rights from WBI will be sold directly from Drinks to its network of distributors.
 
On June 27, 2011, the Company executed a Stock Purchase Agreement (the “Purchase Agreement”) with Worldwide Beverage Imports, LLC, an entity solely owned and operated by Richard F. Cabo, a director on our Board of Directors. Pursuant to the Purchase Agreement, as amended on November 1, 2011, the Company acquired worldwide licensing and distribution rights on both the spirits and beer products owned or licensed by WBI, including but not limited to products such as KAH Tequila, Ed Hardy Tequila, Agave 99, Mexicali Beer, Chili Beer, Rio Bravo Beer, Red Pig Ale, Rio Bravo Beer, Chili Devil Beer and Crazy Pig Ale, as well as the opportunity to market private label beer to key accounts (collectively, the “Rights”).  Pursuant to the Purchase Agreement, as amended, WBI forgave a $300,000 loan to the Company (the “Forgiven Loan”) and delivered to the Company $1,200,000 of inventory related to the Rights (the “Inventory”).  In accordance with the Purchase Agreement and in consideration for the Rights, the Forgiven Loan and the Inventory, the Company issued an aggregate of 11,273,439 shares to WBI and its designees.
 
We believe that the production resources of our partner WBI will allow us to rapidly expand our brands and accelerate our revenue.  WBI will provide a stream of products that can be incremental to Drinks portfolio.
 
Furthermore, we believe that our organizational approach will also minimize the need to invest heavily in fixed assets or factories. Our strategic relationship with WBI 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 brands we licensed from WBI include:

•  
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 has won a range of platinum and gold industry-awards, comes in both 750 and 50ml bottles;
•  
Old Whiskey River Bourbon (R), an award winning small batch 6 year old bourbon (sometimes referred to as "Old Whiskey River ");
•  
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;
•  
Agave 99 an award winning high proof Tequila;
•  
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;
•  
Chili Devil Beer, which features a serano chili pepper in every bottle; and
•  
Crazy PigAle and Red Pig Ale are the only craft ales manufactured in Mexico.  These dark craft beers are available in 11.2 ounce six packs.

Our Company is a Delaware corporation, our principal place of business is located at 4101 Whiteside Street, Los Angeles, CA 90063 and our telephone number is (323) 266-8765.
 
STRATEGY

Our long-term business strategy is to expand the sales and distribution of our alcoholic and non-alcoholic beverage portfolio and to continue 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.  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, Mexicali Beer, Rio Bravo Beer, Chili Devil Beer , Red Pig and Crazy Pig Ale, along with our distribution relationships to accelerate our revenue, support our margins, and leverage existing  consumer awareness and demand for our brands.
 
Several of the brands have the strategic advantage of being historically iconic.  For example, Rheingold Beer, established in 1883, has a long history and brand identification with New York and Mexicali Beer has been sold since 1928 in Mexico.  In addition, our brands have an association with iconic histories or with iconic entertainers that provide us with efficient promotion and marketing opportunities.  KAH, a historic Mayan god, has a history and recognition dating back centuries.  Our bourbon brand, Old Whiskey River, is promoted with Willie Nelson.
 
 
We believe that the consumer awareness of these historical brands and iconic associations give us a marketing advantage that allows 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 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.

ALCOHOLIC BEVERAGE DISTRIBUTION

The Company sells its brands and products through its national network of Spirits, Wine and Beer distributors. The Company also sells on consignment to up to 18 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 year 2011 and year-to-date 2012.

The International Wine & Spirit Research Forecast Report
 
According to the International Wine & Spirit Research (“IWSR”) Forecast Report 2010-2015, the spirits industry is on the path to recovery following the credit crunch, which affected many markets starting in 2009.  Several countries and categories returned to stability or growth but the time and speed of recovery will vary considerably depending on local circumstances.
 
The global spirits market is projected to continue to grow, albeit at a more moderate rate than in the five years leading up to 2009 – a CAGR of 1.4% is predicted between 2009 and 2015, down from 2.4% between 2004 and 2009. 
 
The US is predicted to be the third fastest-growing market worldwide until 2015; the vodka market alone is likely to gain over 12 million cases.  Most spirits categories are projected to see more moderate growth until 2015 than they have in the last five years. This is largely due to the cautious spending behavior adopted by consumers after the economic recession. Rum and whiskey is anticipated to gain share of the overall spirits market, while vodka’s share is expected to decline.  Whiskey is projected to see the highest increase in percentage terms and is estimated to gain 100 million cases over the next five years. The booming market in India is leading the growth with Indian molasses-based whisky. Furthermore, Scotch consumption is expected to grow at a rate of 1.2% until 2015, compared to a 2004-2009 CAGR of 1%.  As consumers are switching to Scotch from other categories such as aniseed, beer and even wine, and larger bottle sizes are growing in popularity.  France is forecast to show the strongest volume growth in Scotch over the next five years.  
 
Due to its growing popularity among young people and its fashionable image in many key markets, rum is projected to continue to increase at a similar CAGR as that of the previous five-year period. After a difficult year in 2009, more premium products are expected to return to growth in the long term.  
 
The global vodka market is expected to grow at a CAGR of 0.7%, returning to gradual growth after falling marginally between 2004 and 2009 (-0.1%).  It is expected that by 2015, more than every third bottle (35.1%) of spirits sold in the US will be vodka.  In spirits generally, the super-premium and above-price segments are likely to see the highest increases in percentage terms, as consumers will be more confident and able to trade up once again. The recovery of the on-premise markets should also help the growth of this segment.
 
 
Industry Consolidation
 
There has been substantial consolidation in the Spirits industry. The biggest mover in the consolidation game has been Pernod Ricard, which was in the top 10 in 1995 but with a low profile. Much of Pernod’s 24-million-case business (compared to 97 million cases today) was in France, where its Ricard and Pastis 51 brands dominated. Back then, the world’s top two spirits companies were IDV (GrandMet) and United Distillers (Guinness), followed by Seagram and Allied Domecq, which was born in 1994 after the merger between Allied Lyons and Pedro Domecq.
 
Guinness and GrandMet merged in 1997 to form Diageo, creating a spirits portfolio of unparalleled power, led by Smirnoff, Johnnie Walker, and Baileys. While the Diageo deal reshaped the global spirits landscape, it foreshadowed three mega-deals that would transform the business even further. Pernod Ricard was involved in all of them. In 2001, Diageo and Pernod Ricard acquired Seagram’s spirits and wine business, several months after Seagram announced it would exit the business to focus on entertainment. The Seagram deal fortified Diageo’s already-formidable lineup, adding powerhouses like Captain Morgan and Crown Royal. But it remade Pernod Ricard, energizing its portfolio with big-name brands like Chivas Regal and Martell. Four years later Allied Domecq went on the block, and Pernod was there again, collaborating with Fortune Brands, whose Jim Beam Brands unit was aiming to diversify. That deal added Ballantine’s, Beefeater, Malibu and Kahlúa to the Pernod portfolio, while Beam got Sauza, Courvoisier, Canadian Club and Maker’s Mark, among others. In 2008, one of the industry’s crown jewels—Absolut vodka—was put on the block. Seeing Absolut as the missing piece in the portfolio, Pernod again paid up—this time without a partner, acquiring V&S for approximately $9 billion.
 
As a result of such significant consolidation within the spirits industry, in recent years, there has been five major companies dominating the global spirits market:
 
2010 - Top Five Distilled Spirit Marketers Worldwide1
(millions of nine-liter cases)
Rank
  
2010 Pro
Forma
  
2010
Volume
  
1995
Volume
  
1995
Rank
1
  
 
Diageo2,3
 
  
115.9
  
109.0
  
1
2
  
 
United
Spirits
 
  
110.7
  
15.1
  
9
3
  
 
Pernod
Ricard
 
  
97.0
  
24.4
  
7
4
  
 
Bacardi
 
  
36.4
  
27.4
  
5
5
  
 
Beam
 
  
33.5
  
24.7
  
6
                 
Total Top Five
  
393.5
  
200.6
    
 
1Excludes RTDs, low-proof cocktails and spirit mixers 
22010 adjusted to include Mey Icki, acquired this year. 
3IDV (GrandMet) and United Distillers (Guinness) merged to form Diageo in 1998.
Prior to that merger, IDV was ranked #1 at 61 million cases, while United Distillers
was #2 at 48 million cases. 
 
Source: IMPACT DATABANK

 
Tequila Industry - The ImpactDataBank Figures
 
Drinks’ business is focused in the growing premium Tequila category.  According to Impact Databank, the global Tequila category slowed to 1.5% growth in 2011.  However, the U.S., by far Tequila’s largest global market, maintained a brisk growth rate, rising 5% to 12.4 million cases.  Two brands among the top five Tequilas in the U.S. (1800 and Juarez) saw volumes rise by double-digit rates in 2011.   A third, Sauza, wasn’t far behind, with 9% depletions growth.  Meanwhile, the category’s second-ranked brand, Patrón, picked up speed, adding more than 750,000 cases last year. Of the top five, only market leader Jose Cuervo declined. The dynamic performance of upscale brands like Patrón and 1800 and lower-priced offerings like Juarez and Impact “Hot Brand” Camarena demonstrate Tequila’s current strength across multiple price points.
 
Much of the attention within Tequila in recent years has been on Patrón and its competitors at the high end. But while “premiumization” efforts continue, a new battleground is developing with an influx of accessibly-priced 100%-agave labels vying for scarce bar and shelf space. In addition to Camarena, which only launched in 2010 and already sells over 300,000 cases, Lunazul, El Charro, El Jimador, Azul and others are competing in the segment, generally around the $20 per bottle retail price mark.
 
The market leaders have also taken note of the 100%-agave opportunity. Jose Cuervo is present with its Tradicional line, whose Silver variant has gained currency among multicultural consumer, as is Sauza with its new Sauza Blue edition, which rolled out last June at $19 per bottle.
 
US - Top Five Tequila Brands
(millions of nine-liter cases)
   
Depletions
  
Percent
  
Market Share
Rank
  
Brand
  
Importer
  
2010
2011E
  
Change*
  
2010
2011E
1
  
Jose Cuervo
  
Diageo North America
  
3.55
3.51
  
-1.0%
  
30.2%
28.4%
2
  
Patrón
  
The Patrón Spirits Co.
  
1.70
1.76
  
3.5%
  
14.5%
14.3%
3
  
Sauza
  
Beam Inc.
  
1.59
1.72
  
8.5%
  
13.5%
13.9%
4
  
1800
  
Proximo Spirits
  
0.69
0.81
  
16.7%
  
5.9%
6.5%
5
  
Juarez
  
Luxco Inc.
  
0.53
0.58
  
10.5%
  
4.5%
4.7%
Total Top Five
  
8.06
8.38
  
4.1%
  
68.6%
67.8%
 
*based on unrounded data 
 
Source: Impact Databank
 
Patrón’s portfolio, which essentially created the high-end Tequila category, includes Silver, Reposado and Añejo expressions priced at $42.99, $46.99 and $52.99 per bottle, respectively, as well as luxury offerings Gran Patrón Platinum ($199.99) and Gran Patrón Burdeos ($499.99). According to Impact Databank, after a 6.5% global volume gain last year to 1.9 million cases (1.8 million of which came from the U.S.), Patrón became the world’s largest Tequila brand by retail sales valuee at $1.1 billion, surpassing Jose Cuervo.  For calendar year 2012 through March 2012, the brand is up 8.5% by volume globally and is projected to pass the 2-million-case mark this year.  Through its “Patrón Social Club,” a members-only network, which boasts 250,000 active members, Patrón rewards people who engage with the brand, such as through its popular “Patrón Secret Dining Society” initiative. 
 
The Patrón Spirits portfolio also has been seeing strong growth from its Tequila-based liqueur range, which features Patrón Citrónge ($22.99 per bottle), Patrón XO Café ($24.99 per bottle) and the recently released Patrón XO Café Dark Cocoa ($24.99 per bottle). The line’s standout offering has been XO Café, whose volume grew 35% globally last year. Indeed, XO Café has emerged as the leading Patrón label in several global markets, including the U.K. and Australia. Patrón’s liqueur range currently accounts for 22% of Patrón Spirits Co.’s total sales.
 
OUR PRODUCTS, ACQUISTIONS AND ALLIANCES
 
HISTORIC AND ICONIC BASED BRANDS
 
Our strategy is to rely on historically well-known brands, established but underleveraged and or Iconic brands such as KAH Tequila.  The company is executing a strategy that leads with the expansion of KAH Tequila nationally and internationally which will be followed by expansion of our Mexican Beer brands. We believe that KAH Day of the Dead Tequila will continue to sell at a premium price point, is iconic and well known to consumers who want to engage with , collect and enjoy the product. We also believe that the quality of this award winning product, the expansion of the overall tequila category led by consumer consumption and the word of mouth excitement about the product will continue to drive its growth and the company’s revenue and profits.
 
Our strategy is that KAH Tequila expands both its distribution base and consumer awareness revenue and margins will increase and the company will then be able to also compete in the growing Mexican Beer category with our Iconic Mexican Beer brands.
 
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, licenses or collects royalties from a number of Spirits Brands, including Old Whiskey River Bourbon, Damiana Liqueur, Rheingold Beer and as a result of its transaction with WBI, KAH Tequila, Agave 99, Mexicali Beer, Chili Devil Beer, Crazy 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 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.
 
In June of 2011, Drinks entered into a licensing agreement with WBI 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. The Company has generated orders for each of these products. The Company amended its agreement to increase its distribution rights to include Chile Devil Beer and Crazy Pig Ale.
 
FLAVORS, RESEARCH AND DEVELOPMENT RELATIONSHIP

Through our relationship with WBI the Company has access to leading distillery and brewery suppliers and technical resources.  In addition WBI provides development services, research resources, brand production planning and various other resources on a large but economical scale.

MARKETING, SALES AND DISTRIBUTION

MARKETING

Our marketing plan is based upon our strategy of leveraging exciting consumer trademarks, historically well-known brands and icon branding. This model has been used with our launch of KAH Tequila, Rheingold Beer and with Willie Nelson’s Old Whiskey River Bourbon.
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, supermarkets and on-premise bar and restaurant outlets nationally.
 
The company distributes its spirits brands through the leading spirits and wine Distributors in the nation, which include:

Southern Wine and Spirits
Glazer’s Wholesale
Johnson Brothers
Empire Charmer
RNDC
Young’s Markets

 
Our newest brand KAH Tequila has seen growth and broad market acceptance at off premise (retail chains) and on premise (restaurants and bars) outlets.  This is confirmed by our current and repeat orders shipped and future orders from distributors. Our following on Facebook and other social media sources demonstrates the consumer excitement in the market for KAH. KAH Tequila continues to receive national awards for taste and packaging.  Further, KAH has begun selling worldwide and is available in Hong Kong, Australia, Singapore, Guam, Holland, and the Philippines.
 
DISTRIBUTION
 
On June 27, 2011, the Company executed a stock purchase agreement with Worldwide Beverage Imports, LLC, a Nevada limited liability company. Pursuant to the Purchase Agreement, as amended on November 2, 2011, the Company acquired worldwide licensing and distribution rights on both the spirits and beer products imported by WBI, including but not limited to products such as KAH Tequila, Ed Hardy Tequila, Agave 99, Mexicali Beer, Chili Beer, Rio Bravo Beer, Red Pig Ale, Rio Bravo Beer, Chili Devil Beer and Crazy Pig Ale, as well as the opportunity to market private label beer to key accounts.
 
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 and most of our other distribution relationships are oral (based solely on purchase orders) and are terminable by either party at will.
 
The company currently sells its KAH brand through the entire Glazers Network. Additionally we sell KAH through Southern Wine and Spirits in New England, Maryland, DC, Illinois and North and South Carolina. We sell KAH through RNDC in Florida. We sell KAH through Young’s Market in the Pacific Northwest and through Johnson Brothers in Mid West States.

PRODUCTION

CONTRACT PACKING ARRANGEMENTS

We currently use independent contract packers known as “co-packers” to prepare, bottle and package our Rheingold and Old Whiskey River products. 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.
 
As is customary, 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 from 30 to 60 days in advance of shipping.

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 use only quality ingredients to produce Rheingold Beer to ensure that it meets 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 Rheingold Beer from each production run are analyzed and categorized in our reference library. Our quality control measures include but are not limited to microbiological checks and water purity tests to ensure that the production facilities meet the standards and specifications of our quality assurance program and government regulatory requirements.

 
GOVERNMENT REGULATION

The production and marketing of our licensed and proprietary alcoholic and nonalcoholic 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 (TM), “Cohete” (TM), “Swiss T”(TM), “Screaming Monkey” (TM) and, 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 Old Whiskey River Distilling Company LLC, an interest in the "Old Whiskey River" trademark.
 
Under our license agreement for Old Whiskey River, we are obligated to pay royalties of between $10.00 and $25.00 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 $10.00 royalty for each case of Damiana sold by Mexcor who will distribute the product 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.  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 & CONTRACTORS

We have eight full-time employees and seven independent contractors. All employees are at-will employees and are not represented by a labor union. All independent contractors are at-will contractors that have executed non-disclosure agreements with us.

ITEM 1A. 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 short operating history. 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.
 
 
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.
 
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, 2012 and 2011, 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.
 
Our management team consists of several key executives and 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.
 
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 effect 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.
 
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.
 
We have reduced products closely identified with celebrities, with the exception of the Old Whiskey River brand, which is associated with Willie Nelson and focused our marketing and sales on KAH and our other non-celebrity licensed brands. 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.
 
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 effect 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.
 
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 OTCQB and there is a greater chance for market volatility for securities that trade on the OTCQB 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.
 
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 approximately 1,500 square feet in Ridgefield, Connecticut with an annual base rent of $30,780.

ITEM 3. LEGAL PROCEEDINGS

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 retained counsel and intends to vigorously seek enforcement of the arbitration award upon jurisdiction of the City of Jacksonville, Duval County, Florida.
In the Matter of Liquor Group Holding, LLC v. Drinks Americas Holdings, Ltd. (American Arbitration Association).  On March 7, 2011, the Company successfully obtained an arbitration award in its favor in the sum $664,659.05 after filing a counterclaimed against Liquor Group Holding, LLC. The Company is currently exploring avenues for collection of the arbitration award.
 
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.
 
On June 18, 2010, Socius CG II, Ltd., (“Socius”), a creditor of the Company due to its purchase of various claims from other various creditors of the Company (“Creditor Claims”), filed a Complaint against the Company in the Supreme Court of the State of New York (the “Court”) for breach of contract to recover on the Creditor Claims (the “Socius Action”). On July 29, 2010, the Company entered into a settlement agreement with Socius pursuant to which the Company issued approximately 10,350 shares of the Company’s common stock (the “Settlement Shares”) in exchange for satisfaction of the Creditor Claims totaling $334,006 (the “Settlement”).  In November 2011, Socius moved the Court for a Preliminary Injunction and Contempt Order (the “Socius Motion”) alleging that the Company had failed to comply the terms of the Settlement when, in sum, the Company had issued an insufficient number of Settlement Shares.  Through Company and non-party affidavits and Memorandum of Law, the Company vigorously opposed the facts and legal arguments set forth in the Socius Motion (collectively, the “Opposition”).  On February 28, 2012, the parties entered into a Stipulation of Settlement, which the Court “so Ordered” (the “Stipulation”).  Pursuant to the Stipulation, the Company paid Socius $27,635.87 and agreed to satisfy all unpaid Creditor Claims in the aggregate amount of $109,474.77.  Additionally, pursuant to the Stipulation, Socius surrendered for cancellation 13.837 shares of the Company’s Series B Preferred Stock, representing all issued and outstanding Series B Preferred Stock of the Company, and warrants to purchase 35,605 shares of the Company’s common stock, representing all warrants issued to Socius’ affiliate pursuant to that certain Preferred Stock Purchase Agreement, dated August 17, 2009.
 
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.
 
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. Balance due and accrued under this agreement as of April 30, 2012 was $55,000.
 
Drinks Americas Holdings, Ltd. / Pabst Brewing Company (relating to the Company’s license to Rheingold beer). On April 10, 2012, Pabst Brewing Company (“Pabst”) issued a notice of default and subsequently issued a notice of termination and a cease and desist letter with respect to that certain License Agreement between the Company and Pabst, dated August 22, 1997, as amended. The Company responded rejecting the aforesaid notices and disputing the alleged default. The Company does not believe that Pabst has any valid legal grounds to terminate the Rheingold beer license. Negotiations with Pabst have ensued and are continuing. There is likelihood that litigation will be commenced if Pabst refuses to withdraw its default, termination and cease and desist notices.
 
 
Drinks Americas, Inc. / Samuel Bailey, Jr., et al. On April 5, 2012 Drinks Americas, Inc. filed a civil suit against three defendants, Samuel Bailey, Jr., Paul Walraven and Jack McKenzie in the Judicial District of Stamford, Connecticut (Docket Number FST-CV-11-6011590).  Drinks claims that the parties breached a certain Settlement Agreement and General Release, dated, August 10, 2009 for failure to deliver shares of stock in Olifant USA, Inc. to Drinks, notwithstanding the receipt by the defendants from Drinks of a $75,000 cash payment and $20,000 worth of Drinks’ stock.  The defendants do not dispute the receipt of the said $75,000 cash payment and $20,000 worth of stock but dispute Drinks’ claims that they owe any money or stock.
 
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. MINE SAFETY DISCLOSURES.
 
None.
 
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 OTCQB under the symbol "DKAM" on the Over-the-Counter marketplace. 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, 2011
  
High
    
Low
  
First Quarter, July 31, 2010
  
$
56.25
    
$
18.75
  
Second Quarter, October 31, 2010
  
$
31.87
    
$
6.00
  
Third Quarter, January 31, 2011
  
$
37.50
    
$
1.20
  
Fourth Quarter, April 30, 2011
  
$
2.25
    
$
0.30
  

Year Ending, April 30, 2012
  
High
    
Low
  
First Quarter, July 31, 2011
  
$
1.70 
    
$
0.375
  
Second Quarter, October 31, 2011
  
$
1.60
    
$
0.40
  
Third Quarter, January 31, 2012
  
$
1.125
    
$
0.25
  
Fourth Quarter, April 30, 2012
  
$
1.051
    
$
0.35
  
 
HOLDERS

As of August 10, 2012, there were approximately 21,279,339 shares of our common stock outstanding, which were held of record by approximately 95 stockholders, not including persons or entities that hold the stock in nominee or "street" name through various brokerage firms. Further, as of August 10, 2012, there were three stockholders of record of our Series A Convertible Preferred Stock.  Our transfer agent is Continental Stock Transfer & Trust Company, 17 Battery Place, New York, NY 10004.
 

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.
 
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.  On February 28, 2012, pursuant to a settlement agreement, all outstanding shares of Series B Preferred Stock were surrendered for cancellation and, as of the date hereof, there were no shares of Series B Preferred Stock outstanding.
 
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
 
On June 3, 2011, the Company filed a registration statement on Form S-8 and registered 100,000 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 100,000 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 120, 000 shares issuable under the 2011 Stock Incentive Plan (the “2011 Plan”).  As of April 27, 2012, the Company has issued a total of 115,518 shares of Company common stock under the plan as compensation for legal and marketing services at a fair value of $170,837 and 4,482 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 8,000shares issuable under the 2010 Stock Incentive Plan (the “2010 Plan”).  Subsequent to April 30, 2010, the Company has issued a total of 6,027 shares of Company common stock under the plan as compensation for legal and marketing services at a fair value of $114,272 and 1,973 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 5,333 shares issuable under the 2009 Stock Incentive Plan (the “2009 Plan”).  The Company has issued a total of 3,626 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, 1,531were issued subsequent to April 30, 2009 as compensation for legal and marketing services at a fair value of $ 65,667 and 177 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, 2,667 common shares were reserved for distribution, of which 2,593 have been issued and 193 remain available for future issuance. Of this amount, 120 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 933 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 1,540 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, $87.50, 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 1,113 options to purchase shares of its common stock to its employees including 667to its CEO, 133 to its COO and 80 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 (267) and the consultants (160) at fair value of $129,000 vested immediately on the grant date.
 
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, 2012 and 2011 is as follows:

   
2012
    
2011
  
   
Shares
    
Weighted
Average
Exercise
Price
    
Shares
    
Weighted
Average
Exercise
Price
  
Outstanding at beginning of period
    
1,420
    
$
695.00
      
1,420
    
$
695.00
  
Granted
    
-
      
-
      
-
      
-
  
Forfeited
    
-
      
-
      
-
      
-
  
Outstanding at end of period
    
1,420
    
$
695.00
      
1,420
    
$
695.00
  
Exercisable at end of period
    
1,098
    
$
695.00
      
923
    
$
695.00
  
Weighted average fair value of grants during the period
          
$
695.00
            
$
695.00
  

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

     
2010
  
Risk-free rate
    
2.0
%
Expected option life in years
    
5.0
  
Expected stock price volatility
    
67
%
Expected dividend yield
    
0
%

Also on March 12, 2009, the Company granted 313 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 200 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, 2012 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.
 
PURCHASES OF EQUITY SECURITIES BY THE ISSUED AND AFFILIATED PURCHASERS

None.
 
ITEM 6. SELECTED FINANCIAL DATA

Not applicable.

 
ITEM 7. MANAGEMENT'S DISCUSSION 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, 2012 compared to year ended April 30, 2011
 
Net Sales: For the year ended April 30, 2012, net sales were approximately $4,395,000 compared to net sales of approximately $497,000 for the year ended April 30, 2011 which level of volume was driven by the Company's wholesale business model. The increase of 784% is a result of the Company's expansion of the brands licensed from WBI’s expansion nationally and internationally, and the sales of inventory acquired through the Purchase Agreement with WBI.  In addition the increase in sales can be attributed to the Company's access to inventory on credit, which no longer impeded its access to products for resale.  The Company's access to KAH Tequila is the primary driver of revenue growth for the Company.
 
Gross Margin:  Gross margin (loss) for the year ended April 30, 2012, was approximately $1,252,670 or 28.5% of net sales under the Drinks WBI transaction compared to gross margin of approximately $(31,600), or (6%) of net sales for the year ended April 30, 2011 under the wholesale business model. This increase in gross margin is attributable to the transition of our business model with the WBI transaction described above. Margin has also been maintained by the Company’s premium product selling strategy implemented by the company that targets premium price points, targeted non-price discounting promotion for its products and low overhead.
 
Selling, General and Administrative Expenses: Selling, general and administrative expenses for the year ended April 30, 2012 amounted to approximately $2,565,000 compared to approximately $2,754,000 for the same period of the prior year, a decrease of approximately $189,000, or 7%, attributable to increased sales impacting with lower commissions arising out of increase sales and sales expenses related to the 748% increase in revenue and brand ambassadors and selling staff associated with the companies increased sales.
 
Gain on settlement of debt:  During the year ended April 30, 2012 and 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 $684,000 for the year ended April 30, 2012 compared to $617,000 the previous year.
 
Impairment of intangible assets:  During the years ended April 30, 2012 and 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, 2012 and 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, we 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.
Loss on settlement of royalty agreement: During the year ended April 30, 2012, we made certain onetime only royalty and royalty termination payments of $250,000.
 
Interest expense: Interest expense for the year ended April 30, 2012 was approximately $208,000 compared to $994,000 for the same period last year, a net decrease of $786,000 or 79%.  This decrease is predominantly due to a reduction in the cost of financing our outstanding liabilities as compared to prior year.
 
Gain on change in fair value of derivative:  During the year ended April 30, 2012, we settled promissory notes eliminating the derivative liability and accordingly recorded a gain on change in fair value of $1,671 as compared to $9,189 the same period last year. As discussed in our financial statements, we were required to bifurcate the conversion option embedded in certain convertible promissory notes and record at fair value each reporting period as a liability. 
 
Gain on disposal of product line: During the year ended April 30, 2012, we exchanged 42% of our interest in Olifant U.S.A, Inc. for the cancellation of our remaining outstanding debt obligation of $600,000 and related accrued interest.  With the exchange, we reduced our ownership to 48% and realized a gain on sale of the product line of approximately $280,000 compared to Nil for the year ended April 30, 2011.
 
Other income (expense): For the year ended April 30, 2012, other income of $22,803 is predominately comprised of miscellaneous income during the current year compared to net other income (expense) of $(83,076) for the year ended April 30, 2011. 
 
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, 2012, the Company has a shareholders' equity of approximately $2,108,000 applicable to controlling interests compared with a deficit of approximately $4,464,000 applicable to controlling interests at April 30, 2011, and working capital deficiency of $3,253,909 as of April 30, 2012 and has incurred significant operating losses and negative cash flows since inception. For the year ended April 30, 2012, the Company sustained a net loss of approximately $783,000 compared to a net loss of $4,586,000 for the year ended April 30, 2011 and used cash of approximately $987,000 in operating activities for the year ended April 30, 2012 compared with approximately $1,337,000 for the year ended April 30, 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 year ended April 30, 2012 was approximately $987,000, primarily from our loss of approximately $783,000 net with non cash activities of $410,000 depreciation and amortization, $212,000 stock based compensation, net with gains of $965,000 gains on settlement of debt and disposal of product line.  Changes in operating assets, liabilities and sundry and other non cash activities were $75,339. 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 used in Investing Activities: Net cash used in investing activities for the year ended April 30, 2012 was approximately $20,000 comprised a payment of a security deposit on an operating lease of $6,000 and acquisition of equipment of $14,000.
 
Net Cash provided by Financing Activities: Net cash provided by financing activities for the year ended April 30, 2012 was approximately $1,300,000 primarily from sale of common stock of $1,440,000 and $443,000 from net proceeds from debt and notes payable and credit line, net with repayments of $555,000.
 
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, 2012 and 2011 the allowance for doubtful accounts was $138,491 and $170,657, respectively.
 
INVENTORIES

Inventories are valued at the lower of cost or market, using the first-in first-out cost method. The Company assesses the valuation of its inventories and reduces the carrying value of those inventories that are obsolete or in excess of the Company’s forecasted usage to their estimated net realizable value. The Company estimates the net realizable value of such inventories based on analysis and assumptions including, but not limited to, historical usage, expected future demand and market requirements. A change to the carrying value of inventories is recorded to cost of goods sold.
 
IMPAIRMENT OF LONG-LIVED ASSETS
 
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, 2012, 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, 2012 and 2011, 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.
 
 
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Not applicable.

ITEM 8. FINANCIAL STATEMENTS 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, 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 April 30, 2012, 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.
 
 
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, 2012. 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, 2012, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

Effective June 28, 2012, Mr. Millet resigned as Director of the Company for personal reasons. There were no disagreements between Mr. Millet and the Company or any officer or director of the Company which led to Mr. Millet’s resignation.

On July 11, 2012, Mr. Traub, a former Director of the Company, passed away.

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 Offices (1)
J. Patrick Kenny
  
56
  
President, Chief Executive Officer, Chief Financial Officer, Principal Accounting Officer, and Director
Federico G. Cabo
  
67
  
Chairman of the Board of Directors
Fredrick Schulman
  
59
  
Corporate Secretary and Director
Jack Kleinert
  
53
  
Director
Richard F. Cabo
  
41
  
Director
Leonard Moreno
  
54
  
Director
Steven Dallas
  
55
  
Director
Douglas Cole
  
57
  
Director

(1)  
Mr. Millet resigned as director effective June 28, 2012 and Mr. Traub passed away on July 11, 2012.
 
J. Patrick Kenny has served as a Director and Chief Executive Officer of Drinks Americas, Inc. 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 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.
 
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 Chief Executive Officer of Cerveceria 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. 
 
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.

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.
 
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. Moreno should serve as a member of our board of directors.
Steven Dallas joined our Board of Directors on October 13, 2011.  Mr. Dallas has over 30 years experience in mortgage operations, loan originations, loan administration and servicing.  He also has an extensive background in finance, capital and business operations.   Since 2009, Mr. Dallas has been the owner of the Dallas Finance Group, which focuses on the brokerage of high quality real estate and commercial transactions, real estate finance, commercial business finance, accounts receivable & inventory lending, equipment finance and leasing, real estate equity and mezzanine transactions.  Since 2007, Mr. Dallas has also served as a board member of the USAM Fund, which focuses on funding short term, low loan-to-value commercial real estate loans and building a strong, diversified, long-term investment portfolio for the benefit of founders and investors.  From 1994 until 2007, Mr. Dallas served as the president of DV Capital, Incorporated, a venture capital firm specializing in finance, real estate and entertainment related endeavors.
 
Douglas D. Cole joined our Board of Directors on May 15, 2012.  Since September 2006, Mr. Cole worked with Objective Equity LLC, a boutique Investment Bank based in New York.  Mr. Cole focuses most of his time on initial financing, corporate structure and M&A. From February 2003 to February 2006, Mr. Cole served as the Executive Vice Chairman, Chief Executive Officer and President of TWL Corporation (TWLP.OB), now based in Carrollton, Texas. TWL Corporation is a provider of integrated learning solutions for compliance, safety, emergency preparedness, continuing education and skill development in the workplace.  During his tenure at TWL Corporation, Mr. Cole lead the acquisitions of similar companies in Australia, Norway, South Africa and the US, including the acquisition of Primedia Workplace Learning.  Mr. Cole also serves on the board of directors for Longwei Petroleum Investment Holding Limited (NYSE Amex: LPH).  Mr. Cole received a B.A. from University of California Berkeley in 1978.
 
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, certain of our officers and directors were late in filing a Form 3 or Form 4.
 
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 also has an employee handbook that each employee must review and sign upon being hired. The Company will provide a copy of its code of ethics to any person without charge upon written request addressed to 424R Main Street, Ridgefield, Connecticut 06877.
 
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, a Compensation Committee and a Financing Committee.

AUDIT COMMITTEE
 
Our Audit Committee consists of Fredrick Schulman, Steven Dallas and Federico Cabo and an outside consultant, Timothy Owens. 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. Cabo 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, Steve Dallas and Federico Cabo (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.
 
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, 424R Main Street, Ridgefield, Connecticut 06877, 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.

FINANCING COMMITTEE
 
The Financing Committee consists of Fredrick Schulman, Steve Dallas and Jack Klienert. The Financing Committee assists the Board in all matters affecting the review and approval of any proposed debt, equity or hybrid financing transaction of the Company and review any proposed transaction for compliance with any applicable rules and regulations.

ITEM 11. EXECUTIVE COMPENSATION

COMPENSATION OF EXECUTIVE OFFICERS

The following table shows for fiscal years ended April 30, 2012 and 2011, 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, Charles Davidson, our current Chief Operating Officer and Jason Lazo, our past Chief Operating Officer, whose total compensation exceeded $100,000 in 2012 and 2011.
  
SUMMARY COMPENSATION TABLE
 
NAME AND
PRINCIPAL POSITION
FISCAL
 YEAR
  
SALARY
($)
    
BONUS
($)
    
STOCK
AWARDS
($)
    
OPTION
AWARDS
($)
  
ALL OTHER
COMPENSATION
($)
  
TOTAL
($)
                                 
J. Patrick Kenny
2012
  
$
202,000
    
$ 
—
    
$
-
    
$
-
  
$
18,220
  
$
202,220
Chief Executive
  2011
  
$
300,000
    
$
—
    
$
25,000
    
$
-
  
$
59,870
  
$
384,870
Officer and Chief
Financial Officer(1)(4)
   
                                          
 
   
                                          
Charles Davidson
2012
  
$
109,566
    
$
-
    
$
-
    
$
-
  
$
7,200
 
  $
116,766
Chief Operating Officer (2)
                                            
                                             
Jason Lazo
2011
  
175,000
    
—
    
—
    
—
  
6,985
  
181,985
Chief Operating
                                            
Officer (3)
   
                                          
(1)
Mr. Kenny has accrued substantial amounts of his salary (approximately $417,973) as of April 30, 2012 and approximately $184,251 as of April 30, 2011. Awards for the fiscal year ended 2011, represents a $25,000 bonus awarded by the Board to Mr. J. P. Kenny our CEO. All other compensation for fiscal 2012 is comprised of personal medical insurance premiums, $6,959; life insurance, $2,861 and an automobile allowance, $8,400. 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.
(2)
Mr. Davidson has accrued amounts of his salary of (approximately) $12,962 as of April 30, 2012.  All other compensation for fiscal year 2012 was comprised of an auto allowance of $7,200.
(3) Effective June 1, 2011, Mr. Lazo resigned as our Chief Operating Officer.
 
 
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 2012
   
The following table lists all outstanding equity awards held by each of the Named Executive Officers as of April 30, 2012.
 
  
  
Equity Awards
  
Stock Awards
  
  
          
Equity
    
  
        
Equity
  
Equity
  
  
          
Incentive
    
  
        
Incentive
  
Incentive
  
  
  
Number of
  
Number of
  
Plan Awards:
    
  
        
Plan Awards:
  
Plan Awards:
  
  
  
Unearned
  
Unearned
  
Number of
    
  
      
Market
Number of
  
Market Value
  
  
  
securities
  
securities
  
Securities
    
  
  
Number of
  
Value of
Unearned
  
Of Unearned
  
  
  
Underlying
  
Underlying
  
Underlying
    
  
  
Shares or
  
Stock
Shares, Units
  
Shares, Units
  
  
  
Unexercised
  
Unexercised
  
Unexercised
  
Option
  
  
Units of Stock
  
that
or Other
  
or Other
  
  
  
Options
  
Options
  
Unearned
  
Exercise
Option
  
That Have
  
Have Not
Rights That
  
Rights That
  
  
  
(#)
  
(#)
  
Options
  
Price
Expiration
  
Not Vested
  
Vested
Have Not
  
Have Not
  
NAME
  
Exercisable (1)
  
Inextricable
  
(#)
  
($)
Date (2)
  
(#)
  
($)
Vested (#)
  
Vested ($)
  
                                         
J. Patrick Kenny
    
-
  
-
    
667
  
660.00
03/11/14
    
-
  
-
500
  
$
-
  
                                           
Jason Lazo
    
-
  
-
    
133
  
600.00
03/11/14
    
-
  
-
133
  
$
-
  

(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.
 
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The members of the Compensation Committee during all or parts of the fiscal year ended 2012 were Fredrick Schulman, Federico Cabo, Steven Dallas and Hubert Millet (until his resignation). Except for Mr. Schulman, our Corporate Secretary, none of our members of the Compensation Committee during the fiscal year ended 2012 served as an officer or employee of the Company, was formerly an officer of the Company, or, except for Mr. Cabo, had any relationship requiring disclosure required by Item 404 of Regulation S-K.
 
DIRECTOR COMPENSATION

No compensation was paid to our directors for their services as directors of the Company for the fiscal year ended April 30, 2012.  Furthermore, 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.
 
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 10, 2012 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
Common Stock
Beneficially Owned
    
Percentage of
Outstanding
Shares
  
Name and Address of Beneficial Owner
            
J. Patrick Kenny
30 Old Wagon Road
Wilton, CT 06877
     4,201,372 (1)     19.74 %
                 
Fredrick Schulman
241 Fifth Ave, Suite 302
New York, NY 10016
     321,974 (2)     1.51 %
 
                
Jack Kleinert
c/o 424R Main Street
Ridgefield, CT 06877
     1,103,837       5.19 %
                 
Richard F. Cabo
4010 White Side St.
Los Angeles, CA, 90063
     10,239,602 (3)     48.12 %
                 
Federico G. Cabo
4101 White Side St.
Los Angeles, CA 90063
     581,918 (4)     2.73 %
                 
Leonard Moreno
4010 White Side St.
Los Angeles, CA, 90063
     0        * %
                 
Steven Dallas
c/o 424R Main Street
Ridgefield, CT 06877
     40,000       * %
                 
Douglas Cole
c/o 424R Main Street
Ridgefield, CT 06877
     0       * %
                 
All Directors, Officers, and Management as a group (10 persons)
     16,488,703       78.97 %
                 
Worldwide Beverage Imports, LLC
4010 White Side St.
Los Angeles, CA, 90063
     10,229,602 (3)     48.07 %
 
* Less than 1%.
(1) Includes 25,620 shares owned by Kenny LLC I, and 4,175,348 shares owned by Kenny LLC, entities controlled by Mr. Kenny, and 334 stock options which have vested. Does not include 1,023,967 shares owned by Brian Kenny, Mr. Kenny’s son; 36 shares owned by Mr. Kenny’s daughter; and 52 shares owned by Mr. Kenny's brother; as to which shares Mr. Kenny disclaims beneficial ownership; or options to purchase 333 shares of our common stock which were granted to Mr. Kenny which will not be exercisable within 60 days of August 10, 2012.
(2) Includes 59 shares owned by Mr. Schulman's wife, Lois Shapiro, to which shares Mr. Schulman disclaims beneficial ownership and includes fully vested warrant to purchase 259 shares of our common stock.
(3) Includes 10,229,602 shares owned by Worldwide Beverage Imports, LLC, an entity owned and controlled by Richard F. Cabo.
(4) Includes 531,918 shares owned by JOMex LLC, an entity owned and controlled by Federico G. Cabo.
 
 
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 10, 2012. 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 100,000 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 100,000 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 8,000 shares issuable under the 2010 Plan.  Subsequent to April 30, 2010, the Company has issued a total of 1,479 shares of Company common stock under the 2010 Plan as compensation for legal and marketing services at a fair value of $50,346 and 6,521 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 5,333 shares issuable under the 2009 Stock Incentive Plan (the “2009 Plan”)  The Company has issued a total of 3,626 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, 1,531 were issued subsequent to April 30, 2009 as compensation for legal and marketing services at a fair value of $ 65,667 and 177 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, 2,667 common shares were reserved for distribution, of which 2,473 have been issued and 193 remain available for future issuance. Of this amount 120 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 9,333 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 1,540 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, $87.50, was above the fair market value of the underlying common stock at the date of grant.
 
The Company issued an aggregate of 1,113 options to purchase shares of its common stock to its employees including 667 to its CEO, 133 to its COO and 80 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 (267) of the Company and the consultants (160) vested immediately upon grant. Also on March 12, 2009, the Company granted 313 shares of its common stock under the Plan to several of its employees as consideration for past services they have performed for the Company.
 
A summary of the options outstanding under our Plans as of April 30, 2012 and 2011 is as follows:
 
   
2012
    
2011
   
Shares
    
Weighted
Average
Exercise
Price
    
Shares
  
Weighted
Average
Exercise
Price
Outstanding at beginning of period
    
1,420
    
$
695.00
      
1,420
  
$
695.00
Granted
    
-
      
-
      
-
    
-
Forfeited
    
-
      
-
      
-
    
-
Outstanding at end of period
    
1,420
    
$
695.00
      
1,420
  
$
695.00
Exercisable at end of period
    
1,098
    
$
695.00
      
923
  
$
695.00
Weighted average fair value of grants during the period
          
$
695.00
          
$
695.00
 
 
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. CERTAIN RELATIONSHIPS 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, 2012 and April 31, 2011:
    
Inventory Purchase Orders
 
For the year ended April 30, 2012, the Company purchased $4,130,605 from WBI, an entity owned and controlled by Richard F. Cabo, a Director of the Company.  Of the $4,130,605 of inventory purchased from WBI, $1,200,000 was purchased pursuant to that certain Stock Purchase Agreement dated June 27, 2011, as amended, which inventory was purchased in exchange for shares of the Company.
 
Licensing Agreement
 
In October 2005, the Company acquired ownership of a long-term license for (99 years) for the Rheingold trademark and other assets related to the Rheingold brand.  Under this license agreement we are required to pay the licensor $3.00 per barrel for domestic sales and $10.33 for foreign sales.  John Kleinert, a Director on our Board of Directors, owns 30% of the Rheingold brand.

Consulting and Marketing Fees
 
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 470 shares of our common stock and warrants to acquire 2,624 shares of our common stock. Under this arrangement, the valuation of the common stock and the exercise price of the warrants was $37.50 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 470 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 2,624 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.. In June of 2011 Mr. Kenny resumed employment with the Company as VP of Marketing and Sales.
 
Legal Fees
 
Fred Schulman, as General counsel to the Company, received $30,000 in legal fees in the fiscal year.
 
 
Royalty Fees
 
We incurred royalty expenses of approximately $6,386 and $839 in fiscal 2012 and 2011, respectively, to Alive Spirits LLC, in 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, Olifant and Damiana.

Line of credit

During the year ended April 30, 2012, the Company borrowed from a $400,000 line of credit provided by a current board member.  Any borrowings bear interest of 18% per annum.  For the years ended April 30, 2012 and 2011, interest incurred on this line of credit aggregated $4,828 and $nil, respectively.  As of April 30, 2012 and 2011, amounts owed under this line, including accrued and unpaid interest, aggregated $160,946 and $nil, respectively.  Subsequent to the year ended April 30, 2012, the Company drew an additional $200,000 from the line of credit resulting in a current unpaid balance of $360,946.
 
During the year ended April 30, 2012, the Company borrowed from a $250,000 line of credit provided by a current board member.  Any borrowings bear interest of 8% per annum.  For the years ended April 30, 2012 and 2011, interest incurred on this line of credit aggregated $19,333 and $667, respectively.  As of April 30, 2012 and 2011, amounts owed under this line, including accrued and unpaid interest, aggregated $250,000 and $150,000, respectively.

Independence of Directors

The Board of Directors has determined that none of our directors, except Mr. Dallas and Mr. Cole, are “independent directors” within the meaning of the applicable rules and regulations of the SEC and the director independence standards of NASDAQ.

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.
 
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, 2012. During the year ended April 30, 2012 we were billed $134,765. The $134,765 billed during the fiscal year ended April 30, 2012 is comprised of the following: $95,365, for the year ended April 30, 2011 audit; $28,000, for three subsequent quarterly reviews; $7,900 for tax review; and $3,500, for other reviews.  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 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 (1)
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 (1)
Certificate of Incorporation of Drinks Americas Holdings, Ltd.
  
3.2 (1)
By-Laws of Drinks Americas Holdings, Ltd.
  
3.3 (9)
Amended and Restated Certificate of Designations of Preferences, Rights and Limitations of Series A Convertible Preferred Stock
  
3.4 (6)
Certificate of Amendment of Certificate of Incorporation of Drinks Americas Holdings, Ltd. dated January 16, 2009
  
3.5 (7)
Certificate of Designation of Series B Convertible Preferred Stock
  
3.6 (9)
Amended and Restated Certificate of Designation of Preferences, Rights and Limitations of Series A Convertible Preferred Stock
  
3.7(13)
Certificate of Amendment of Certificate of Incorporation of Drinks Americas Holdings, Ltd. dated December 20, 2011
  
4.1 (1)
Form of 10% Convertible Promissory Note issued by Gourmet Group, Inc., including Registration Rights provisions.
  
4.2 (2)
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 (2)
Form of Stock Purchase Warrant, dated March 2005, issued by Drinks Americas Holdings, Ltd to investors in its Bridge Note financing.
  
4.4 (3)
Form of Securities Purchase Agreement, dated as of January 30th, 2007 between Drinks Americas Holdings, Ltd. And certain investors.
  
4.5 (3)
Form of Registration Rights Agreement, dated as of January 30th, 2007 between Drinks Americas Holdings, Ltd. And certain investors.
  
4.6 (3)
Form of Common Stock Purchase Warrant, dated as of January 30th, 2007 between Drinks Americas Holdings, Ltd. And certain investors.
  
4.7 (3)
Form of Placement Agent Agreement between Drinks Americas Holdings, Ltd. And Midtown Partners Co., LLC dated as of October 25th, 2006.
  
4.8 (3)
Form of Placement Agent Warrant, dated as of January 30th, 2007 between Drinks Americas Holdings, Ltd. And Midtown Partners Co., LLC.
  
4.10 (4)
Form of Registration Rights Agreement, dated as of December 18, 2007 between Drinks Americas Holdings, Ltd. And certain Investors.
  
4.11 (4)
Form of Placement Agent Agreement between Drinks Americas Holdings, Ltd. And Midtown Partners Co., LLC dated as of December 14, 2006.
  
4.13 (4)
Form of Placement Agent Warrant, dated as of December 18, 2007 between Drinks Americas Holdings, Ltd. And Midtown Partners Co., LLC.
  
4.14 (5)
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 thereto
  
4.15 (5)
Debenture, dated June 18, 2009 issued by Drinks Americas Holdings, Ltd. To St. George Investments, LLC
  
4.16 (5)
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 thereto
  
4.17 (5)
Form of Personal Guarantee, dated June 18, 2009 issued by J. Patrick Kenny to St. George Investments, LLC
  
4.18 (5)
St. George 7 Month Secured Purchase Note, dated June 18, 2009 between Drinks Americas Holdings, Ltd. And St. George Investments, LLC
  
4.19 (5)
Warrant issued by Drinks Americas Holdings, Ltd. To St. George Investments, LLC, dated June 18, 2009
  
4.20 (7)
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 thereto
  
4.21 (7)
Warrant, dated as of August 17, 2009 between Drinks Americas Holdings, Ltd. And Optimus Capital Partners, LLC dba Optimus Special Situations Capital Partners, LLC
  
4.22 (8)
First Amendment to $4,000,000 Debenture, dated August 28, 2009, issued by Drinks Americas Holdings, Ltd. To St. George Investments, LLC
  
4.23 (8)
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 thereto
  
4.24 (8)
Default Waiver to Debenture, dated June 18, 2009
  
4.25 (10)
Convertible Promissory Note issued to Leon Frenkel
  
10.54(11)
Stock Purchase Agreement, dated June 27, 2011, by and between Drinks Americas Holdings, Ltd. And Worldwide Beverage Imports, LLC.
  
10.55(14)
2011 Consultants Incentive Plan
  
10.56(15)
Amendment No. 1 Stock Purchase Agreement, dated November 1, 2011 by and between the Company and WBI
  
10.57(16)
Forbearance Agreement, dated December 13, 2011
  
 
 
14.1(12)
Code of Ethics
21.1
List of Subsidiaries of Drinks Americas Holdings, Ltd.
31.1
31.2
32.1
32.2

(1)
Incorporated by reference to our 8-K filed on March 9, 2005.
(2)
Incorporated by reference to our Form 8-K filed on March 25, 2005.
  
(3)
Incorporated by reference to our Form 8-K filed January 31, 2007.
  
(4)
Incorporated by reference to our Form SB-2 filed on March 19, 2007.
  
(5)
Incorporated by reference to our 8-K filed on June 25, 2009.
  
(6)
Incorporated by reference to our 10-K filed on August 13, 2009.
  
(7)
Incorporated by reference to our 8-K filed on August 18, 2009.
  
(8)
Incorporated by reference to our 8-K filed on September 3, 2009.
(9)
Incorporated by reference to our 8-K filed on June 30, 2010.
  
(10)
Incorporated by reference to our Form S-1 filed on May 14, 2010.
  
(11)
Incorporated by reference to our 8-K filed on June 28, 2011.   
  
(12) 
Incorporated by reference to our 10-K filed on August 13, 2010.
  
(13)
Incorporated by reference to our 8-K filed on December 27, 2011.   
  
(14)
Incorporated by reference to our Form S-8 filed on September 20, 2011.
  
(15)
Incorporated by reference to our 8-K filed on November 4, 2011.   
  
(16)
Incorporated by reference to our 8-K filed on December 20, 2011.   
  
 

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 14, 2012.

Drinks Americas Holdings, Ltd.
 
By:  /s/ J. Patrick Kenny
  
J. Patrick Kenny
Chief Executive Officer
(Principal Executive Officer, Principal Financial Officer
and 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 Kenny
        
J. Patrick Kenny 
  
Chief Executive Officer, Director,
  
August 14, 2012
   
Principal Executive Officer and Principal Financial Officer
    
         
         
/s/ Frederick Schulman
        
Frederick Schulman
  
Director
  
August 14, 2012
         
/s/ John Kleinert
        
John Kleinert
  
Director
  
August 14, 2012
 
/s/ Federico G. Cabo
        
Federico G. Cabo
  
Chairman of the Board of Directors
  
August 14, 2012
         
/s/ Richard F. Cabo
        
Richard F. Cabo
  
Director
  
August 14, 2012
         
/s/ Leonard Moreno
        
Leonard Moreno
  
Director
  
August 14, 2012
         
/s/ Steven Dallas
        
Steven Dallas
  
Director
  
August 14, 2012
         
/s/ Douglas Cole
        
Douglas Cole
  
Director
  
August 14, 2012
 
 
DRINKS AMERICAS HOLDINGS, LTD. AND AFFILIATES

FINANCIAL STATEMENTS

Index to Consolidated Financial Statements



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”) and subsidiary as of April 30, 2012 and 2011 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, 2012. 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 30, 2012 and 2011 and the results of its operations and its cash flows for each of the years in the two-year period ended April 30, 2012 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 LLP
New York, New York
August 14, 2012
 
 
DRINKS AMERICAS HOLDINGS, LTD., AND AFFILIATES
CONSOLIDATED BALANCE SHEETS
APRIL 30, 2012 AND 2011
 
   
2012
    
2011
  
ASSETS
            
Current assets:
            
Cash and cash equivalents
   $ 295,403     $ 1,923  
Accounts receivable, net of allowance for doubtful accounts of $138,491 and $170,657
     739,565       68,925  
Inventory
     841,401       62,850  
Other current assets
     61,574       118,044  
  Total current assets
     1,937,943       251,742  
                 
Property and equipment, net of accumulated depreciation
     13,518       11,439  
                 
Other assets:
                
Investment in equity investees
     102,345       102,345  
Intangible assets, net of accumulated amortization
     5,193,355       381,776  
Deferred loan costs, net of accumulated amortization
     -       267,575  
Deposits
     6,225       -  
Other assets
     48,550       17,936  
  Total other assets
     5,350,475       769,632  
                 
Total assets
   $ 7,301,936     $ 1,032,813  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
                
                 
Current liabilities:
                
Accounts payable
   $ 2,889,969     $ 1,743,277  
Accrued expenses
     900,929       2,266,143  
Operating line of credit, related party
     215,946       -  
Investor note payable
     793,000       380,504  
Notes and loans payable, net of long term portion
     392,008       874,414  
Derivative liability
     -       31,186  
Loans payable from related party
     -       657  
  Total current liabilities
     5,191,852       5,296,181  
                 
Long term debt:
                
Deferred rent payable
     2,735       -  
Notes and loans payable, net of current portion
     -       200,000  
                 
  Total liabilities
     5,191,852       5,496,181  
                 
Commitments and contingencies
     -       -  
                 
Stockholders' equity (deficiency):
                
Preferred stock, $0.001 par value; 1,000,000 shares authorized:
                
Series A Convertible: $0.001 par value; 10,544 shares issued and outstanding as of April 30, 2012 and 2011
     11       11  
Series B: $10,000 par value; Nil and 13.8370 issued and outstanding as of April 30, 2012 and 2011, respectively
     -       138,370  
Series C: $1.00 par value; Nil and 635,835 issued and outstanding as of April 30, 2012 and 2011, respectively
     -       635,835  
Common stock, $0.001 par value; 900,000,000 and 500,000,000 shares authorized as of April 30, 2012 and April 30, 2011, respectively; 21,279,339 and 1,377,464 shares issued and outstanding as of April 30, 2012 and 2011, respectively
     21,279       1,377  
Additional paid in capital
     50,672,809       42,583,571  
Accumulated deficit
     (48,586,318 )     (47,803,230 )
  Total Drinks Americas Holdings, Ltd stockholders' equity (deficiency)
     2,107,781       (4,444,066 )
Equity attributable to non-controlling interests
     (432 )     (19,302 )
  Total stockholders' equity (deficiency)
     2,107,349       (4,463,368 )
                 
Total Liabilities and Stockholders' Equity (Deficiency)
   $ 7,301,936     $ 1,032,813  
 
The accompanying notes are an integral part of these consolidated financial statements
 
 
DRINKS AMERICAS HOLDINGS, LTD., AND AFFILIATES
CONSOLIDATED STATEMENTS OF OPERATIONS
 
 
   
Year ended April 30,
  
   
2012
    
2011
  
Sales, net
   $ 4,395,296     $ 497,453  
                 
Cost of sales
     3,142,626       529,097  
                 
Gross margin
     1,252,670       (31,644 )
                 
Selling, general and administrative expenses
     2,564,836       2,753,547  
Loss on settlement of royalty agreement
     250,000       -  
  Total operating expenses
     2,814,836       2,753,547  
                 
Net loss from operations
     (1,562,166 )     (2,785,191 )
                 
Other income (expense):
                
  Interest, net
     (208,296 )     (994,028 )
  Gain on change in fair value of derivative
     1,671       9,189  
  Other income (expense)
     21,132       (92,265 )
  Gain on settlement of accounts payable
     684,088       617,266  
  Impairment of intangible assets
     -       (1,422,440 )
  Gain on disposal of product line
     280,483       -  
Total other income (expense)
     779,078       (1,882,278 )
                 
Net loss before non controlling interests
     (783,088 )     (4,667,469 )
                 
Net loss attributable to non controlling interest
     -       81,836  
                 
Net loss
   $ (783,088 )   $ (4,585,633 )
                 
Net loss per common share, basic and diluted
   $ (0.10 )   $ (14.54 )
                 
Weighted average number of common shares outstanding, basic and diluted
     7,460,655       315,305  

The accompanying notes are an integral part of these consolidated financial statements
 
 
DRINKS AMERICAS HOLDINGS, LTD., AND AFFILIATES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY
YEARS ENDED APRIL 30, 2012 AND 2011
 
   
Preferred stock
  
Common stock
  
   
Series A
  
Series B
  
Series C
          
   
Shares
  
Amount
  
Shares
  
Amount
  
Shares
  
Amount
  
Shares
  
Amount
  
Balance, April 30, 2010
     10,544   $ 11     14   $ 138,370     -   $ -     71,491   $ 71  
Preferred shares issued in exchange for debt
     -     -     -     -     576,091     576,091     -     -  
Preferred shares issued in exchange for warrants
     -     -     -     -     59,744     59,744     -     -  
St George Debenture conversions
     -     -     -     -     -     -     702,506     702  
Issuance of shares in settlement of notes and interest payable
     -     -     -     -     -     -     182,563     183  
Issuance of shares in payment of accrued liabilities
     -     -     -     -     -     -     155,573     156  
Issuance of shares in payment of legal settlement
     -     -     -     -     -     -     265,332     265  
Fair 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     635,835     1,377,464     1,377  
Issuance of shares in settlement of notes and interest payable
     -     -     -     -     -     -     243,644     244  
Issuance of shares in payment of accrued liabilities
     -     -     -     -     -     -     233,333     233  
Issuance of shares to acquire trademark
     -     -     -     -     -     -     400,000     400  
Preferred shares in exchange for accrued compensation
     -     -     -     -     137,662     137,662     -     -  
Issuance of shares as collateral and held in escrow
     -     -     -     -     -     -     400,000     400  
Issuance of shares in payment of for services rendered
     -     -     -     -     -     -     164,000     164  
Issuance of shares in settlement of interest
     -     -     -     -     -     -     48,000     48  
Issuance of shares as investment
     -     -     -     -     -     -     50,000     50  
Sale of common stock
     -     -     -     -     -     -     2,634,545     2,634  
Common stock issued to acquire distribution rights
     -     -     -     -     -     -     8,418,893     8,419  
Issuance of shares from reverse split rounding
     -     -     -     -     -     -     2,601     3  
Issuance of shares in exchange for conversion of preferred stock
     -     -     -     -     (773,497 )   (773,497 )   7,306,859     7,307  
Fair value of vesting options
     -     -     -     -     -     -     -     -  
Sale of interest in product line
     -     -     -     -     -     -     -     -  
Settlement and cancellation of Series B preferred
     -     -     (14 )   (138,370 )                        
Net loss
     -     -     -     -     -     -     -     -  
Balance, April 30, 2012
     10,544   $ 11     -   $ -     -   $ -     21,279,339   $ 21,279  
 
The accompanying notes are an integral part of these consolidated financial statements
 
 
DRINKS AMERICAS HOLDINGS, LTD., AND AFFILIATES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY
YEARS ENDED APRIL 30, 2012 AND 2011
 
                   
Total Stockholders'
          
   
Treasury stock
  
Additional
      
Deficiency Attributable
  
Non
  
Total
  
           
Paid in
  
Accumulated
  
To Drinks
  
Controlling
  
Stockholders'
  
   
Shares
  
Amount
  
Capital
  
Deficit
  
Americas Holdings, Ltd
  
Interest
  
Deficiency
  
Balance, April 30, 2010
     4,000   $ 1,000   $ 40,129,497   $ (43,217,597 ) $ (2,948,648 ) $ 62,534   $ (2,886,114 )
Preferred shares issued in exchange for debt
     -     -     -     -     576,091           576,091  
Preferred shares issued in exchange for warrants
     -     -     (59,744 )         -     -     -  
St George Debenture conversions
     -     -     1,021,322     -     1,022,024     -     1,022,024  
Issuance of shares in settlement of notes and interest payable
     -     -     303,215     -     303,398     -     303,398  
Issuance of shares in payment of accrued liabilities
     -     -     547,030     -     547,186     -     547,186  
Issuance of shares in payment of legal settlement
     (4,000 )   (1,000 )   567,112     -     566,377     -     566,377  
Fair value of vesting options
     -     -     42,870           42,870           42,870  
Beneficial conversion feature of convertible debt
     -     -     32,269     -     32,269     -     32,269  
Non 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
     -     -     42,583,571     (47,803,230 )   (4,444,066 )   (19,302 )   (4,463,368 )
Issuance of shares in settlement of notes and interest payable
     -     -     150,512     -     150,756     -     150,756  
Issuance of shares in payment of accrued liabilities
     -     -     209,769     -     210,002     -     210,002  
Issuance of shares to acquire trademark
     -     -     239,600     -     240,000     -     240,000  
Preferred shares in exchange for accrued compensation
     -     -     265,589     -     403,251     -     403,251  
Issuance of shares as collateral and held in escrow
     -     -     (400 )         -     -     -  
Issuance of shares in payment of for services rendered
     -     -     127,756     -     127,920     -     127,920  
Issuance of shares in settlement of interest
     -     -     37,392     -     37,440     -     37,440  
Issuance of shares as investment
     -     -     38,950     -     39,000           39,000  
Sale of common stock
     -     -     1,437,366     -     1,440,000     -     1,440,000  
Common stock issued to acquire distribution rights
     -     -     4,621,972     -     4,630,391     -     4,630,391  
Issuance of shares from reverse split rounding
     -     -     (3 )         -           -  
Issuance of shares in exchange for conversion of preferred stock
     -     -     766,190     -     -     -     -  
Fair value of vesting options
     -     -     83,811     -     83,811     -     83,811  
Sale of interest in product line
     -     -     -     -     -     18,870     18,870  
Settlement and cancellation of Series B preferred
                 110,734     -     (27,636 )         (27,636 )
Net loss
     -     -     -     (783,088 )   (783,088 )   -     (783,088 )
Balance, April 30, 2012
     -   $ -   $ 50,672,809   $ (48,586,318 ) $ 2,107,781   $ (432 ) $ 2,107,349  
 
The accompanying notes are an integral part of these consolidated financial statements
 
 
DRINKS AMERICAS HOLDINGS, LTD., AND AFFILIATES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED APRIL 30, 2012 AND 2011
 
   
2012
    
2011
  
CASH FLOWS FROM OPERATING ACTIVITIES:
            
Net loss
   $ (783,088 )   $ (4,585,633 )
Adjustments to reconcile net loss to net cash used in operating activities:
                
Depreciation and amortization
     409,522       532,030  
Bad debt expense
     21,419       42,811  
Impairment of intangible assets
     -       1,422,440  
Stock compensation
     211,731       257,436  
Gain on settlement of accounts payable
     (684,088 )        
Reduction in notes payable
     -       450,000  
Non-controlling interest
     -       (81,836 )
Non cash interest paid
     54,541       84,199  
Non cash interest income
     (9,876 )     -  
Gain on sale of interest in product line
     (280,483 )     -  
Gain on change in fair value of derivative liability
     (1,671 )     (9,189 )
Changes in operating assets and liabilities:
                
Accounts receivable
     (692,059 )     (45,390 )
Inventories
     (778,551 )     159,758  
Other current assets
     (55,551 )     (98,255 )
Other assets
     -       67,799  
Accounts payable
     1,519,040       657,175  
Accrued expenses
     79,725       (126,991 )
Deferred rent payable
     2,735       -  
Deferred revenue
     -       (63,730 )
  Net cash used in operating activities
     (986,654 )     (1,337,376 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
                
Payment of security deposit
     (6,225 )     -  
Purchase of property and equipment
     (13,417 )     -  
Purchase of investments
     -       (28,752 )
  Net cash used in investing activities
     (19,642 )     (28,752 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
                
Proceeds from line of credit
     215,946       -  
Proceeds from the sale of common stock
     1,440,000       -  
Net repayments of related party loans
     (657 )     -  
Proceeds from issuance of notes payable
     227,475       1,318,512  
Retirement of Series B Preferred stock
     (27,636 )     -  
Net repayments of notes payable
     (555,352 )     (154,013 )
  Net cash provided from financing activities
     1,299,776       1,164,499  
                 
Net increase (decrease) in cash and cash equivalents
     293,480       (201,629 )
Cash and cash equivalents-beginning of the period
     1,923       203,552  
                 
Cash and cash equivalents-end of period
   $ 295,403     $ 1,923  
                 
Supplemental cash flow information:
                
Interest paid
   $ 24,831     $ 6,061  
Taxes paid
   $ -     $ -  
Satisfaction of note and interest payable by issuance of common stock
   $ 150,756     $ -  
Accrued interest in debt principal
   $ -     $ 5,075  
Payment of accounts payable and accrued expenses with shares of common stock
   $ 337,922     $ 1,624,666  
Increase in deferred charges equal to decrease in note receivable, net
   $ -     $ 915,991  
Issuance of note payable in exchange for return and cancellation of common stock
   $ -     $ 450,000  
Common stock issued to acquire investment
   $ 39,000     $ -  
Common stock issued to acquire trademark and distribution rights
   $ 4,870,391     $ -  
 
The accompanying notes are an integral part of these consolidated financial statements
 

DRINKS AMERICAS HOLDINGS, LTD., AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 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
 
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 CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 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 consolidated balance sheets as of  April 30, 2012 and 2011 and the consolidated results of operations, consolidated changes in shareholders’ equity (deficiency) and the consolidated cash flows for the years ended April 30, 2012 and 2011 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, 2012 and, 2011 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,  2012 and 2011, the allowance for doubtful accounts was $138,491 and $170,657, respectively.
 

DRINKS AMERICAS HOLDINGS, LTD., AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2012
 
Inventories

Inventories are valued at the lower of cost or market, using the first-in first-out cost method. The Company assesses the valuation of its inventories and reduces the carrying value of those inventories that are obsolete or in excess of the Company’s forecasted usage to their estimated net realizable value. The Company estimates the net realizable value of such inventories based on analysis and assumptions including, but not limited to, historical usage, expected future demand and market requirements. A change to the carrying value of inventories is recorded to cost of goods sold.
 
Impairment of Long-Lived Assets

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate the carrying amounts of such assets may not be recoverable. The Company's policy is to record an impairment loss at each balance sheet date when it is determined that the carrying amount may not be recoverable. Recoverability of these assets is based on undiscounted future cash flows of the related asset. For the years ended April 30, 2012 and 2011, 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 years ended April 30, 2012 and 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, 2012 and 2011, respectively. The test indicated that the recorded remaining book value of certain intangible assets exceeded its fair value for the year ended April 30, 2011.  As a result, upon completion of the assessment, management recorded a non-cash impairment charge of $1,422,440, net of tax, or $5.00 per share during the year ended April 30, 2011 to reduce the carrying value to $0. Considerable management judgment is necessary to estimate the fair value.  Accordingly, actual results could vary significantly from management’s estimates.

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

DRINKS AMERICAS HOLDINGS, LTD., AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2012
 
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, 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.
 
The Company uses fair value measurements to record fair value adjustments to certain assets and to determine fair value disclosures. Derivative liabilities are recorded at fair value on a recurring basis. In accordance with Accounting Standards Codification Topic 820, Fair Value Measurements and Disclosures (“ASC 820”), the Company groups its assets at fair value in three levels, based on the markets in which the assets are traded and the reliability of the assumptions used to determine fair value.

Reclassification

Certain reclassifications have been made in prior year’s financial statements to conform to classifications used in the current year. The Company reclassified capitalized financing costs as other assets in the Company's balance sheet previously recorded as an offset to related notes payable.  In addition, as described below, the equity accounts were adjusted to reflect a reverse stock split in December 2011.

Recent accounting pronouncements
 
There are various updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to a have a material impact on the Company's consolidated financial position, results of operations or cash flows.

 
DRINKS AMERICAS HOLDINGS, LTD., AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 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 April 30, 2012, the Company has a shareholders' equity of $2,107,781 applicable to controlling interest compared with and deficit of $4,444,066 applicable to controlling interest for the year ended April 30, 2011, and has incurred significant operating losses and negative cash flows since inception. For the year ended April 30, 2012, the Company sustained a net loss of $783,088 compared to a net loss of $4,585,633 for the year ended April 30, 2011 and used cash of approximately $1,000,000 in operating activities for the year ended April 30, 2012 compared with approximately $1,337,000 for the year ended April 30, 2011. With our relationship with WBI, we believe our liquidity will improve due to provided extended credit terms.  In addition, the increased sales revenues have helped.  In the event, if we are not able to increase our working capital, we 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, 2012 and 2011 consist of the following:
 
   
2012
    
2011
  
Accounts receivable
  
$
878,056
    
$
234,386
  
Accounts receivable-factor
    
-
      
5,196
  
Allowances
    
(138,491
)
    
(170,657 
)
   
$
739,565
    
$
68,925
  
 
5. INVENTORIES
 
Inventories as of April 30, 2012 and 2011 consist of the following:
 
  
  
2012
    
2011
  
Raw Materials
  
$
20,431
    
$
33,960
  
Finished goods
    
820,970
      
28,890
  
   
$
841,401
    
$
62,850
  
 
All raw materials used in the production of the Company's inventories are purchased by the Company and delivered to independent production contractors.
 
6. OTHER CURRENT ASSETS
 
Other Current Assets as of April 30, 2012 and 2011 consist of the following:
 
   
2012
    
2011
  
Employee advances
  
$
46,659
    
$
81,258
  
Prepaid Other
    
14,915
      
36,786
  
   
$
61,574
    
$
118,044
  
 
Prepaid other are comprised of prepaid marketing fees, employee travel advances and expenses
 

DRINKS AMERICAS HOLDINGS, LTD., AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2012
 
7. PROPERTY AND EQUIPMENT
 
Property and equipment as of April 30, 2012 and 2011consist of the following:
 
  
Useful
Life
  
2012
    
2011
  
Computer equipment
5 years
  
$
8,401
    
$
23,939
  
Furniture & fixtures
5 years
    
44,028
      
10,654
  
Automobiles
5 years
    
27,136
      
70,975
  
Leasehold Improvements
5 years
    
-
      
66,259
  
Production molds & tools
5 years
    
92,400
      
122,449
  
       
171,965
      
294,276
  
Accumulated depreciation
      
(158,447
)
    
(282,837
)
     
$
13,518
    
$
11,439
  
 
Property and equipment are stated at cost. When retired or otherwise disposed, the related carrying value and accumulated depreciation are removed from the respective accounts and the net difference less any amount realized from disposition, is reflected in earnings. For financial statement purposes, property and equipment are recorded at cost and depreciated using the straight-line method over their estimated useful lives of 5 years.

Depreciation expense for the years ended April 30, 2012 and 2011 was $11,428 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, 2012 and 2011, intangible assets are comprised of the following:

   
2012
    
2011
  
Trademark and license rights of Rheingold beer
    
230,000
      
230,000
  
Worldwide Beverages agreement
    
4,870,391
      
-
  
Other trademark and distribution rights
    
475,000
      
475,000
  
     
5,575,391
      
705,000
  
Accumulated amortization
    
(382,036
)
    
(323,224
)
   
$
5,193,355
    
$
381,776
  
 
Amortization expense for the year ended April 30, 2012 and 2011 was $73,515 and $167,084.
 
During the year ended April 30, 2012 and 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, 2012 and 2011, respectively. The test indicated that the recorded remaining book value of certain intangible assets exceeded its fair value for the year ended April 30, 2011.  As a result, upon completion of the assessment, management recorded a non-cash impairment charge relating to those certain impaired intangible assets of $1,422,440, net of tax, or $5.00 per share during the year ended April 30, 2011 to reduce the carrying value to $0. Considerable management judgment is necessary to estimate the fair value.  Accordingly, actual results could vary significantly from management’s estimates.
 
 
DRINKS AMERICAS HOLDINGS, LTD., AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2012
 
During the year ended April 30, 2012, the Company issued an aggregate of 8,818,893 shares of its common stock to acquire trademark rights with Worldwide Beverages.  The fair value of $4,870,391 was determined based on the underlying fair value of the common stock issued.

Investment in equity investees represents the Company's investment in Old Whiskey Rivers and is recorded at fair value.  There were immaterial changes in valuation for the year ended April 30, 2012.

9. NOTE RECEIVABLE
 
On June 19, 2009, (the "Closing Date") we sold to one investor (the “Investor”) a $4,000,000 non-interest bearing debenture with a 25% ($1,000,000) original issue discount, that matures in 48 months from the Closing Date (the "Drink’s Debenture") for $3,000,000, consisting of $375,000 paid in cash at closing and eleven secured promissory notes, aggregating $2,625,000, bearing interest at the rate of 5% per annum, each maturing 50 months after the Closing Date (the “Investor Notes”).  The Investor Notes, the first ten of which are in the principal amount of $250,000 and the last of which is in the principal amount of $125,000, are mandatorily pre-payable, in sequence, at the rate of one note per month commencing on January 19, 2010, subject to certain contingencies.    As a practical matter, the interest rate on the Investor Notes serves to lessen the interest cost inherent in the original issue discount element of the Drinks Debenture. For the mandatory prepayment to occur no Event of Default or Triggering Event as defined under the Drinks Debenture shall have occurred and be continuing and the outstanding balance due under the Drinks Debenture must have been reduced to $3,500,000 on January 19, 2010 and be reduced at the rate of $333,334 per month thereafter. Due to the uncertainty of the mandatory prepayments by the Investor, the note receivable has been classified as a long term asset as of April 30, 2011.  See the forbearance agreement entered into in December 2011 below.
 
One of the Triggering Events includes the failure of the Company to maintain an average daily dollar volume of common stock traded per day for any consecutive 10-day period of at least $10,000 or if the average value of the shares pledged to secure the Company’s obligation under the Drinks Debenture (as subsequently described) falls below $1,600,000.
 
Under the Drinks Debenture, commencing six months after the Closing Date, the Investor may request the Company to repay all or a portion of the Drinks Debenture by issuing the Company’s common stock, $0.001 par value, in satisfaction of all or part of the Drinks Debenture, valued at the Market Price, (as defined in the Drinks Debenture), of Drink’s common stock at the time the request is made (collectively, the “Share Repayment Requests”).  The Investor’s may not request repayment in common stock if, at the time of the request, the amount requested would be higher than the difference between the outstanding balance owed under the Drinks Debenture and 125% of the aggregate amount owed under the Investor Note.

 The Company may prepay all or part of the Drinks Debenture upon 10-days prior written notice and are entitled to satisfy a portion of the amount outstanding under the debenture by offset of an amount equal to 125% of the amount owed under the Investor Notes, which amount will satisfy a corresponding portion of the Drinks Debenture.
  
Also as part of this financing, the Investor acquired warrants to purchase 667 shares of our common stock at an exercise price of $87.50 per share (the “Investor Warrants”).  The Investor Warrants are exercisable for a five-year period. Management has determined that the aggregate value of the warrants was $142,500 based on the market price per share of the Company’s common stock on the date of the agreement.
 
 
DRINKS AMERICAS HOLDINGS, LTD., AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2012
 
Out of the gross proceeds of this offering, the Company paid the placement agent $37,500 in commissions and we are obligated to pay the placement agent 10% of the principal balance of the Investor Notes when each note is paid. We also issued to the Placement Agent (see paragraph below), warrants to acquire 5% of the shares of our Common Stock which we deliver in response to Share Repayment Requests, at an exercise price equal to the Market Price related to the shares delivered in response to the Share Repayment Request (the "Placement Agent Warrants"), which warrants are exercisable for a five year period, will contain cashless exercise provisions as well as anti-dilution provisions in the case of stock splits and similar matters.
 
In March 2010, the Company delivered to the Placement Agent, in aggregate 1,246 Placement Agent Warrants as follows: effective February 24, 2010, a warrant to purchase 113 shares of Company common stock at an exercise price of $59.78; effective February 11, 2010, a warrant to purchase 5,333 shares of Company common stock at an exercise price of $3.75; effective January 15, 2010, a warrant to purchase 267 shares of Company common stock at an exercise price of $23.45; effective December 30, 2009, a warrant to purchase 182 shares of Company common stock at an exercise price of $3.44; effective August 28, 2009, a warrant to purchase 52  shares of Company common stock at an exercise price of $16.25; effective June 19, 2009, a warrant to purchase 67 shares of Company common stock at an exercise price of $351.58 ; and, effective June 19, 2009, a warrant to purchase 33  shares f Company common stock at an exercise price of $1,640.63. The fair value, taken together, of the warrants determined using Black-Scholes valuation model was determined to be $101,864 at the dates of grant and is recorded as deferred financing costs a long-term asset on the balance sheet and additional paid in capital. The warrants are being amortized over 5 years. For the year ended April 30, 2012 and 2011, the Company amortized and wrote off to expense $60,928 and $20,540, respectively.

Our CEO has guaranteed our obligations under the Drinks Debenture in an amount not to exceed the lesser of (i) $375,000 or (ii) the outstanding balance owed under the Drinks Debenture.  In addition, the Company, our CEO, COO, and three other members of our Board of Directors, either directly, or through entities they control, pledged an aggregate of 3,201 shares of our common stock (of which 800 was pledged by the Company) to secure our obligations under the Drinks Debenture (the “Pledged Shares”). As a direct result of the guarantees and shares of common stock provided by the above individuals, the Company agreed to issue shares of common stock totaling 1,201 with an estimated fair value totaling $675,279.  The estimated fair value of the stock commitment was accounted for as a deferred loan cost and a contribution to capital (due to shareholders), with deferred loan costs being amortized ratably over 48 months.
  
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 on May 30, 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 CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2012
 
Furthermore, in the event the Company is able to pay the entire Forbearance Amount, less $100,000, on or before June 30, 2012, the remaining $100,000 will be discounted from the Forbearance Amount due.  As of April 30, 2012, the Company has complied with all scheduled payments.
 
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 April 30, 2012, the Company has outstanding $215,946 on a $400,000 line of credit, unsecured at 15% per annum, due upon demand.  The line of credit is provided by a current note holder and board member of the Company.  For the year ended April 30, 2012, the Company paid $15,258 as interest expense.

11. NOTES AND LOANS PAYABLE
 
Notes and Loans Payable as of April 30, 2012 and 2011 consisted of the following: 
 
   
2012
    
2011
  
Convertible note (a)
  
$
-
    
$
100,000
  
Olifant note (b)
    
-
      
620,260
  
Convertible promissory notes (c)
    
-
      
102,130
  
Other (d)
    
392,008
      
252,024
  
     
392,008
      
1,074,414
  
Less current portion
    
392,008
      
874,414
  
                 
Long-term portion
  
$
-
    
$
200,000
  
 
(a): 
On November 9, 2009, the Company issued an unsecured $100,000 convertible note that matured on November 9, 2010. Interest accrues at a rate of 12.5% per annum and is payable quarterly. At the option of the note holder, interest can be paid in either cash or shares of Company common stock based on the convertible note’s $15.00 conversion price. As additional consideration, the Company granted the note holder 67 shares of the Company’s common stock and agreed to register the shares by January 8, 2010 or pay to the note holder as damages additional shares of the Company’s common stock equal to 2.0% of the common shares issuable upon conversion of the convertible note. The Company also granted the note holder piggyback registration rights.  On June 28, 2010, the Company issued the note holder 36 shares of common stock with a fair value of $973 as a penalty for failing to timely register the 67 common shares.
 

DRINKS AMERICAS HOLDINGS, LTD., AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2012
 
On November 9, 2009, the Company issued the 67 shares valued at $10,000, which the Company deemed a loan origination fee. At April 30, 2012 and 2011, $Nil has been recorded as a deferred charge on the balance sheets and $10,000 had been amortized to interest expense.
  
This note was retired for stock that had been issued previously for interest, therefore the Company recorded a gain on settlement of debt of $100,000 for the year ended April 30, 2012.
 
(b):
On January 15, 2009, (the “Closing”), the Company acquired 90% of the capital stock of Olifant U.S.A, Inc. (“Olifant”), pursuant to a Stock Purchase Agreement (the “Agreement. The Company has agreed to pay the sellers $1,200,000 for its 90% interest: $300,000 in cash and common stock valued at $100,000 to be paid 90 days from the Closing date. The initial cash payment of $300,000 which was due 90 days from Closing, was reduced to $149,633, which was paid to the sellers in August 2009 together with Company common stock having an aggregate value of $100,000 based on the date of the Agreement.  The Company issued a promissory note for the $800,000 balance. The promissory note is payable in four annual installments, the first payment is due one year from Closing. Each $200,000 installment is payable $100,000 in cash and Company stock valued at $100,000 with the stock value based on the 30 trading days immediately prior to the installment date. The cash portion of the note accrues interest at a rate of 5% per annum. On January 15, 2010, the Company paid the first loan installment in the amount of $200,000 and $5,000 in interest. The Company issued 1,320 shares as payment for the stock portion of the installment, and at the election of the sellers, $63,000 in cash and 554 in common stock as payment of the cash and interest portion on the first installment.
 
During the year ended April 30, 2012, the Company agreed to return 42% of the capital stock of Olifant reducing ownership interest to 48%, in exchange for the cancellation of the outstanding debt obligation and related accrued interest.  As such, the Company recorded a gain on disposal of a product line of $280,478 and recorded an investment of $Nil for their remaining 48% interest.

(c):
On July 12, 2010, the Company settled its lawsuit with James Sokol (“Sokol”) and in accordance with the settlement; the Company issued a 6% convertible promissory note in the amount of $47,130. Principal and interest on the note are payable upon the successful completion by the Company of a $1,000,000 financing or on January 1, 2013. In lieu of cash, Sokol may elect to receive the principal and interest due on the note for an equivalent value of common shares of the Company. 

Additionally, on November 17, 2010, the Company borrowed $55,000 from an investor under a convertible promissory note at an annual interest rate of 8%. During the year ended April 30, 2012, the Company issued an aggregate of 96,364 shares of common stock in settlement of $28,000 of the convertible promissory note.  As of April 30, 2012, the Company had paid off the unconverted portion of $27,000 and related accrued interest of $16,428.

The company filed litigation for a payment of $75,000 that was made for equity not delivered along with stock. The litigation is pending.
 
  
DRINKS AMERICAS HOLDINGS, LTD., AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2012
 
(d):
On December 13, 2010, in connection with the settlement of accrued but unpaid salary compensation due to our former Vice President of Sales, we issued a promissory note for $192,000. The note accrues interest at the annual rate of 6% and is due the earliest of thirty business days following the successful completion and receipt of a financing equal to or greater than one million dollars or January 1, 2012. At April 30, 2012, the Company accrued interest payable of $15,936.

On November 5, 2009, the Company borrowed $37,500 from an investor under an informal agreement for working capital purposes. The loan is payable on demand.  During the year ended April 30, 2012 the Company issued 70,000 in full settlement of the note and related accrued interest.
 
As of April 30, 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 April 30, 2012 and $250,000 as of April 30, 2011.  Interest is paid on a monthly basis.

12. DERIVATIVE LIABILITY
 
In June 2008, the FASB issued accounting guidance, which requires entities to evaluate whether an equity-linked financial instrument (or embedded feature) is indexed to its own stock by assessing the instrument’s contingent exercise provisions and settlement provisions.  Instruments not indexed to their own stock fail to meet the scope exception of ASC 815 “Derivative and Hedging” and should be classified as a liability and marked-to-market.  The statement was effective for fiscal years beginning after December 15, 2008 and is to be applied to outstanding instruments upon adoption with the cumulative effect of the change in accounting principle recognized as an adjustment to the opening balance of retained earnings.

ASC 815-40 mandates a two-step process for evaluating whether an equity-linked financial instrument or embedded feature is indexed to the entity’s own stock.  As disclosed in Note 11, during December of 2010 and January 2011, the Company entered into convertible loans which contain a variable conversion price.  In accordance with ASC 815-40, this conversion option is classified as a derivative liability. This amount was credited to conversion option liability when the note was issued.  

As of April 30, 2012, the Company had paid the remaining equity-linked financial instruments with embedded conversion features indexed to the Company's own stock.  Therefore the derivative liability was reduced to Nil.

13. ACCRUED EXPENSES
 
Accrued expenses consist of the following at April 30, 2012 and 2011:
 
  
  
2012
    
2011
  
Payroll, board compensation and consulting fees owed to officers, directors and shareholders
  
$
770,690
    
$
1,272,479
  
Other payroll and consulting fees
    
 6,563
      
201,054
  
Interest
    
40,850
      
730,110
  
Other
    
82,826
      
 62,500
  
   
$
900,929
    
$
2,266,143
  


DRINKS AMERICAS HOLDINGS, LTD., AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2012
 
14. STOCKHOLDERS' EQUITY (DEFICIENCY)
 
Preferred stock

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

During the year ended April 30, 2012, the Company issued an aggregate of 137,662 shares of Series C Preferred stock in settlement of $403,251 of accrued and unpaid compensation.

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

Common stock

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

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

During the year ended April 30, 2012, the Company issued an aggregate of 243,644 shares of its common stock in settlement of notes payable and accrued interest of $150,756 or approximately $0.62 per share.
 
During the year ended April 30, 2012, the Company issued an aggregate of 233,333 shares of its common stock in settlement of accrued liabilities of $210,002.

During the year ended April 30, 2012, the Company issued an aggregate of 8,818,893 shares of its common stock to acquire trademark and distribution rights valued at $4,870,391.

During the year ended April 30, 2012, the Company issued an aggregate of 164,000 shares of its common stock for services rendered valued at $127,920.

During the year ended April 30, 2012, the Company issued an aggregate of 48,000 shares of its common stock in settlement of accrued interest valued at $37,440.

During the year ended April 30, 2012, the Company issued 50,000 shares of its common stock to acquire an investment valued at $39,000.
 

DRINKS AMERICAS HOLDINGS, LTD., AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2012
 
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, 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
      
2.71
    
 $
23.44
      
213
    
 $
23.44
  
 
51.56
      
182
      
2.67
      
51.56
      
182
      
51.56
  
 
59.78
      
647
      
2.64
      
59.78
      
647
      
59.78
  
 
84.38
      
1,120
      
2.63
      
84.38
      
1,120
      
84.38
  
 
93.75
      
1,254
      
2.57
      
93.75
      
1,254
      
93.75
  
 
234.38
      
53
      
2.33
      
234.38
      
53
      
234.38
  
 
243.75
      
51
      
2.33
      
243.75
      
51
      
243.75
  
 
351.56
      
67
      
5.12
      
351.56
      
67
      
351.56
  
 
562.50
      
2,624
      
8.00
      
562.50
      
2,624
      
562.50
  
 
1,312.50
      
667
      
2.14
      
1,312.50
      
667
      
1,312.50
  
 
1,640.00
      
33
      
2.14
      
1,640.00
      
33
      
1,640.00
  
 
1,875.00
      
620
      
1.15
      
1,875.00
      
620
      
1,875.00
  
 
4,815.00
      
213
      
5.12
      
4,815.00
      
213
      
4,815.00
  
Total
      
7,744
      
4.07
              
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, 2010
    
8,629
    
$
802.50
  
Issued
    
-
      
-
  
Exercised
    
-
      
-
  
Canceled or expired
    
(404
) 
    
(117.50
)
Outstanding at April 30, 2011
    
8,225
      
812.50
  
Issued
    
-
      
-
  
Expired
    
(81
)
    
(697.50
)
Canceled
    
-
      
-
  
Outstanding at April 30, 2012
    
7,744
    
$
812.50
  

Options

The following table summarizes the options outstanding and related prices for the shares of the Company’s common stock issued as of April 30, 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
      
1.87
    
 $
600.00
      
465
    
 $
600.00
  
 
660.00
      
667
      
1.87
      
660.00
      
 500
      
660.00
  
 
1,312.50
      
133
      
1.87
      
1,312.50
      
133
      
1,312.50
  
Total
      
1,420
      
1.87
              
1,098
          
 
 
DRINKS AMERICAS HOLDINGS, LTD., AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2012
 
Transactions involving the Company’s options issuance are summarized as follows:
 
   
Number of
Shares
    
Weighted
Average Price
Per Share
  
Outstanding at April 30, 2010
    
1,420
    
$
695.00
  
Issued
    
-
      
-
  
Exercised
    
-
      
-
  
Canceled or expired
    
-
      
-
  
Outstanding at April 30, 2011
    
1,420
      
695.00
  
Issued
    
-
      
-
  
Expired
    
-
          
Canceled
    
-
      
-
  
Outstanding at April 30, 2012
    
1,420
    
$
695.00
  

The Company did not issue options during the year ended April 30, 2012.

16. 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, 2012 and 2011, 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, 2012 available to offset future years' taxable income is approximately $37,750,000, expiring in various years through 2031.

As of April 30, 2012 and 2011, components of the deferred tax assets are as follows:
 
     
 2011
      
 2010
  
Net operating loss
  
$
13,118,000
    
$
    12,682,000
  
Compensation
    
543,000
      
         543,000
  
Other
    
200,000
      
           200,000
  
     
13,861,000
      
    13,425,000
  
Less valuation allowance
    
(13,861,000
) 
    
  (13,425,000
) 
                 
   
$
 —
    
$
 —
  

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.

17.  RELATED PARTY TRANSACTIONS

Loan Payable
 
The Company is obligated to issue shares of its common stock to several of its shareholders in connection with its June 2009 debt financing (see Note 11).
 
 
DRINKS AMERICAS HOLDINGS, LTD., AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2012
 
From July 2007 through April 30, 2012, the Company has borrowed and our CEO has loaned various amounts up to $813,035 to the Company for working capital purposes at an annual interest rate of 12%. As of April 30, 2012 and 2011, amounts owed to our CEO on these loans including accrued and unpaid interest aggregated $Nil and $657, respectively. For the year ended April 30, 2011, interest incurred on these loans aggregated $7,884.
 
As described in Note 10 above, a note holder and board member provides a $400,000 line of credit, of which $215,946 is being utilized. For the year ended April 30, 2012, the Company has paid $15,258 of interest on the credit line.

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 470 shares of our common stock and warrants to acquire 2,624 shares of our common stock. Under this arrangement, the valuation of the common stock and the exercise price of the warrants was $562.50 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 470 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 39,355 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 2,400 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 10,530 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, 2012 and 2011 of approximately $-0-.  The operations and the net assets are immaterial.
 
18. CUSTOMER CONCENTRATION
 
For the year ended April 30, 2012 and 2011, five and one of our largest customers accounted for 46% and 12%, of the Company's sales, respectively, and seven and one customers accounted for 55% and 10%, respectively of the Company's accounts receivable as of April 30, 2012 and 2011, respectively. The company’s national spirits sales are generally done through the top six spirits and wine distributing companies in the nation, Glazers, Southern Wine and Spirits, Republic National Distributing Company, Johnson Brothers Distributing Company , Charmer 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.
 

DRINKS AMERICAS HOLDINGS, LTD., AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2012
 
19. COMMITMENTS AND CONTINGENCIES

Operating lease

On December 21, 2011, the Company entered into a five-year lease for office space in Ridgefield CT with monthly base lease payments are $2,565 for year one and two, $2,782, $2,853 and $2,967 for years three, four and five, respectively. The Company received a rent credit of $7,696 in each of the months of March 2012, April 2012 and May 2012.

Future minimum lease payments under the operating lease are as follows: 
 
Year Ending April 30,
      
2013
  
$
28,219
  
2014
    
30,785
  
2015
    
32,902
  
2016
    
34,230
  
2017
    
35,605
  
   
$
161,741
  
 
Rent expense charged to operations, which differs from rent paid due to the rent credits and to increasing amounts of base rent, is calculated by allocating total rental payments on a straight-line basis over the term of the lease. During the years ended April 30, 2012 and 2011, rent expense was $44,243 and $42,848, respectively and as of April 30, 2012 and 2011 deferred rent payable was $2,735 and Nil, respectively.

Stock Purchase Agreement

On June 27, 2011, the Company executed a Stock Purchase Agreement (the “Purchase Agreement”) with Worldwide Beverage Imports, LLC, a Nevada limited liability company (“Worldwide”). Pursuant to the Purchase Agreement, the Company issued an aggregate of 400,000 shares of its restricted common stock of the Company (the “Initial Issuance”), of which 300,000 shares were issued to Worldwide, and 100,000 shares were issued to each of two consultants of Worldwide.  In consideration for the Initial Issuance, Worldwide will proceed to license distribution rights (the “Rights”) of up to 39 SKUs of products owned or licensed by Worldwide, and to supply all the inventory on favorable terms for the products related to the Rights (the “Inventory”) to the Company.
 
In addition to the Initial Issuance, provided that the Company has an adequate number of authorized shares of its common Stock, the Company agreed to sell additional shares (the “Additional Shares”) to Worldwide such that the sum of the Initial Issuance and the Additional Shares shall be no greater than 49% of the total number of shares of the issued and outstanding common stock of the Company for a purchase price of $200,000 or $0.50 per share. The Additional Shares shall be paid from residual cash from the sales made by the Company associated with the Rights after expenses in no more than five tranches in accordance with the terms of the Purchase Agreement.

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

 
DRINKS AMERICAS HOLDINGS, LTD., AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2012
 
Under the Purchase Agreement, the Company agreed to, among other things, use its best efforts to (i) increase the number of its authorized shares from 500,000,000 to 900,000,000 after the Closing Date in (the “Increase in Authorized Shares”), (ii) effect a reverse split at a ratio that is mutually agreed to by the Company and Worldwide (the “Reverse Split”), and (iii) settle outstanding liabilities (the “Debt Satisfaction”). Upon the occurrence of the Increase in Authorized Shares, the issuance of the Initial Issuance and the Additional Shares, the completion of the Debt Satisfaction and the Reverse Split, the Company agreed to issue such number of shares of its common stock required such that: (x) Worldwide shall own 49%, (y) management of the Company shall own 35%, (z) two consultants, or their respective designee(s), shall own 2.5% each, of the number of shares issued and outstanding of the Company at such time.
 
Under the Amendment Agreement the terms of the Resulting Ownership were amended such that the 35% ownership by the Company’s management shall include an exchange of all outstanding Series C Preferred Stock of the Company to common stock and the allocation of the 35% common stock ownership shall be determined by J. Patrick Kenny, the Company’s President and Chief Executive Officer.  Furthermore, the Amendment Agreement provides that, upon the completion of the Debt Satisfaction and Reverse Split, the Company shall pay to J. Patrick Kenny, Charles Davidson, and Brian Kenny a bonus in an amount to be agreed upon by Richard Cabo and J. Patrick Kenny, which bonuses shall be paid at such time as Company’s Compensation Committee shall determine.

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

As of April 30, 2012, the Company has completed the requirements of the stock purchase agreement, as amended, as outlined above.

License Agreement

On June 27, 2011, the Company executed a Stock Purchase Agreement (the “Purchase Agreement”) which resulted in the license and 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.

Since that time the company has expanded the distribution of KAH Tequila to all 50 states throughout the US and has expanded retail and on premise distribution. KAH tequila continues to be one of the fastest growing premium tequilas in the US.

In November of 2011 the company entered into a distribution and sales agreement with the company Total Tequila World Wide and is now selling KAH Tequila in Austrailia, New Zealand, Hong Kong, Guam and Singapore .

The company is also shipping KAH Tequila to Holland and is currently in discussion for export to other markets in Europe to include England, Belgium ,Germany and Russia.

The company’s KAH Facebook page currently has over 25,000 members . The company has placed KAH Tequila in over 2,000 Tequila Menu listings. Additional KAH Tequila has won numerous awards for product quality.

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.
 
 
DRINKS AMERICAS HOLDINGS, LTD., AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2012
 
Litigation

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

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.  Balance due and accrued under this agreement as of April 30, 2012 was $54,800.

Westchester Surplus Lines Insurance Company v. Drinks Americas Waters, LLC d/b/a Drinks Americas, Inc., Connecticut Superior Court for Judicial District of New Haven at Hen Haven, Docket Number NNH-CV 11-6025054S.  In this action, Plaintiff filed suit for unpaid insurance premiums and claims approximately $25,000.  The
Company believes this claim is without merit and will defend vigorously.
 
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.
 
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. Balance due and accrued under this agreement as of April 30, 2012 was $55,000.

In the Matter of Liquor Group Holding, LLC v. Drinks Americas Holdings, Ltd. (American Arbitration Association).   On March 7, 2011, the Company successfully obtained an arbitration award in its favor in the sum $664,659.05 after filing a counterclaimed against Liquor Group Holding, LLC. The Company is currently exploring avenues for collection of the arbitration award.
 
 
DRINKS AMERICAS HOLDINGS, LTD., AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2012
 
Drinks Americas Holdings, Ltd. / Pabst Brewing Company (relating to the Company’s license to Rheingold beer). On April 10, 2012, Pabst Brewing Company (“Pabst”) issued a notice of default and subsequently issued a notice of termination and a cease and desist letter with respect to that certain License Agreement between the Company and Pabst, dated August 22, 1997, as amended. The Company responded rejecting the aforesaid notices and disputing the alleged default. The Company does not believe that Pabst has any valid legal grounds to terminate the Rheingold beer license. Negotiations with Pabst have ensued and are continuing. There is a likelihood that litigation will be commenced if Pabst refuses to withdraw its default, termination and cease and desist notices.

Drinks Americas, Inc. / Samuel Bailey, Jr., et al. On April 5, 2012 Drinks Americas, Inc. filed a civil suit against three defendants, Samuel Bailey, Jr., Paul Walraven and Jack McKenzie in the Judicial District of Stamford, Connecticut (Docket Number FST-CV-11-6011590).  Drinks claims that the parties breached a certain Settlement Agreement and General Release, dated, August 10, 2009 for failure to deliver shares of stock in Olifant USA, Inc. to Drinks, notwithstanding the receipt by the defendants from Drinks of a $75,000 cash payment and $20,000 worth of Drinks’ stock.  The defendants do not dispute the receipt of the said $75,000 cash payment and $20,000 worth of stock but dispute Drinks’ claims that they owe any money or stock.

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.

20.  FAIR VALUE MEASUREMENT

The Company adopted the provisions of Accounting Standards Codification subtopic 825-10, Financial Instruments (“ASC 825-10”) on January 1, 2008. ASC 825-10 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance. ASC 825-10 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 825-10 establishes three levels of inputs that may be used to measure fair value:
 
Level 1 - Quoted prices in active markets for identical assets or liabilities.

Level 2 - Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 - Unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities.

To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement is disclosed and is determined based on the lowest level input that is significant to the fair value measurement.

Upon adoption of ASC 825-10, there was no cumulative effect adjustment to beginning retained earnings and no impact on the consolidated financial statements.
 
  
DRINKS AMERICAS HOLDINGS, LTD., AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2012
 
The carrying value of the Company’s cash and cash equivalents, accounts receivable, accounts payable, short-term borrowings (Including convertible notes payable), and other current assets and liabilities approximate fair value because of their short-term maturity.

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

21. SUBSEQUENT EVENTS

Subsequent events have been evaluated through August 6, 2012, the date that the financial statements were issued.

On May 15, 2012, Douglas D. Cole was elected to the board of directors of the Company.

On May 30, 2012, the Company made a scheduled payment of $283,000 pursuant to that certain Forbearance Agreement, dated December 13, 2011.

On June 28, 2012, Hubert Millet resigned as a director of the Company.  Mr. Millet’s resignation was not due to any disagreement with the Company on any matter relating to the Company’s operations, policies or practices.

On July 11, 2012, the Company was informed that Marvin Traub, a member of the Company’s board of directors, unexpectedly passed away.

On July 13, 2012, the Company’s board of directors appointed Richard Cabo as Treasurer and Federico Cabo as Corporate Secretary.
 
 
DRINKS AMERICAS HOLDINGS, LTD., AND AFFILIATES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2012
 
Letter of Intent

On May  16, 2012 the Company  has entered into a non-binding letter of intent regarding the acquisition of Worldwide Beverage Imports, LLC (“WBI”) for approximately 1,000,000 shares of common stock of the Company in exchange for the assignment and assumption of the contract and sale rights to WBI’s licensed brands, WBI’s sales rights in California the only territory not currently included in Drinks distribution agreement, WBI’s lease for warehouse facilities and a right of first refusal to purchase the assets of Fabrica de Tequilas Finos, S.A. de C.V. and Cerveceria Mexicana, S. de R.L. de C.V. and Cerveceria Azteca, S. de R.L. de C.V.

The final terms and conditions of the Transaction are being negotiated and will be determined in a definitive agreement. No assurances can be provided that a definitive agreement will be executed. Execution of a definitive agreement is subject to, among other things, the grant to the Company of a thirty day right of first refusal to purchase the assets of Fabrica de Tequilas Finos, S.A. de C.V. and Cerveceria Azteca, S. de R.L. de C.V., which right of first refusal shall expire twelve months from the date of the contemplated definitive agreement.