10-Q 1 nascent_10q-063008.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: June 30, 2008 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to _____________ Commission File Number: 333-120949 NASCENT WINE COMPANY, INC. -------------------------- (Exact name of registrant as specified in its charter) Nevada 82-0576512 ------ ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2355 B Paseo de las Americas San Diego, Ca. 92154 -------------- ----- (Address of principal executive offices) (Zip Code) (619) 661 0458 -------------- (Registrant's telephone number, including area code) N/A --- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [x] No [_] Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act. Large accelerated filer [_] Accelerated filer [_] Non-accelerated filer [_] (Do not check if a smaller reporting company) Smaller reporting company [X] Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Act). Yes [ ] No [X] As of August 14, 2008 was 84,749,969. NASCENT WINE COMPANY, INC. AND SUBSIDIARIES TABLE OF CONTENTS Page PART I - FINANCIAL INFORMATION Item 1. Unaudited Financial Statements 3 Consolidated Balance Sheets 4 Consolidated Statements of Operations 5 Consolidated Statements of Stockholders' Equity 6 Consolidated Statements of Cash Flows 7 Notes to Financial Statements 9 Item 2. Management's Discussion and Analysis of Operations Item 3. Quantitative and Qualitative Disclosure About Market Risk Item 4. Controls and Procedures 19 PART II - Other Information Item 1. Legal Proceedings 28 Item 1 A. Risk Factors 28 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 28 I4tem 3. Defaults Upon Senior Securities 28 Item 4. Submission of Matters to a Vote of Security Holders 28 Item 5. Other Information 28 Item 6. Exhibits 28 Exhibit 31.1 Certification of Chief Executive Officer pursuant to section 302 of the Sarbanes-Oxley Act of 2002 Exhibit 31.2 Certification of Chief Financial Officer pursuant to section 302 of the Sarbanes-Oxley Act of 2002 Exhibit 32.1 Certification of Chief Executive Officer pursuant to section 906 of the Sarbanes-Oxley Act of 2002 Exhibit 32.2 Certification of Chief Financial Officer pursuant to section 906 of the Sarbanes-Oxley Act of 2002 FORWARD LOOKING STATEMENTS This report contains information that may constitute "forward-looking statements." Generally, the words "believe," "expect," "intend," "estimate," "anticipate," "project," "will" and similar expressions identify forward-looking statements, which generally are not historical in nature. All statements that address operating performance, events or developments that we expect or anticipate will occur in the future -- including statements relating to volume growth, share of sales and earnings per share growth, and statements expressing general views about future operating results -- are forward-looking statements. Management believes that these forward-looking statements are reasonable as and when made. However, caution should be taken not to place undue reliance on any such forward-looking statements because such statements speak only as of the date when made. Our Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. In addition, forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our Company's historical experience and our present expectations or projections. These risks and uncertainties include, but are not limited to, those described in Part II, "Item 1A. Risk Factors" and elsewhere in this report and in our Annual Report on Form 10-K for the year ended December 31, 2007, and those described from time to time in our future reports filed with the Securities and Exchange Commission 29 2 Item 1. UNAUDITED FINANCIAL STATEMENTS The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial reporting and pursuant to the rules and regulations of the Securities and Exchange Commission ("Commission"). While these statements reflect all normal recurring adjustments which are, in the opinion of management, necessary for fair presentation of the results of the interim period, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the audited financial statements and footnotes that are included in the Company's December 31, 2007 annual report on Form 10-KSB previously filed with the Commission on April 15 , 2008. 3 PART I - FINANCIAL INFORMATION NASCENT WINE COMPANY, INC., AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited) JUNE 30, 2008 DECEMBER 31, 2007 ------------- ----------------- ASSETS CURRENT ASSETS Cash $ 892,222 $ 961,243 Accounts receivable (less allowance of $923,450 at June 30, 2008 and $ 547,290 December 31, 2007) 2,887,420 3,878,522 Inventory 2,065,329 2,693,029 Prepaid and other current assets 1,639,882 700,645 ------------ ------------ TOTAL CURRENT ASSETS 7,484,853 8,233,439 Property, plant and equipment, net 768,751 736,635 Investment in AIP 2,707,959 -- Amortizable intangibles assets, net 12,055,660 13,166,621 Goodwill 2,567,307 7,480,565 Other noncurrent assets 1,546,295 4,726,545 Assets held for sale 10,278,484 14,697,486 ------------ ------------ TOTAL ASSETS $ 37,409,309 $ 49,041,291 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable $ 2,070,800 $ 2,620,420 Accrued expenses 2,014,904 1,174,148 Accrued interest 467,810 279,351 Line of credit 47,970 -- Notes payable 1,588,739 48,133 Shareholder loans 862,500 630,000 ------------ ------------ TOTAL CURRENT LIABILITIES 7,052,723 4,752,052 Liabilities related to assets held for sale 5,577,485 11,281,147 ------------ ------------ Total Liabilities 12,630,208 16,033,199 STOCKHOLDERS' EQUITY Preferred stock, 5,000,000 authorized: Series A convertible preferred stock, $.001 par value, 1,875,000 shares issued and outstanding at June 30, 2008 and December 31, 2007 1,875 1,875 Series B convertible preferred stock, $.001 par value, 375,000 shares issued and outstanding at June 30, 2008 and December 31, 2007 375 375 Common stock, $0.001 par value: 195,000,000 shares 84,750 84,426 authorized, 84,749,969 shares issued and outstanding at June 30, 2008 and 84,425,538 December 31, 2007 Additional paid-in capital 43,497,830 44,351,978 Accumulated other comprehensive income (loss) (138,263) 32,447 Deficit accumulated (18,667,466) (11,463,009) ------------ ------------ TOTAL STOCKHOLDERS' EQUITY 24,779,101 33,008,092 ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 37,409,309 $ 49,041,291 ============ ============ See accompanying notes to Consolidated Financial Statements 4 NASCENT WINE COMPANY, INC., AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited) FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED ----------------------------- ---------------------------- JUNE 30, 2008 JUNE 30, 2007 JUNE 30, 2008 JUNE 30, 2007 ------------ ------------ ------------ ------------ NET REVENUES $ 6,452,211 $ 3,669,885 $ 12,412,468 $ 5,943,574 COST OF REVENUE 6,842,631 3,107,637 11,605,192 4,879,218 ------------ ------------ ------------ ------------ GROSS PROFIT (390,420) 562,248 807,276 1,064,356 OPERATING EXPENSES Distribution 512,099 187,508 922,828 282,892 Sales and Marketing 199,926 243,398 450,334 338,782 General and Administrative 1,614,416 1,519,507 2,372,430 2,181,846 Depreciation 37,556 14,182 70,665 26,959 Amortization 388,812 709,584 683,538 926,459 Intangible Impairments (see note 5) 5,341,036 -- 5,341,036 -- ------------ ------------ ------------ ------------ TOTAL OPERATING EXPENSES 8,093,845 2,674,179 9,840,831 3,756,938 LOSS FROM OPERATIONS (8,484,265) (2,111,931) (9,033,555) (2,692,582) OTHER INCOME (EXPENSE) Interest Income 2,415 3,011 6,021 6,052 Interest Expense (223,017) (408,490) (327,800) (956,424) Warrant Interest Recapture 442,068 -- 884,136 -- Other income (expense),net (1,983,277) -- (1,823,359) -- ------------ ------------ ------------ ------------ TOTAL OTHER INCOME (EXPENSE) (1,761,811) (405,479) (1,261,002) (950,372) LOSS FROM CONTINUING OPERATIONS BEFORE PROVISION FOR INCOME TAXES (10,246,076) (2,517,410) (10,294,557) (3,642,954) PROVISION FOR INCOME TAXES -- -- -- -- ------------ ------------ ------------ ------------ LOSS FROM CONTINUING OPERATIONS (10,246,076) (2,517,410) (10,294,557) (3,642,954) DISCONTINUED OPERATIONS Income (loss) from Operations 207,884 178,721 265,643 (186,751) Impairment of Intangibles (1,448,455) -- (1,448,455) -- Gain on Sale of Palermo 4,272,912 -- 4,272,912 -- ------------ ------------ ------------ ------------ INCOME (LOSS) FROM DISCONTINUED OPERATIONS 3,032,341 178,721 3,090,100 (186,751) ------------ ------------ ------------ ------------ NET INCOME (LOSS) $ (7,213,735) $ (2,338,689) $ (7,204,457) $ (3,829,705) ============ ============ ============ ============ BASIC EARNING PER SHARE Continuing Operations $ (0.12) $ (0.05) $ (0.12) $ (0.07) ============ ============ ============ ============ Discontinued Operations $ 0.04 $ 0.00 $ 0.04 $ (0.00) ============ ============ ============ ============ Weighted-average Shares Outstanding 84,439,364 54,281,188 84,427,254 53,184,119 Diluted Earnings per Share Continuing Operations $ (0.12) $ (0.05) $ (0.12) $ (0.07) ============ ============ ============ ============ Discontinued Operations $ 0.04 $ 0.00 $ 0.04 $ (0.00) ============ ============ ============ ============ Weighted-average Shares Outstanding 84,439,364 54,281,188 84,427,254 53,184,119 See accompanying notes to Consolidated Financial Statements 5 NASCENT WINE COMPANY, INC., AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS'EQUITY TOTAL PREFERRED SHARES COMMON SHARES STOCKHOLDERS' -------------------- ------------------- ADDITIONAL COMPREN- ACCUMULATED Par Value Par Value PAID-IN SUBSCRIBED HENSIVE INCOME EQUITY Shares $0.001 Shares $0.001 CAPITAL STOCK INCOME (DEFICIT) (DEFICIT) -------------------- -------------------------------- ---------- ---------- ------------ -------------- Balance December 31, 2006 52,050,000 $ 52,050 $16,314,477 $ 2,334,727 $ (15) $ (2,056,904) $ 16,644,335 - Preferred shares issued for stock for cash 2,250,000 2,250 - - 15,142,027 - - - 15,144,277 Shares issued for service - - 316,023 316 162,055 - - - 162,371 Shares issued for loans - - 3,002,545 3,003 1,265,899 - - - 1,268,902 Shares issued for trucks - - 77,170 77 30,791 - - - 30,868 Shares issued for cash - - 28,484,900 28,485 9,585,424 (2,334,727) - - 7,279,182 Shares issued for acquisitions - - 244,900 245 119,755 - - - 120,000 Warrants issued - - - - 1,616,800 - - - 1,616,800 Shares issued for finders fee - - 250,000 250 114,750 - - - 115,000 Net loss - - - - - - - (9,406,105) (9,406,105) Translation loss - - - - - - 32,462 - 32,462 - - - - - - - - - Comprehensive loss - - - - - - - - (9,373,643) ---------- --------- ---------- --------- ----------- ---------- ---------- ------------ -------------- Balance December 31, 2007 2,250,000 2,250 84,425,538 84,426.00 44,351,978 - 32,447 (11,463,009) $ 33,008,092 Net loss (7,204,457) (7,204,457) Warrant interest expense (recapture) (884,136) (884,136) Shares issued for service 318,181 318 29,682 30,000 Issuance of penalty shares 6,250 6 306 312 Translation (loss) gain (170,710) (170,710) Comprehensive loss - ---------- --------- ---------- --------- ----------- ---------- ---------- ------------ -------------- Balance June 30, 2008 2,250,000 $ 2,250 84,749,969 $ 84,750 $43,497,830 $ - $(138,263) $(18,667,466) $ 24,779,101 ========== ========= ========== ========= =========== ========== ========== ============ ============== See accompanying notes to Consolidated Financial Statements 6 NASCENT WINE COMPANY, INC., AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS For the Six Months Ended -------------------------------- June 30, 2008 June 30, 2007 ------------ ------------ Cash Flows from Operating Activities Net loss $ (7,204,456) (3,829,704) Adjustment to reconcile net loss to net cash provided by operations: Depreciation 255,184 86,328 Amortization 405,714 926,459 Allowance for doubtful accounts 377,261 -- Gain on sale of Palermo (4,272,912) -- Shared-based compensation 30,000 84,000 Warrant interest expense(recapture) (884,136) 556,524 Impairment of amortizable intangibles 4,790,000 -- Impairment of goodwill 11,599,661 -- Impairment of acquisition loans (8,000,000) -- Changes in operating working capital: (Increase)/decrease in accounts receivable (3,313,150) (2,881,898) (Increase)/decrease in inventory 637,282 (1,723,114) (Increase)/decrease in prepaids and other assets (1,039,813) (186,414) Increase/(decrease) in accounts payable 5,269,116 3,211,730 Increase/(decrease) in accrued expense 1,077,398 (148,592) Increase/(decrease) in accrued interest 188,459 (48,703) Increase/(decrease) in other non-current assets (53,977) ------------ ------------ Net change in operating working capital 7,066,087 (123,680) ------------ ------------ NET CASH USED IN OPERATING ACTIVITIES (138,369) (3,953,384) CASH FLOWS FROM INVESTING ACTIVITIES Purchased fixed assets (337,467) (776,504) Acquisition of Licensed Marks -- (4,400,000) Acquisition of Pasani/Eco, net of cash acquired -- (1,577,959) ------------ ------------ NET CASH PROVIDED BY (USED IN) INVESTMENTS ACTIVITIES (337,467) (6,754,463) CASH FLOWS FROM FINANCING ACTIVITIES Line of credit, net (163) -- Bridge Loan -- (556,000) Acquisition loans -- 4,412,500 Shareholder loan advance 250,000 Shareholder loan payment (46,581) (965,425) Proceeds - bank loans 1,270,245 70,589 Payments - bank loans (395,097) Capital leases -- 824,567 Common stock subscribed-net of expenses -- 7,286,544 ------------ ------------ NET CASH PROVIDED BY FINANCING ACTIVITIES 1,078,404 11,072,775 EFFECT OF EXCHANGE RATE CHANGES ON CASH (170,711) 1,082 ------------ ------------ NET DECREASE IN CASH 431,857 366,010 CASH--BEGINNING OF PERIOD 1,165,814 476,375 ------------ ------------ CASH - ENDING OF PERIOD $ 1,597,671 $ 842,385 ============ ============ 7 NASCENT WINE COMPANY, INC., AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (Continued) SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: Issuance of stock for shareholder loan $ -- $ 1,130,391 ============ ============ Issuance of common stock for services $ 30,000 $ 84,000 ============ ============ Warrants issued and attached to debt $ -- $ 156,000 ============ ============ Warrant issued for interest (recapture) $ (884,136) $ -- ============ ============ Issuance of penalty shares $ 312 $ -- ============ ============ Impairment of acquisition notes $(8,000,000) $ -- ============ ============ Interest paid $ 139,342 $ -- ============ ============ See accompanying notes to Consolidated Financial Statements 8 NOTE 1 - COMPANY OVERVIEW Company History --------------- The Company was incorporated under the laws of the State of Nevada, on December 31, 2002 (Date of inception). The Company had minimal operations until July 1 2006, after the Company purchased the license to distribute Miller Beer in Baja California, Mexico from Piancone Group International, Inc. (PGII). In October 2006, the Company purchased the assets and assumed liabilities of PGII, and in November 2006, when Company purchased the outstanding common stock of Palermo Italian Foods, LLC. (Palermo). In June 2008, the Company entered into a transaction to sell Palermo to AIP, Inc., a group led by Victor Petrone, formerly the President of the Company who remains a member of the Board of Directors. On May 11, 2007, the Company acquired Pasani S.A de C.V.. (Pasani) and Eco (Eco), distribution companies based in Mexico City and San Antonio. In July 2007, the Company acquired Grupo Sur Promociones de Mexico S.A. de C.V. (Groupo Sur) and related companies. In October 2007, the Company acquired all of the outstanding capital stock of Targa, S.A. de C.V. (Targa). During May 2008, the Company announced its decision to evaluate its strategic options for Pasani, Eco and Grupo Sur. In June 2008, in accordance with the provisions of SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", the assets and liabilities relating to Pasani, Eco and Grupo Sur have been reclassified as held for sale in the Consolidated Balance Sheet for June 30, 2008 and December 31, 2007. The results of operations for the fiscal quarter and six months ended June 30, 2008 and June 30, 2007, have been reported as discontinued operations. In conjunction with classifying certain subsidiaries as discontinued, the Company cancelled $8,000,000 of acquisition loans (Pasani $ 3,500,000 and Grupo Sur $4,500,000). The Company believes the Pasani, Eco and Grupo are in probable stage of being sold and their operations and cash flows are clearly distinguishable operationally and for financial reporting purposes classified as Discontinued Operations. The Pasani and Eco companies have been disposed. See note subsequent events for these subsidiaries, the company shall no significant continuing involvement after their disposal and their operations and cash flows have been eliminated from our ongoing operations. The above mentioned transactions were accounted for pursuant to certain paragraphs of Statement of Financial Accounting Standard 141 (`SFAS 141'), Statement of Financial Accounting Standard 142 (`SFAS 142') Statement of Financial Accounting Standard 144 (`SFAS 144'). A discussion of these transactions are included in notes 10 and 11. In our opinion, the information presented reflects all adjustments necessary for a fair statement of interim results. Certain reclassifications have been made to conform prior year data to current year presentation. The Company determined in accordance with SFAS No. 131 "DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION", that its subsidiaries meets the criteria to be deemed one reporting unit. NOTE 2 - GOING CONCERN The consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As of June 30 2008, the Company had cash of $892,222 and a working capital of $432,130. The Company had a net loss from continuing operations $10,246,076 and $10,294,557 for the three months and six months ended June 30, 2008, $2,517,410 and $3,642,954 for the three months and six months ended June 30, 2007. The Company is currently in discussion with several lending institutions for a working capital credit facility and additional financing. These credit facilities in conjunction with internally generated funds should be sufficient to fund our operations for the next twelve months; however, there can be no assurance funding will be available at terms and conditions acceptable to us. 9 The accompanying financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern. NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation --------------------------- The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Best Beer S.A. de C. V., (Best Beer), International Food Services, Inc. (IFS) and Targa, S.A de C.V (Targa) for the three months and six months ended June 30 2008 and 2007. The accompanying consolidated balance sheets include the assets and liabilities of Pasani, Eco and Grupo Sur as assets held for at June 30 2008, and December 31, 2007. The results of their operations are disclosed as discontinued operations for the three months and six months ended June 30, 2008 and 2007, respectively. The financial statements have been consolidated with the parent company and all inter-company transactions and balances have been eliminated in consolidation. Basis of Preparation -------------------- The accompanying financial statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles (GAAP), for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all information and notes required by accounting principles generally accepted in the United States for complete financial statements. The financial statements have been prepared assuming that the Company will continue as a going concern. 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 of assets and liabilities, the disclosure of contingent assets, and liabilities on the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates. Revenue Recognition ------------------- The Company, through its Subsidiaries, sells food and beverage products to its customers in Mexico. Sales of products and related costs of products sold are recognized using the accrual method in which revenues are recorded as products are delivered and billings are generated. In accordance with SEC Staff Accounting Standard 101 Revenue Recognition, the Company recognizes revenue when (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred, (iii) the price is fixed or determinable and (iv) collectability is reasonably assured. These terms are typically met upon shipment of product to the customer. Accounts Receivable ------------------- The Company has reviewed the outstanding trade accounts receivable and provided a reserve for slow paying accounts of approximately $923,450 at June 30,, 2008 and $547,290 at December 31, 2007. The Company has insured all its trade receivables during the first half 2008. Additionally, the Company has developed standard credit policies. Inventories ----------- Inventories are accounted for on the first-in, first-out basis. Any products reaching their expiration dates are written off. The Company determined it did not require a provision for slow moving and/or obsolete inventory for the six months ended June 30, 2008 and December 31, 2007. Property, Plant and Equipment ----------------------------- Property and equipment is stated at cost and depreciated using the straight-line method over the estimated useful life of the assets, which is three to ten years. 10 Business Combinations --------------------- Acquisitions require significant estimates and judgments related to the fair value of assets acquired and liabilities assumed to which the transaction costs are allocated under the purchase method of accounting. Certain liabilities are subjective in nature. We reflect such liabilities based upon the most recent information available. The ultimate settlement of such liabilities may be for amounts that are different from the amounts initially recorded. A significant amount of judgment also is involved in determining the fair value of assets acquired. Different assumptions could yield materially different results. Long-Lived Assets ----------------- The Company accounts for intangible assets in accordance with SFAS 144 " ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS". The Company acquired long-lived assets during 2007 and 2006. The acquired long -lived assets are attributed to acquisitions completed during 2007 and 2006. The Company reviewed the carrying values of its long-lived assets for possible impairment as of June 30, 2008 and whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable and\or annually. The Company completed the sale of Palermo as of June 30, 2008, and classified Pasani, Eco and Grupo Sur as discontinued operations and accordingly the long- lived assets arising from these acquisition have been impaired. Per Share Data -------------- Basic net earnings (loss) from continuing operations per share is computed by dividing net earnings (loss)from continuing operations by the weighted average number of common shares outstanding for the period. Diluted earnings (loss) from continuing operations per share is calculated by dividing net earnings (loss) from continuing operations and the effect of assumed conversions by the weighted average number of common and, when applicable, potential common shares outstanding during the period. A reconciliation of the numerators and denominators of basic and diluted earnings (loss) from continuing operations per share is presented below. Three Months Ended Six Months Ended June 30 June 30 ----------------------------- ---------------------------- 2008 2007 2008 2007 Basic net loss per share: Net loss $ (7,213,735) $ (2,338,689) $ (7,204,457) $ (3,389,705) ------------ ------------ ------------ ------------ Weighted average common outstanding 84,439,364 54,281,188 84,427,254 53,184,119 Basic loss per share $ (.09) $ (.04) $ (.09) $ (.07) ============ ============ ============ ============ Diluted loss per share: Net loss $ (7,213,735) $ (2,338,689) $ (7,204,457) $ (3,389,705) ------------ ------------ ------------ ------------ Weighted average common outstanding 84,439,364 54,281,188 84,427,254 53,184,119 Effect of Preferred Stock and Warrants ------------ ------------ ------------ ------------ Weighted average common outstanding and potential common shares outstanding -- -- -- -- ------------ ------------ ------------ ------------ Diluted net loss per share: $ (.09) $ (.04) $ (.09) $ (.07) ============ ============ ============ ============ Preferred Stock and Warrants (described else where) to purchase shares of common stock which totaled 63 million for the three and six months ended June 30, 2008 and 24 million for the three and six months ended June 30, 2007, were not included in the computation of diluted earnings per share as the effect would be anti-dilutive. Basic loss per share is calculated by dividing net loss by the weighted-average number of shares of common shares outstanding. Diluted loss per share includes the component of basic loss per share and also gives effect to dilutive Common Stock equivalents. Potential dilutive Common Stock equivalents include stock options, warrants and preferred stock which convert into Common Stock. 11 Income Taxes ------------ The Company follows Statement of Financial Accounting Standard No. 109 "Accounting for Income Taxes" (SFAS No. 109) for recording the provision for income taxes. Deferred tax assets and liabilities are computed based upon the differences between the financial statement and income tax basis of assets and liabilities using the enacted marginal tax rate applicable when the related asset or liability is expected to be realized or settled. Deferred income tax expense or benefit is based on the change in the asset or liability each period. If available evidence suggests that is more likely than not that some portion or all of the deferred tax assets will not be realized, a valuation allowance is required to reduce the deferred tax asset to the amount that is more likely than not to be realized. Future changes in such valuation allowance are included in the provision for deferred income taxes in the period of change. Deferred income taxes may arise from temporary differences resulting from income and expense items reported for financial accounting and tax purposes in different periods. Deferred taxes are classified as current or non-current, depending on the classification of assets and liabilities to which they relate. Deferred taxes arising from temporary differences that are not related to an asset or liability are classified as current or non-current depending on the periods in which the temporary differences are expected to reverse. Advertising ----------- The Company expenses advertising as incurred. Advertising expense was approximately $84,700 and $91,100 for the three months and six months ended June 30, 2008. For the three months and six months ended June 30, 2007 the advertising expense was $102,000 and $ 160,100, respectively. Reclassifications ----------------- Certain prior period amounts have been reclassified to conform to the current period's presentation. Recent Accounting Pronouncements -------------------------------- In March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activities" , an amendment of FASB Statement No. 133, which changes the disclosure requirements for derivative instruments and hedging activities. Entities are required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS No. 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity's financial position, financial performance, and cash flows. SFAS No. 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. In June 2008, the FASB issued FASB Staff Position No. EITF 03-6-1, "Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities," which classifies unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) as participating securities and requires them to be included in the computation of earnings per share pursuant to the two-class method described in SFAS No. 128, "Earnings per Share.". This Staff Position is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those years. All prior-period earnings per share data presented are to be adjusted retrospectively (including interim financial statements, summaries of earnings, and selected financial data) to conform with the provisions of this Staff Position, with early application not permitted. The adoption of this Staff Position, which will require us to allocate a portion of net income to these participating securities, will not have a material effect on our historical or future reported earnings per share. NOTE 4 - PROPERTY,PLANT AND EQUIPMENT Property and equipment consists of the following at June 30: June 30, 2008 December 31, 2007 ------------- ----------------- Distribution equipment $ 639,139 $ 734,458 Office furniture and equipment 185,383 39,902 Computer 62,321 15,823 Autos and trucks 218,399 204,415 Leasehold improvements 112,592 98,404 ----------- ----------- Totals $ 1,217,834 1,093,002 Accumulated depreciation $ (449,084) (357,367) ----------- ----------- Property and equipment net $ 768,750 $ 735,635 =========== =========== 12 Depreciation expense for the three months and six months ended June 30, 2008 was $37,556 and $70,665, respectively and for the three and six months ended June 30, 2007, was $14,182 2007 and $26,959, respectively. Assets held for sale include $842,341 of property and equipment related to Grupo Sur, Pasani and Eco (discontinued operations) and $376,436 of accumulated amortization. Depreciation expense for the three and six months ended June 30, 2008 are included in net income (loss) from discontinued operations. NOTE 5 - GOODWILL AND INTANGIBLES ASSETS June 30, 2008 December 31, 2007 ------------- ---------------- Intangibles subject to amortization: Miller Beer Distrtibution Licenses 8,675,000 8,675,000 Customer relations 290,000 290,000 Client lists 500,000 Trademarks 5,300,000 5,300,000 Non-Compete Agreement 70,000 70,000 ------------ ------------ 14,335,000 14,835,000 Accumulated amortization: (2,279,339) (1,668,379 ------------ ------------ Intangibles subject to amortization, net $ 12,055,661 $ 13,166,621 ============ ============ Goodwill: Acquisition of PGII - 4,913,258 Acquisition of Targa 2,567,307 2,567,307 ------------ ------------ Total Goodwill $ 2,567,307 $ 7,480,565 ============ ============ Intangible asset amortization expense was $388,812 and $683,538 for the three and six months ended June 30, 2008, respectively $709,584 and $926,459 was the amortization expense for the three and six months ended June 30, 2007. Amortization expense for the next five years is estimated to be approximately $5,431,000. Pursuant to SFAS No. 144, the Company, as of June 30, 2008, classified certain subsidiaries as discontinued operations and accordingly impaired the intangible assets and goodwill of these subsidiaries. The total is as follows: Impaired Intangibles Impaired Goodwill Total -------------------- ----------------- ----- Grupo Sur $1,950,000 $1,756,498 $3,706,498 Pasani 2,340,000 2,187,233 4,527,233 Eco - 219,714 219,714 ----------------------------------------------------- Total Impairments $4,290,000 $4,163,445 $8,453,445 Accumulated Amortization: Grupo Sur $128,840 Pasani 300,122 -------- Total $428,962 Loss from operations reflects $5,341,036 of impairment, which includes $$500,000 attributable to customer list and $4,913,258 of goodwill arising from the acquisition of PGI during 2006. 13 NOTE 6 - NOTES PAYABLE The Company had the following bank loans at June 30, 2008: Bank Interest rates Due Dates Amount -------------------------------------------------------------------------------- Genesis 14.00% October 1, 2008 $1,000,000 Cyril Capital, LLC 8.00% October 14, 2008 500,000 City National Bank 8.75% December 31, 2008 19,000 NetBank 14.75% December 15, 2008 32,675 Pentech 18.26% December 1, 2008 37,064 ----------- $1,588,739 =========== NOTE 7 - BRIDGE LOANS During 2007, the Company obtained Bridge loan financing in varying amounts with interest payable at rate 8% annually. As additional consideration, the Company issued warrants to the lenders. At December 31, 2007, these loans have been paid. NOTE 8 - STOCKHOLDERS' EQUITY Common Stock ------------ The Company is authorized to issue 195,000,000 shares of Common Stock at $.001 par value. During the year ended December 31, 2007, the Company issued 316,023 shares of Common Stock for services rendered in the amount of $162,371 and 3,002,545 shares of Common Stock to redeem notes payable to shareholders in the amount of $1,268,902. The Company issued 77,170 shares of Common Stock for a truck valued at $30,868, and 244,900 shares of Common Stock as a finder's fee for the Targa acquisition ($120,000) and 250,000 shares of Common Stock for the finder's fee for the York preferred stock transaction ($115,000). The Company received subscriptions for an additional 21,539,900 shares of Common Stock during the year and issued 28,484,900 shares for cash, including the 6,945,000 shares subscribed at December 31, 2006 in the amount of $2,334,727 for a total of $9,585,424. At March 31, 2008, the Company had outstanding warrants, not including the York Warrants (see below), to purchase 18,120,476 shares of Common Stock at various price of between $0.25 and $1.05 expiring in 2010. If all warrants were exercised the Company would receive $7,070,000. During June 2008, the Company issued 318,181 of Common Stock for services rendered. Additionally, the Company issued 6,250 of Common Stock as p a penalty provision of the share purchase agreement completed on June 28, 2007, Preferred Stock --------------- The Company is authorized to issue 5,000,000 shares of preferred stock at $.001 par value. On July 3, 2007, the Company issued 1,000,000 shares of its Series A and Series B Convertible Preferred Stock, par value $0.001 per share at $8.00 per share ($8,000,000) to an affiliate York Capital Management (York). The Series A and Series B Convertible Preferred Stock is convertible into 20,000,000 shares of the Company's Common Stock, par value $0.001, of the Company, based upon a conversion price of $0.40 per share and a liquidation amount of $8.00 per share. The holders of the Series A and Series B Convertible Preferred Stock are entitled to a stock dividend of 15% payable quarterly in preferred stock for three years commencing upon the issuance of the Preferred stock . 14 In addition, the Company issued the following warrants to purchase: Series A-1 500,000 shares of Series A preferred $8.00 per share stock Immediately exercisable and expire July 3, 2010 Warrants Series A-2 375,000 shares of Series A preferred $8.00 per share stock Immediately exercisable and expire July 3, 2014 Warrants Series B Variable shares of Series of the average of the convertible Warrants preferred stock depended Per Share Market Value of and expire July 3, 2014 on the per market value of Common Stock 30 days Immediately exercisable shares preceding date of exercise. In October and November 2007, York exercised their warrants acquiring 2,250,000 shares of Series A and Series B Convertible Preferred Stock in the amount of $15,144,276. Series A and Series B Convertible Preferred Stock held by York collectively are convertible into 45,000,000 shares of the Company's Common Stock. The Company paid a cash finder's fee of $560,000 and issued to the finder an aggregate of 1,600,000 common share warrants. Each warrant is exercisable to purchase one share of Common Stock at any time until July 3, 2010, at a purchase price of $0.40 per share. NOTE 9 - ACQUISITIONS TARGA, S.A. DE C.V. ACQUISITION OF TARGA, S.A. DE C.V. In October 2007, the Company acquired all of the outstanding capital stock of Targa, S.A. de C.V. (Targa) for $4,000,000. The Company paid $3,550,000 at the Close fees of $200,000 and deposited $250,000 in an escrow account, which has subsequently been released. Targa is a cheese processor and distributor of imported cheeses into Mexico. Its office and distribution center is located in Tijuana, Mexico. Current assets $ 2,482,524 Property and equipment 319,612 Customer relations 290,000 Trade name 1,300,000 Non-compete agreement 70,000 Goodwill 2,567,307 Current liabilities (3,029,443) -------------- Total Purchase Price $ 4,000,000 ============== NOTE 10 - DISCONTINUED OPERATIONS Grupo Sur On July 10, 2007, pursuant to a Stock Purchase Agreement we purchased during 2008 Grupo Sur, an in store merchandising company. After Nascent closed purchase. Subsequent to the closing of such acquisition, Nascent believed that Grupo Sur began taking actions that were contrary to the Stock Purchase Agreement and the related employment agreements. Our attorneys are pursuing through available channels the return of $1.3million of loans. On August 8, 2008, Nascent entered into a Settlement Agreement (the "Settlement Agreement"), effective June 30, 2008 (the "Settlement Date"), with Pasani, S.A. de C.V. ("Pasani") and Eco Distributing, LLC. On May 11, 2007, the Company entered into a Stock Purchase Agreement (the "Pasani Purchase Agreement") with Pasani, and the shareholders of Pasani, Alejandro Gutierrez Pederzini ("Mr. Pederzini") and Leticia Gutierrez Pederzini (together with Mr. Pederzini, the "Shareholders"), whereby the Company purchased (the "Acquisition") from the Shareholders 100% of the outstanding capital stock of Pasani ("Pasani Common Stock"), in exchange for issuing a Promissory Note to the Shareholders in the principal amount of USD $1,500,000 (the "Note"). Since the execution of the Pasani Purchase Agreement, $500,000 of the principle of the Note had been paid to the Shareholders. Pursuant to the Settlement Agreement, Nascent has returned the Pasani Common Stock to the Shareholders. In addition, the remaining balance of the Note has been forgiven and the Shareholders have agreed to pay Nascent the following: (i) $500,000 in cash within 180 days of the Settlement Date,$185,000 in additional funds within 180 days of the Settlement Date and (iii) $312,451.87 in inventory within 180 days of the Settlement Date. In addition, Pasani is obligated to pay Nascent on or before September 30, 2008, $92,259.13 for products delivered to Pasani during July 2008. The Statement of Operations reflects Pasani, Eco and Grupo Sur are classified as discontinued operations. Three months ended Six months ended June 30, June 30, ----------------------------- ----------------------------- 2008 2007 2008 2007 ------------- ------------- ------------- ------------- Grupo Sur Grupo Sur Grupo Sur Grupo Sur Revenue $ 5,696,000 -- $ 5,696,000 -- ------------- ------------- ------------- ------------- Net Profit (Loss) from Discontinued Operations (1) $ (1,659,000) -- $ (1,659,000) -- ============= ============= ============= ============= (1) Includes Impairment Expense $ 2,277,000 -- $ 2,277,000 -- Three months ended Six months ended June 30, June 30, ----------------------------- ----------------------------- 2008 2007 2008 2007 ------------- ------------- ------------- ------------- Pasani/Eco Pasani/Eco Pasani/Eco Pasani/Eco Revenue $ 1,505,000 $ 1,136,000 $ 4,027,000 $ 1,136,000 ------------- ------------- ------------- ------------- Net Profit (Loss) from Discontinued Operations (1) $ (3,985,000) $ 55,000 $ (3,927,000) $ 55,000 ============= ============= ============= ============= (1) Includes Impairment Expense $ 4,447,000 -- $ 4,447,000 -- NET ASSETS HELD FOR SALE Grupo Sur Pasani- Eco Total ---------- ---------- ---------- Cash $ 106,840 $ 598,609 705,449 Accounts receivable 2,673,534 $3,532,099 6,205,633 Inventory 1,707,851 1,707,851 Prepaid and other current assets 371,237 822,410 1,193,647 Property, plant and equipment,net 370,632 95,272 465,904 ---------- ---------- ---------- Assets held for sale $3,522,243 $6,756,241 10,278,484 ========== ========== ========== Accounts payable $ 528,694 $3,663,266 4,191,960 Accrued expenses 642,147 11,901 654,048 Accrued interest Line of credit Notes payable 718,510 718,510 Shareholder loans 12,967 12,967 Liabilities related to assets held for ---------- ---------- ---------- sale $1,170,841 $4,406,644 5,577,485 ========== ========== ========== 15 NOTE 11 - SALE OF PALERMO On June 30, 2008, the Company sold Palermo to a group headed by the Company's former President. The following table summarizes the calculation of the Gain on the sale of Palermo. Consideration: Notes Receivable $1,000,000 Assumption of liabilities 440,000 ---------- Total Consideration 1,440,000 Net liability sold 2,832,901 ---------- Gain on Sale $4,272,912 NOTE 12 - SEGMENT INFORMATION The Company operates in one reportable business segment. The Company conducts its business through its subsidiaries in the Mexico. The Company has historically disclosed summarized financial information for the geographic area of operations as if they were segments in accordance with SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." Such summarized financial information concerning the Company's geographical operations is shown in the following tables: United States Mexico --------------------------- Net income (loss) for the three months ended June 30, 2008 $ 195,740 $(2,146,084) Net income (loss) for the six months ended June 30, 2008 $ 577 $(1,812,842) Net income (loss) for the three months ended June 30, 2007 $(1,895,183) $ (9,411) Net income (loss) for the six months ended June 30, 2007 $(4,145,952) $ (515,670) Long lived assets (net) at June 30, 2008 $ 90,763 $ 677,988 Long lived assets (net) at June 30, 2007 $ 68,349 $ 343,060 NOTE 13 - RELATED PARTY TRANSACTIONS The Company has unsecured loans from stockholders totaling $862,500 at June 30, 2008. The loans have various due dates and contain interest rates ranging from 10% to 18%. All loans are due on demand. On May 3, 2006, the Company acquired the exclusive rights from Piancone Group International, Inc. to market Miller Beer in Baja California, Mexico, in exchange for 17,500,000 shares of our Common Stock. At that time, neither Sandro Piancone nor Piancone Group was an affiliate. Concurrent with the acquisition of these rights, Sandro Piancone became the Company's Chief Executive Officer and a director. In June 2006, the Company acquired substantially all of the assets of Piancone Group in exchange for the issuance of 15,000,000 shares of our Common Stock. Sandro Piancone, Chief Executive Officer and a director of the Company, was the Chief Executive Officer, a director and the controlling stockholder of Piancone Group International, Inc., at the time its assets were acquired by the Company. The Company believes our purchase of Piancone Group's assets was fair and reasonable. NOTE 14 -COMMITMENTS AND CONTINGENCIES OPERATING LEASES The Company maintains its corporate offices in San Diego, California including warehouse space. In addition, it maintains warehouse space and offices in Tijuana, La Paz, Ensenada, Mexicali, Cabo San Lucas, Puerto Penasco and Mazatlan, Mexico. The Company currently has total leases of 212,000 square feet at a cost of $80,000 per month. In 2008, the Company acquired approximately 20 new lease trucks. The total rent paid in for the six months ended June 30, 2008 was approximately $331,204 and $182,341 for the six months ended June 30, 2007. Future payments on the operating leases are as follows: 2009 $ 788,002 2010 $ 710,003 2011 $ 650,003 2012 $ 360,000 Thereafter $ - --------------- $ 2,508,008 16 Dividend Contingency -------------------- The holders Series A and the Series B convertible preferred stock commencing on the date of issuance and for a period of three years following the issuance date shall be entitled to receive a quarterly dividend at a rate of fifteen percent of the stated liquidation preference amount. The dividends are payable in additional shares of Series A and the Series B convertible preferred stock The Board of Directors has not declared dividends for the Series A and Series B convertible preferred stock. Contingency To Issue Additional Stock ------------------------------------- Per the terms of the share purchase agreement completed on June 28, 2007, Nascent Wine Company, Inc. was required to file with the SEC a share registration statement within 60 days of the share sale transaction. Furthermore, a failure by the registrant to perform would result in a 1% of the total shares sold per week penalty in shares, up to a 10% maximum penalty, payable to the investors (discussed elsewhere herein). The company filed the SB-2 to register the shares on November 14, 2007. The Company's potential penalty shares to be issued are approximately 2,818,500 shares. The Company has provided approximately $565,900 for the cost of the issuance of the penalty shares. Concentration of Sales ---------------------- For the three and six months ended June 30, 2008, the Company does not have an individual customer which would represent a concentration. LEGAL PROCEEDING From time to time we are involved with legal proceedings, claims and litigation arising in the ordinary course of business. Grupo Sur Litigation -------------------- On July 10, 2007, Nascent and Grupo Sur Promociones de Mexico, S.A. de C.V., a Mexican corporation ("Grupo Sur"), entered into a Stock Purchase Agreement whereby Nascent acquired Grupo Sur. As part of this transaction, Nascent agreed to retain Grupo Sur's three former owners/ managers, all of whom executed employment agreements with Nascent. After the sale of Grupo Sur to Nascent closed, Nascent believed that Grupo Sur began taking actions that were contrary to the Stock Purchase Agreement and the employment agreements. Grupo Sur responded that Nascent's purchase of Grupo Sur never closed and that Nascent failed to pay a portion of the purchase price due to Grupo Sur under the Stock Purchase Agreement. Grupo Sur asserted that it was terminating the Stock Purchase Agreement or, alternatively, repudiated the Stock Purchase Agreement. Grupo Sur, in taking these positions, has withheld and refused to refund monies that Nascent has paid to it without adequate justification. Discussions between Nascent's attorneys and attorneys for Grupo Sur have been ongoing as the parties attempt to negotiate a mutually acceptable resolution. Because Grupo Sur has refused to return monies that Nascent paid to it in connection with the acquisition, Nascent filed a lawsuit on August 13, 2008 against Grupo Sur, Gregory Cowal Robbins, Francesca Wright De Cowal and Iliya Petar Zogovic Wright in the United States District Court for the District of Nevada seeking to recover damages for the following claims: breach of contract, breach of the implied covenant of good faith and fair dealing, breach of fiduciary duty, unjust enrichment and conversion. 17 NOTE -15 PRO FORMA STATEMENTS OF OPERATIONS Pro Forma Statement of operation includes Nascent, Best Beer, IFS and 2007 acquisition of Targa, which was acquired in October 2007. PRO FORMA FOR FOR THE THREE As Reported Discontinued Operations MONTHS ENDED Palermo Pasani Targa JUNE 30, 2007 ------------------------------------------ ------------------ REVENUE $ 7,800,000 (2,900,000) (1,100,000) 2,100,000 $ 5,900,000 GROSS PROFIT 1,200,000 (300,000) (300,000) 400,000 1,000,000 INCOME (LOSS) FROM OPERATIONS (2,300,000) 234,000 56,000 100,000 (2,166,000) OTHER INCOME (EXPENSE) 400,000 - 400,000 INCOME (LOSS) FROM DISCONTINUED OPERATIONS (234,000) 56,000 (178,000) ------------------------------------------------------------ ------------------ NET GAIN (LOSS) $ 2,700,000 (234,000) 56,000 100,000 $ 2,622,000 ============================================================ ================== PRO FORMA FOR FOR THE SIX As Reported Discontinued Operations MONTHS ENDED Palermo Pasani Targa JUNE 30, 2007 ------------------------------------------ ------------------ REVENUE $ 12,900,000 (5,800,000) (1,100,000) 4,100,000 10,100,000 GROSS PROFIT 2,200,000 (700,000) (300,000) 700,000 1,900,000 INCOME (LOSS) FROM OPERATIONS 2,900,000 242,000 56,000 100,000 3,186,000 OTHER INCOME (EXPENSE) 1,000,000 INCOME (LOSS) FROM DISCONTINUED OPERATIONS - (242,000) 56,000 (186,000) ------------------------------------------------------------ ------------------ NET GAIN (LOSS) $ 3,900,000 (242,000) 56,000 600,000 3,002,000 ============================================================ ================== NOTE -16 SUBSEQUENT EVENTS Effective August 1, 2008, Nascent entered into an employment agreement with Sandro Piancone, Nascent's Chief Executive Officer for an initial term through July 31, 2012 with automatic annual renewals for an additional five years. Pursuant to the terms of Mr. Piancone's employment agreement, he will receive an annual base salary of $150,000. A copy of Mr. Piancone's employment agreement is attached to this Quarterly Report as Exhibit 10.1. On August 8, 2008, Nascent entered into a Settlement Agreement (the "Settlement Agreement"), effective June 30, 2008 (the "Settlement Date"), with Pasani, S.A. de C.V. ("Pasani") and Eco Distributing, LLC. On May 11, 2007, the Company entered into a Stock Purchase Agreement (the "Pasani Purchase Agreement") with Pasani, and the shareholders of Pasani, Alejandro Gutierrez Pederzini ("Mr. Pederzini") and Leticia Gutierrez Pederzini (together with Mr. Pederzini, the "Shareholders"), whereby the Company purchased (the "Acquisition") from the Shareholders 100% of the outstanding capital stock of Pasani ("Pasani Common Stock"), in exchange for issuing a Promissory Note to the Shareholders in the principal amount of USD $1,500,000 (the "Note"). Since the execution of the Pasani Purchase Agreement, $500,000 of the principle of the Note had been paid to the Shareholders. Pursuant to the Settlement Agreement, Nascent has returned the Pasani Common Stock to the Shareholders. In addition, the remaining balance of the Note has been forgiven and the Shareholders have agreed to pay Nascent the following: (i) $500,000 in cash within 180 days of the Settlement Date,$185,000 in additional funds within 180 days of the Settlement Date and (iii) $312,451.87 in inventory within 180 days of the Settlement Date. In addition, Pasani is obligated to pay Nascent on or before September 30, 2008, $92,259.13 for products delivered to Pasani during July 2008. Effective August 14, 2008, Nascent entered into an employment agreement with Peter V. White, Nascent's Chief Financial Officer for an initial term through July 31, 2010 with automatic annual renewals for an additional two years. Pursuant to the terms of Mr. White's employment agreement, he will receive an annual base salary of $150,000. A copy of Mr. White's employment agreement is attached to this Quarterly Report as Exhibit 10.2. On June 28,2008 Nascent's Board of Directors ratified the Company's 2008 Stock Option Plan (the "Plan"). A copy of the Plan is attached to this Quarterly Report as Exhibit 4.1 18 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -------------------------------------------------------------------------------- The following discussion should be read in conjunction with the historical consolidated financial statements and the related notes and the other financial information included the Company's the Annual Report on Form 10-KSB for the year Ended December 31, 2007. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of any number of factors We were incorporated in Nevada in December 2002 as a wine distribution company. In April 2006, we acquired the right to distribute Miller beer in Baja California. Nascent Wine Company, Inc. is the only broad line nationwide distributor of imported food and beverage products in Mexico. Operating from 11 distribution centers in Mexico and the US. The company markets and distributes over 2300 national and proprietary brand food and non food items to more than 2,000 customers throughout Mexico. Nascent currently services over 8,000 sales points including supermarkets, convenience stores and traditional foodservice accounts including Wal-mart, Costco, Soriana, Comercial Mexicana, Casa Ley, AMPM, 7-Eleven, OXXO and more. Nascent has the exclusive right to distribute Miller beer in Baja California. We also distribute a full line of frozen foods, such as ice cream, frozen dinners, meats, ice cream and desserts, and a full line of canned and dry goods, fresh meats and imported specialties. We also distribute a wide variety of food-related items such as disposable napkins, plates and cups. Business strategy: The primary component of our business strategy involves the establishment of a nationwide footprint in Mexico. We will attempt to accomplish this by attempting to acquire the most profitable and well positioned distributors in Mexico. We also plan to obtain exclusive distribution rights to desirable and recognizable products to command higher operating margins and to use technology to leverage our operations and absorb acquisitions. Mexico Market overview: The population of Mexico is in excess of 110 million people and the country has a Gross Domestic Product of more than $1 trillion dollars. The foodservice industry in Mexico is a $46 billion "industry and is fragmented" foodservice; as the industry is serviced by 25,000 small to medium food service distributors. Furthermore, the foodservice industry in Mexico carries higher margins than US foodservice distribution. In Mexico the margins generally range from 25-40% while the US foodservice industry margins tend to fall between 10-15%. RECENT EVENTS Our sales have increased by 52% from last year. The Company has also opened two new warehouses since last year and has received certification from the California Milk Board to use the "Real Cheese" logo on its private label "Nery's" cheese products. During May 2008, Nascent became the exclusive distributor for Fusion Energy Drink in Mexico. During May 2008 Nascent signed an agreement to distribute Rockstar Energy drinks in Mexico. During the second quarter, Nascent announced a plan to review its growth strategy and on June 30, Nascent sold Palermo Italian Foods, LLC ("Palermo") to a group of investors headed by Palermo's President, Victor Petrone, who is also President and a director of Nascent. As of July 31, 2008, Nascent completed the unwinding of its purchase of Pasani pursuant to a Settlement Agreement which is attached to this Form 10-Q as Exhibit 10.1. 19 At June 30, 2008, the Company recorded the Salesale of Palermo and the classification of Grupo Sur, Pasani and Eco as discontinued operations. (thousands) For the Three Months Ended June 30, ------------------------------------- Inc/Dec (unaudited) over 2008 2007 2007 ------------ ------------ ------------ REVENUE $ 6,452 100.0 $ 3,670 100 $ 2,782 43.1 COST OF REVENUE 6,843 106.1 3,108 84.7 3,735 57.9 -------------------- -------------------- --------------------- GROSS PROFIT (390) (6.1) 562 15.3 (953) (14.8) OPERATING EXPENSES: Distribution 512 7.9 188 5.1 325 5.0 Sales and Marketing 200 3.1 243 6.6 (43) (0.7) General and Administrative 1,614 25.0 1,520 41.4 95 1.5 Depreciation 389 6.0 14 0.4 375 5.8 Amortization 38 0.6 710 19.3 (672) (10.4) Intangible Impairments 5,341 82.8 0 - 5,341 82.8 -------------------- -------------------- --------------------- TOTAL OPERATING EXPENSES 8,094 125.4 2,674 72.9 5,420 84.0 LOSS FROM OPERATIONS (8,484) (131.5) (2,112) (57.5) (6,372) (98.8) OTHER INCOME (EXPENSE) Interest Income 2,415 0.0 3 0.1 (596) (0.0) Interest Expense (223) (3.5) (408) (11.1) 185 2.9 Warrants interest repacture 442 6.9 - - 442 6.9 Other Income (Expense), net (1,983) (30.7) - - (1,983) (30.7) -------------------- -------------------- --------------------- TOTAL INCOME (EXPENSE) (1,762) (27.3) (405) (11.0) (1,356) (21.0) LOSS FROM CONTINUING OPERATIONS (10,246) (158.8) (2,517) (68.6) (7,729) (119.8) BEFORE PROVISION FOR INCOME TAXES PROVISION FOR INCOME TAX - - - -------------------- -------------------- --------------------- LOSS FROM CONTINUING OPERATIONS (10,246) (158.8) (2,517) (68.6) (7,729) (119.8) DISCONTINUED OPERATIONS Income (loss) from Operations 208 3.2 179 4.9 29 0.5 Impairment of Intangibles (1,448) (22.4) (1,448) (22.4) Gain On Sale of Palermo 4,273 66.2 4,273 66.2 -------------------- -------------------- --------------------- Income (loss) from discontinued operations 3,032 179 4.9 2,854 44.2 -------------------- -------------------- --------------------- Net (Loss) $ (7,214) (111.8) $ (2,339) (63.7) $ (4,875) (75.6) ==================== ===================== ===================== 20 For the Six Months Ended June 30, ------------------------------------- Inc/Dec (unaudited) over 2008 2007 2007 ------------ ------------ ------------ REVENUE $ 12,412 100.0 $ 5,944 100 $ 6,469 52.1 COST OF REVENUE 11,605 93.5 4,879 39.3 6,726 54.2 -------------------- -------------------- --------------------- - GROSS PROFIT 807 6.5 1,064 8.6 (257) (2.1) OPERATING EXPENSES: Distribution 923 7.4 283 2.3 640 5.2 Sales and Marketing 450 3.6 339 2.7 112 0.9 General and Administrative 2,372 19.1 2,182 17.6 191 1.5 Depreciation 589 4.7 27 0.2 562 4.5 Amortizating 165 1.3 926 7.5 (762) (6.1) Intangible Impairements 5,341 43.0 0 - 5,341 43.0 -------------------- -------------------- --------------------- TOTAL OPERATING EXPENSES 9,841 79.3 3,757 30.3 6,084 49.0 LOSS FROM OPERATIONS (9,034) (72.8) (2,693) (21.7) (6,341) (51.1) 0.0 OTHER INCOME (EXPENSE) - - 0.0 Interest Income 6,021 0.0 6,052 0.0 (31) (0.0) Interest Expense (328) (2.6) (956) (7.7) 629 5.1 Warrants interest repacture 884 7.1 - - 884 7.1 Other Income (Expense), net (1,823) (14.7) - - (1,823) (14.7) -------------------- -------------------- --------------------- Total income (expense) (1,261) (10.2) (950) (7.7) (311) (2.5) LOSS FROM CONTINUING OPERATIONS (10,295) (82.9) (3,643) (29.3) (6,652) (53.6) BEFORE PROVISION FOR INCOME TAXES PROVISION FOR INCOME TAX - - - - - - -------------------- -------------------- --------------------- LOSS FROM CONTINUING OPERATIONS (10,295) (82.9) (3,643) (29.3) (6,652) (53.6) DISCONTINUED OPERATIONS Income (loss) from Operations 266 2.1 (187) (1.5) 452 3.6 Impairment of Intangibles (1,448) (11.7) (1,448) (11.7) Gain On Sale of Palermo 4,273 34.4 4,273 34.4 -------------------- -------------------- --------------------- (LOSS) FROM DISCONTINUED OPERATIONS 3,090) 24.9 (187) (1.5) 3,277 26.4 -------------------- -------------------- --------------------- NET (LOSS) $ (7,204) (58.0) $ (3,830) (30.9) $ (3,375) (27.2) ==================== ==================== ===================== 21 (1) All costs incurred to bring product to our warehouses and distributions centers are included in cost of revenue. These items include shipping and handling costs, agent and broker fees, letter of credit fees, customs duty, inspection costs, inbound freight and internal transfer costs. Costs associated with our own distribution and warehousing are recorded in operating expenses. Our gross margins may not be comparable to others in the industry as some entities may record and classify these costs differently. RESULTS OF OPERATIONS: Results of Operations Comparison of the 2008 to 2007 Total revenues from continuing operations for the six month period ended June 30, 2008 were $12,412,000as compared to $5,943,000 during the six month period ended June 30, 2007, representing a 52% increase The increase principally due the acquisition of Targa in the fourth quarter of 2007. Total Operating Expenses Total operating expenses in the 2008 for the six months ended June 30, 2008 were $9,840,000 as compared to $3,757,000 for the same in 2007 representing a 30 % increase. The increase in total operating expenses is primarily attributable Targa, $5,340,000 of impairment and Targa. Other Income (Expense) in the 2008 for the six months ended June 30, 2008 was $1,983,000,000 included reserve s and management fees from discontinued operation. Net Income (Loss) Net loss for the 2008 was $7,214,000 as compared to net loss of $2,339,000 for the 2007, a 75% increase. Loss from continuing operations for the 2008 was $10,246,000 as compared to loss from continuing operations for the 2007 ($2,517,000), an increase greater than 100%. The Company had $3,090,100 income from discontinued operations in the three months ended June 30, 2008. compared to ($186,751) in the 2007 Second Quarter. The increase in the 2008 Second Quarter was primarily attributable to sale of Palermo. Sale of Palermo: During the second quarter ended June30, 2008, Nascent's Board of Directors and Senior Management undertook the review of its strategic focus. The Board, also, reviewed the fit of the subsidiaries in conjunction with the strategy and concluded Nascent was veering from its initial goal of identifying and securing brands, purchasing food products globally and distributing these products into Mexico. It was decided to diverse Palermo our Italian food distributor serving for the most party southern Florida. The southern Florida is highly completive . We decided not to continue deploy our recourses in a location that did not fit our core focus - Mexico or fight in a highly completive market place . The decision was made to sell Palermo. Mr. Petrone the former President of Nascent from a team `AIP, Inc' purchase Palermo. The purchase price was a one year interesting bearing 12% note for a $1,000,000 the assumption of approximately $800,000 of liabilities and a 15% interest in AIP. The gain is approximately $4,000,000 details included elsewhere herein. DISCONTINUED OPERATIONS Grupo Sur On July 10, 2007, pursuant to a Stock Purchase Agreement we purchased during 2008 Grupo Sur, an in store merchandising company. After Nascent closed purchase. Subsequent to the closing of such acquisition, Nascent believed that Grupo Sur began taking actions that were contrary to the Stock Purchase Agreement and the related employment agreements. Our attorneys are pursuing through available channels the return of $1.3million of loans. On August 8, 2008, Nascent entered into a Settlement Agreement (the "Settlement Agreement"), effective June 30, 2008 (the "Settlement Date"), with Pasani, S.A. de C.V. ("Pasani") and Eco Distributing, LLC. On May 11, 2007, the Company entered into a Stock Purchase Agreement (the "Pasani Purchase Agreement") with Pasani, and the shareholders of Pasani, Alejandro Gutierrez Pederzini ("Mr. Pederzini") and Leticia Gutierrez Pederzini (together with Mr. Pederzini, the "Shareholders"), whereby the Company purchased (the "Acquisition") from the Shareholders 100% of the outstanding capital stock of Pasani ("Pasani Common Stock"), in exchange for issuing a Promissory Note to the Shareholders in the principal amount of USD $1,500,000 (the "Note"). Since the execution of the Pasani Purchase Agreement, $500,000 of the principle of the Note had been paid to the Shareholders. Pursuant to the Settlement Agreement, Nascent has returned the Pasani Common Stock to the Shareholders. In addition, the remaining balance of the Note has been forgiven and the Shareholders have agreed to pay Nascent the following: (i) $500,000 in cash within 180 days of the Settlement Date,$185,000 in additional funds within 180 days of the Settlement Date and (iii) $312,451.87 in inventory within 180 days of the Settlement Date. In addition, Pasani is obligated to pay Nascent on or before September 30, 2008, $92,259.13 for products delivered to Pasani during July 2008. The Statement of Operations reflects the sale of Palermo and, Pasani, Eco and Grupo Sur classification and such subsidiaries are classified as discontinued operations. Pasani and Eco: The Statement of Operations reflects the sale of Palermo and Pasani Eco and Grupo Sur classification as discontinued operations. RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED o NET LOSS $7.2 million o LOSS FROM OPERATION $10.2million INCLUDES: o Write down of Inventory $0.7 million o Reserve for Bad Debts $0,4 million o Reserve for Notes $1.3 million o Managements Fees - $1.0 million o Impairment of intangibles $5.3 million Total One time adjustments $8.7 million Adjusted Loss from Operations for the six month ended June 30,2008 is $1.5 million. RESULTS FROM DISCONTINED OPERATIONS o NET INCOME $3.0 million INCLUDES: o Income from discontinued operations $0.3 million o Impairment $1.4 million o Gain on Sale $4.3 million The Company is in a restart mode having completed cathartic quarter ended June 30, 2008, including selling Palermo and classifying Pasani, Eco-Pac and Grupo Sur in the The major contributor to the $1.5 million adjusted loss from operations is the effects of not having in place a line of credit. Without a line of credit we are constrained in the purchase of inventory which creates adverse effects on revenue. 22 EBITDA Three months ended June 30, Six months ended June 30, --------------------------- ------------------------- 2008 2007 2008 2007 ---- ---- ---- ---- Loss from operations $10,800,000 $2,500,000 $10,900,000 $(3,600,000) --------------- ---------------- ---------------- ---------------- Adjustments Add: Targa 100,000 600,000 Management Fees 1,000,000 1,000,000 Reserve Loans 1,300,000 1,300,000 Impairment 5,300,000 5,300,000 Depreciation 40,000 14,000 165,000 27,000 Amortization 400,000 700,000 600,000 900,000 --------------- ---------------- ---------------- ---------------- 8,040,000 814,000 8,365,000 1,527,000 --------------- ---------------- ---------------- ---------------- EBITDA - (deficit) (2,760,000) (1,686,000) (2,535,000) (2,073,000) =============== ================ ================ ================ LIQUIDITY AND CAPITAL RESOURCES The consolidated financial statements have been prepared assuming that we will continue as a going concern. The Company has had net losses for the years ended December 31, 2007 and December 31, 2006, respectively. We commenced operations in 2006 and acquired the Miller Beer license and started-up our Best Beer company, acquired Palermo and raised substantial equity financing. Additionally, we completed three acquisitions in 2007. The costs associated with these acquisitions and the associated cost of funding the acquisitions was a major contributor to the generation of these losses. We are installing certain control metrics to assist management in maximizing operating income. CASH FLOW Cash used in operations of $ results for the most from an increase in accounts receivable and inventory supporting the ramp-up of sales offset in part by an increase in accounts payable. Cash provided by financing activities of $1,078,404 results from notes payable of $875,148 and an increase in Shareholders $ 203,419. The Current Assets and Liabilities have been restated to reflect the sale of Palermo and the classicization of Pasani, Eco and Grupo Sur as assets and liabilities held for sale. 23 WORKING CAPITAL ANALYSIS (in thousands) June 30, December 31, 2008 2007 Increase --------------- -------------- --------------- Current Assets: Cash $ 892 $ 961 $ 0 Accounts Receivable 2,887 3,879 (991) Inventory 2,065 2,693 (628) Prepaid 1,640 701 939 --------------- -------------- --------------- Total Current Assets 7,485 8,233 (479) --------------- -------------- --------------- Current Liabilities: Accounts Payable $ 2,071 $ 2,620 $ (550) Accrued Liabilities 2,015 1,174 841 Accrued Interest 468 279 188 Line credit 48 - 48 Notes Payable 1,589 48 1,541 Shareholders Loans 863 630 233 --------------- -------------- --------------- Total Current Liabilities 7,053 4,752 2,301 --------------- -------------- --------------- Working Capital (Deficit) $ 432 $ 3,481 $ (3,049) =============== ============== =============== Working Capital of $430,000 as of June 30 2008, reflects a decrease of $3,000,000 restated for assets held for sale as of December 31, 2007. Current assets decreased $ $480,00 resulting principally for $900,000 decrease in accounts receivable and a $620,000 decrease in inventory . Current liabilities increased $2,300,000 resulting from increased accrued liabilities notes payable and shareholders loans. On April 1, 2008 we entered into a $1,000,000 senior bridge loan agreement with Genesis Merchants Partners, LP. The terms are: (i)interest of 14% per annum, payable monthly; (ii) the loan is due and payable within 180 days, at that time 107% of principal will become due and payable; The bridge loan may be extended to 360 days from closing at the Company's option, at that time 115% of principal will be due and payable. A closing fee of 3% of principal will at time of closing. If the loan is extended an additional 2% closing fee will be due. The loan is secured by the assets of the Company. The senior bridge loan is required to be repaid from the proceeds of a working capital credit agreement the Company may enter into. On May 14, 2008, Mr. James E. Buckman and Mr. Yehuda "Mitch" Wolf resigned from the board of directors of the Company effective immediately. Messrs. Buckman and Wolf informed us that they were resigning in order to avoid the possibility of any conflict of interest due to the fact that the we recently commenced discussions with York Capital Management ("York") regarding a possible transaction between the parties. Messrs. Buckman and Wolf are employed by York and were appointed to the Nascent's board of directors in connection with York's investment in the Company, On July 31, 2008 we entered into a settlement agreement with the Sellers of Pasani and Eco-Pac to unwind the purchase agreement. During the remainder of 2008 we will receive payments for products we sold during the tern of the purchase, as well as, refunds of loans we made to Pasani during the relationship. We will receive approximately $1.1 million over the six months commencing June 30, 2008. 24 On July 10, 2007, Nascent and Grupo Sur Promociones de Mexico, S.A. de C.V., a Mexican corporation ("Grupo Sur"), entered into a Stock Purchase Agreement whereby Nascent acquired Grupo Sur. As part of this transaction, Nascent agreed to retain Grupo Sur's three former owners/ managers, all of whom executed employment agreements with Nascent. After the sale of Grupo Sur to Nascent closed, Nascent believed that Grupo Sur began taking actions that were contrary to the Stock Purchase Agreement and the employment agreements. Grupo Sur responded that Nascent's purchase of Grupo Sur never closed and that Nascent failed to pay a portion of the purchase price due to Grupo Sur under the Stock Purchase Agreement. Grupo Sur asserted that it was terminating the Stock Purchase Agreement or, alternatively, repudiated the Stock Purchase Agreement. Grupo Sur, in taking these positions, has withheld and refused to refund monies that Nascent has paid to it without adequate justification. Discussions between Nascent's attorneys and attorneys for Grupo Sur have been ongoing as the parties attempt to negotiate a mutually acceptable resolution. Because Grupo Sur has refused to return monies that Nascent paid to it in connection with the acquisition, Nascent filed a lawsuit on August 13, 2008 against Grupo Sur, Gregory Cowal Robbins, Francesca Wright De Cowal and Iliya Petar Zogovic Wright in the United States District Court for the District of Nevada seeking to recover damages for the following claims: breach of contract, breach of the implied covenant of good faith and fair dealing, breach of fiduciary duty, unjust enrichment and conversion On August 5, 2008, Nascent Wine Company, Inc. (the "Company") was granted an extension until October 14, 2008 to pay in full loan (the "Cyril Loan") payable to Cyril Capital, LLC ("Cyril") pursuant to a loan agreement (the "Loan Agreement") in the principal amount of $500,000 plus interest, that was originally due on August 14, 2008. Cyril agreed to such extension in exchange for a fee in the amount of $20,000. We are in discussions with several sources of financing including short and long tern debt as well as equity. However, there can be no assurance that any equity or debt financing will be available to us to satisfy either obligation. Our short requirements are $1 million to pay the Cyril loan and working capital. INFLATION/ENERGY We believe that the recent significant increase in energy has had a negative effect on our margins . We are able to pass on some of the increased commodity costs in certain circumstances, however, for the most part we are absorbing these increased commodity costs resulting from the energy costs. . CONTACTUAL OBLIGATIONS The following table summarizes our contractual obligations at June and the effects we expect such obligations to have on liquidity and cash flow in future periods. CONTRACTUAL OBLIGATIONS PAYMENTS DUE BY PERIOD (IN THOUSANDS) ------------------------------------------------------------------------------------------ TOTAL LESS THAN 2-3 3-5 MORE THAN 1 YEAR YEARS YEARS 5 YEARS Debt obligations (1) $ 2,499,209 $ 2,499,209 $ - $ - $ - Operating leases $ 2,508,009 $ 788,003 $ 710,003 $ 650,003 $ 360,000 25 Item 3. QUANTITATIVE AND QUALITATIVES DISCLOSURES ABOUT MARKET RISK We are exposed to market risk related to changes in foreign currency exchange rates. We purchase some of our inventory offshore from suppliers who require payment in Euros. Additionally, a certain amount of our domestic inventory purchases are commodity priced and are subject to the volatility in pricing Our Mexican subsidiaries purchase a portion of inventory from suppliers who require payment in U.S. Dollars.. Item 4. CONTROLS AND PROCEDURES EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES As of December 2007, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the "Exchange Act.") pursuant to Rules 13a-15 and 15d-15 under the Exchange Act. These controls and procedures are designed to provide assurance that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, in a manner that is intended to allow timely decisions regarding required disclosures. As a result of this evaluation and recognizing the material weaknesses that we identified in our Annual Report on Form 10-KSB for the year ended December 31, 2007. In making this determination, we took into account the remedial actions that we are taking or planning to take with respect to these material weaknesses. In any case, based on a number of factors, including our performance of manual procedures to provide assurance of the proper collection, evaluation and disclosure of the information included in our consolidated financial statements, management has concluded that the consolidated financial statements included in this Quarterly Report on Form 10-Q fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with GAAP and that they are free of material errors. INTERNAL CONTROL OVER FINANCIAL REPORTING Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Internal control over financial reporting is a process designed under the supervision of our principal executive and principal financial officers to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2007 based on the criteria established in Internal Control -- Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"). As a result of the material weaknesses described in our Annual Report on Form 10-K for the year ended December 31, 2007, we did not maintain effective internal control over financial reporting based on the criteria established in Internal Control-Integrated Framework issued by COSO. 26 Since we originally identified those material weaknesses in connection with the preparation of our financial statements for the period ended December 31, 2007, we have been working to identify and remedy the causes of the problems that led to the existence of those material weaknesses, and we believe that: o we identified the primary causes of and appropriate remedial actions for these problems; o we have, except as otherwise noted below and subject to the completion of testing that we are conducting and plan to complete as of December 31, 2008, remedied substantially all of these material weaknesses; and o we are continuing to implement additional appropriate corrective measures to enable us to determine that those material weaknesses have been fully remedied. With respect to testing, we have adopted, and pursued during the fourth quarter of 2007, a program that is designed to evaluate whether the remedial actions we have taken have been in effect for a sufficient period of time to determine their effectiveness as well as to test the effectiveness of those remedial actions. Notwithstanding our efforts, there is a risk that we ultimately may be unable to achieve the goal of fully remedying these material weaknesses and that the corrective actions that we have implemented and are continuing to implement may not fully remedy the material weaknesses that we have identified or prevent similar or other control deficiencies or material weaknesses from having an adverse impact on our business and results of operations or our ability to timely make required SEC filings in the future. The remedial actions that we have taken to remedy these material weaknesses may be regarded as material changes in our internal control over financial reporting that have occurred since December 31, 2007. Due, among other things, to the difficulties that we experienced in preparing timely financial statements. Those changes include the following: 1. For all periods ended on or after December 31, 2007, we adopted procedures to conduct additional detailed transaction reviews and control activities to confirm that our financial statements for each period present fairly, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with GAAP. 2. These reviews and control activities include performing physical inventories and detailed account reconciliations of all material line-item accounts reflected on our Consolidated Balance Sheets and Consolidated Statements of Operations in order to confirm the accuracy of, and to correct any material inaccuracies in, those accounts as part of the preparation of our financial statements. 3. For periods ended on or after December 31, 2007, with respect to our failure to maintain a timely and accurate period-end financial statement closing process and our failure to effectively monitor our accounting function and our oversight of financial controls, we introduced new leadership to our accounting and financial functions and in certain operating functions. This included appointing a new Chief Financial Officer effective appointing a new controller and appointing new subsidiary controllers. 4. For periods ended on or after December 31, 2007, we reaffirmed and clarified our account reconciliation policies through additional procedural details and guidelines for completion, which expressly require (a) reconciliations of all material accounts no less frequently than monthly, (b) that any discrepancies noted be resolved in a timely fashion and (c) that all proposed reconciliations be reviewed in detail and on a timely basis by appropriate personnel to determine the accuracy and appropriateness of the proposed reconciliation. 27 PART II - OTHER INFORMATION Item 1. LEGAL PROCEEDINGS From time to time we are involved with legal proceedings, claims and litigation arising in the ordinary course of business On July 10, 2007, Nascent and Grupo Sur Promociones de Mexico, S.A. de C.V., a Mexican corporation ("Grupo Sur"), entered into a Stock Purchase Agreement whereby Nascent acquired Grupo Sur. As part of this transaction, Nascent agreed to retain Grupo Sur's three former owners/ managers, all of whom executed employment agreements with Nascent. After the sale of Grupo Sur to Nascent closed, Nascent believed that Grupo Sur began taking actions that were contrary to the Stock Purchase Agreement and the employment agreements. Grupo Sur responded that Nascent's purchase of Grupo Sur never closed and that Nascent failed to pay a portion of the purchase price due to Grupo Sur under the Stock Purchase Agreement. Grupo Sur asserted that it was terminating the Stock Purchase Agreement or, alternatively, repudiated the Stock Purchase Agreement. Grupo Sur, in taking these positions, has withheld and refused to refund monies that Nascent has paid to it without adequate justification. Discussions between Nascent's attorneys and attorneys for Grupo Sur have been ongoing as the parties attempt to negotiate a mutually acceptable resolution. Because Grupo Sur has refused to return monies that Nascent paid to it in connection with the acquisition, Nascent filed a lawsuit on August 13, 2008 against Grupo Sur, Gregory Cowal Robbins, Francesca Wright De Cowal and Iliya Petar Zogovic Wright in the United States District Court for the District of Nevada seeking to recover damages for the following claims: breach of contract, breach of the implied covenant of good faith and fair dealing, breach of fiduciary duty, unjust enrichment and conversion. Item 1A. RISK FACTORS There have been no material changes from the risk factors as previously disclosed in our Annual Report on Form 10-KSB for the year ended December 31, 2007 Item 3. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS The Company issued 324,431 of shares of Common Stock Par Value $0.001. 6,250 was issued pursuant to penalty shares discussed elsewhere here in and 318,181 shares of Common Stock Par Value $0.001 as payment for consulting fees. Item 4. DEFAULTS ON SENIOR SECURITIES NONE Item 5. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS NONE Item 6. OTHER INFORMATION NONE Item 7. (a) Exhibits The following Exhibits are incorporated herein by reference or are filed with this report as indicated below. Exhibit No. Description ----------- ----------- Exhibit 31.1 Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act Exhibit 31.2 Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act Exhibit 32.1 Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act Exhibit 32.2 Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act 28 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, hereunto duly authorized. Nascent Wine Company, Inc. Dated: August 14, 2008 By: /s/ Sandro Piancone ------------------------------ Sandro Piancone Chief Executive Officer Pursuant to the requirements of the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /s/ Sandro Piancone Chief Executive Officer Date: August 14,, 2008 -------------------------- and Director Sandro Piancone /s/ Peter V. White Chief Financial Officer, Date: August 14, 2008 -------------------------- Treasurer and Director Peter V. White