U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-SB
Amendment No. 3
General form for registration of securities of
small business issuers Under Section 12(b) or
(g) of the Securities Exchange Act of 1934
White Diamond Spirits, Inc.
---------------------------------------------
(Name of Small Business Issuer in its charter)
Nevada
--------------------------------------------------------------
(State or other jurisdiction of incorporation or organization)
88-0401630
------------------------------------
(I.R.S. Employer Identification No.)
701 North Green Valley Parkway, Suite 200, Henderson, Nevada 89014
------------------------------------------------------------------
Principal Executive Offices
702 990 3050
------------------------
(Issuer's Telephone No.)
Securities to be Registered under Section 12(b) of the Act: None
-----
Securities to be Registered under Section 12(g) of the Act: Common Stock (Title
of Stock) ------------
Total number of pages: 60
----
Index to Exhibits Appears on Page 52
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<PAGE>
Item 1
======
(a) Business Development
------------------------
White Diamond Spirits, Inc. (the Company) was incorporated in July 1998 under
the laws of the State of Nevada for the purpose of acquiring and carrying on the
business of White Diamond Importers, LLC, a Nevada Limited Liability Company. In
April 1999, the Company acquired 100% of the Member Interest of White Diamond
Importers, LLC, in exchange for 2,400,000 shares of the Company's common stock.
White Diamond Importers LLC was formed in 1997 to be the primary importer of the
"Brilliant" line of Ultra-Premium vodka into North America manufactured by
Brilliant Spirit Ltd. of Dublin , Ireland. The Company's Officers and Directors
are the founders of both the Company and White Diamond Importers, LLC.
On April 14, 1999, the Company entered into a Marketing Agreement with Brilliant
Spirit, Ltd. The agreement has a five year term with automatic renewal for
successive five year periods so long as the Company meets minimum purchase
requirements. Pursuant to the Marketing Agreement, the Company has a license to
import, promote and sell the Brilliant Spirit products in the United States and
Canada. On April 18, 2000 the Marketing Agreement was amended to waive the
minimum purchase requirements.
In August 1999, the Company received its basic Import Permit from the U.S.
Bureau of Alcohol, Tobacco and Firearms and as a result is able to import and
distribute its products in all fifty states. Typically, the Company will enter
into a Wholesale Distributor Agreement with a company already licensed to
distribute alcoholic products in a State and then the Company will file
applications to be registered as an importer to that State. As of September
2000, the Company has entered into Wholesale Distributor Agreements which have
resulted in purchase orders and delivery of product to California, Colorado,
Illinois, Nevada and Tennessee. The Company is also approved for distribution in
British Columbia, Canada.
(b) Narrative Description of Business
-------------------------------------
Principal Products: The Company imports and supplies wholesalers with the
following Brilliant Spirit Ltd. products:
Vodka Brilliant Clear 750ml
Vodka Brilliant Clear 100ml
Vodka Brilliant Clear 50ml
Vodka Brilliant Deluxe Black Onyx 750ml
Each product is contained in perfume quality hexagonal glass bottles complete
with "stopka" (attached shot glass). Packaging of the products includes a
fascinating and romantic product history based in Russian folklore, which
describes how the product derives from a Russian recipe which is associated with
quality vodka. The Brilliant Spirit products are protected under registered
trademarks and use proprietary product formulas.
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The first product developed by Brilliant Spirit was Brilliant clear vodka, and
was introduced in 1995 in order to establish an identity as a premier producer
of first quality vodka. The Company also intends to import and distribute
Brilliant Deluxe, a series of six flavored vodkas, special souvenir sets, the
Sabbath drink series, Russian Diplomat premium vodka and Millennium 2000 vodka.
Brilliant vodka has also been an award winner in both design and quality by Wine
and Spirit International, London, England and Interdrink, Moscow, Russia.
The Company has not engaged in research and development and does not anticipate
doing so.
Production and Delivery:
The Brilliant Product Line is distilled at Clyde Bonding, Scotland pursuant to a
manufacturing agreement with Brilliant Spirit, Ltd. The production line is able
to produce 150,000 bottles per 24 hour period. Raw materials are readily
available from a variety of sources. Delivery will be by ocean freight in twenty
foot containers (1100cs 12 x 750ml) directly into major U.S. ports. Customs
Brokers and warehousing have been arranged. arranged. The Company's products are
currently delivered to the Port of San Francisco/Oakland. McCaffrey
International is our customs broker there who clears the product through customs
and stores the same in bond warehousing until it is delivered to Western Wine
Services, which provides our bonded warehouse facility pending shipment to
distributors. Both McCaffrey International and Western Wine Services invoice the
Company for handling and storage fees at fixed rates which are then due upon
receipt. Purchase Orders received from distributors are paid within 30 days of
shipment.
The Company has distribution agreements with the following companies:
Frank-Lin Beverage Group, San Jose, California. Frank-Lin has exclusive
distribution rights in the State of California for two years beginning September
1, 1999 and automatically renewing thereafter. The Company has the right to
terminate the agreement on 60 days notice and the payment of a termination fee
equal to 100% of the gross profit on each case sold over the previous thirty-six
month period.
Majestic Distilling Co., Inc., Baltimore, Maryland. Majestic has agreed to
represent the Company's products in the states of:
Massachusetts Maryland North Carolina Georgia Nebraska
Florida Wash. D.C. South Carolina Tennessee Missouri
Pennsylvania Arkansas Kentucky Kansas Ohio
Delaware Michigan New York Virginia New Hampshire
West Virginia Vermont Rhode Island Colorado Maine
Texas Alabama
Majestic serves as a Master Agent and with the consent of the Company appoints
distributors in the various markets. Majestic is required to maintain an
inventory of the Company's products and maintain appropriate records for state
regulatory authority. Advertising and promotional material is provided by the
Company.
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Marketing: The Company's marketing strategy is to initially focus on a select
group of cities such as Los Angeles, Las Vegas and Chicago in selected states
including California, Nevada and Illinois. The Company plans to promote brand
recognition and choice in individual state by state markets by agreements with
wholesale distributors. The Company will provide point of sale promotional
material to its wholesalers and use permissible media advertising such as print
ads and billboards in selected urban markets. As of September 2000 the Company's
products have been stocked in Las Vegas bars in prominent hotels and casinos
such as Mandalay Bay, Stratosphere, Rio and Mirage.
Competition:
Competition for sales of vodka is intense and the market is mature. The Company
also competes against discount and private label brands of vodka as well as
other spirits, beer and wine. The Company is aware of at least six other premium
vodka brands, which control approximately 90% of the current market for premium
vodka. These competitors are much larger and have much greater financial
resources than the Company. Competition among the premium brands is driven
largely by advertising with brand recognition being more important than pricing.
The Company believes that its product is competitive as a "premium vodka"
because of:
It's country of origin, Scotland is famous for its distilleries;
An expensive processing method of being five column distilled and three
times filtered;
Perfume quality hexagonal glass bottles and attached crystal shot glass;
Packaging Awards;
Tasting Awards; and
Premium Pricing of $22 t0 $24 per 750ml bottle.
Regulation:
The importation and distribution of alcoholic spirits is subject to extensive
regulation by the U.S. Bureau of Alcohol, Tobacco and Firearms (BATF) as well as
by State alcoholic beverage control agencies. In order to obtain its BATF Import
Permit, the Company and its officers and directors were subject to extensive
business and personal background checks for prior criminal activity or
associations which could have disqualified the Company or its officers and
directors from obtaining the import permit. The Company must report each import
shipment to the BATF and pay a Federal Duty Deposit once product is released by
U.S. Customs. In addition, the Company must report interstate shipments of
product to a Distributor. The Company must report changes in its officers and
directors to the BATF. Compliance with the BATF and state regulation requires
minor administrative cost. Failure to comply with the BATF and state regulations
could result in the revocation or suspension of the Company's Import Permit. Any
person who violates the conditions of the Permit can be subject to a civil
penalties of not more than $10,000 per violation.
Typically, the Company will enter into a Wholesale Distributor Agreement with a
company already licensed to distribute alcoholic products in a State and then
the Company will file applications to be registered as an importer to that
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State. The Company has received its B.A.T.F. Import Permit as well as licensing
permits from the States of California and Nevada. State and Federal regulation
on importers such as the Company focuses on product purity, consistence,
ownership of the regulated companies and advertising.
The Company has engaged the services of Compliance International of Sonoma,
California to make the necessary reports to state regulators of all shipments to
distributors. As and when a new distributor is engaged, Compliance International
prepares and submits the applications for the state where the new distributor is
located.
Employees:
The company employs five persons on a full time basis.
Item 2 - Management Discussion & Analysis or Plan of Operation
==============================================================
This section contains forward-looking statements that involve risks and
uncertainties. These forward-looking statements are not guarantees of our future
performance. They are subject to risks and uncertainties related to business
operations, some of which are beyond our control. Our actual results may differ
materially from those anticipated in these forward-looking statements.
General Information
-------------------
The Registrant was incorporated in July, 1998 for the purpose of a
reorganization with its subsidiary which was established in November, 1997.
Prior to April, 1999 reorganization with the subsidiary, the Registrant was
inactive. The discussion below relates to the results of operations on a
consolidated basis for the year ending October 31, 1999 and through the fiscal
quarter ended January 31, 2000.
In April 1999, the Company acquired 100% of the Member Interest of White Diamond
Importers, LLC, in exchange for 2,400,000 shares of the Company's common stock.
The cost of the acquisition of $109,378 was based on the value of the net assets
acquired of White Diamond Importers LLC. The net assets acquired consisted of
cash of $1,311 accounts receivable of $6,090, inventory of $75,000 prepaid
expenses of $380, due from related parties of $27,321, capital assets of $4,311
and accounts payable and accrued liabilities of $5,035.
On April 14, 1999, the Company entered into a Marketing Agreement with Brilliant
Spirit, Ltd. The agreement has a five year term with automatic renewal for
successive five year periods so long as the Company meets minimum purchase
requirements. On April 18, 2000 the Marketing Agreement was amended to waive the
minimum purchase requirements. The Company must also pay a royalty of $0.17 per
750ml bottle sold in the U.S., within 30 days of receipt of payment for the
sale.
In August 1999, the Company received its basic Import Permit from the U.S.
Bureau of Alcohol, Tobacco and Firearms and as a result is able to import and
distribute its products in all fifty states. As of April 2000, the Company has
entered into Wholesale Distributor Agreements which have resulted in purchase
orders and delivery of product to California, Illinois, and Nevada. The Company
is also approved for distribution in British Columbia, Canada. The Company has
5
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never been denied a license or permit from any state to which it has applied.
The Company has engaged the services of Compliance International of Sonoma,
California to make the necessary reports to state regulators of all shipments to
distributors. As and when a new distributor is engaged, Compliance International
prepares and submits the applications for the state where the new distributor is
located.
Operating Losses and Going Concern Qualification.
------------------------------------------------
We have incurred losses since inception of our operations in 1998, and may
continue to incur substantial losses in the future. In particular, the Company
incurred losses of $195,805 for fiscal 1999 and $90,000 for fiscal 1998 and have
incurred a loss of $ 355,911 for the six month period ended April 30, 2000. The
footnotes to our financial statements for the fiscal 1999 and fiscal 1998,
include an explanatory paragraph relating to the uncertainty of the Company's
ability to continue as a going concern. Our auditors report indicates that
certain factors raise substantial doubt about our ability to continue as a going
concern. Our auditors issued a going concern opinion because we :
- have generated no significant revenue - have a severe working capital
deficiency - have a limited operating history
- can provide no assurance that we will be able to generate sufficient funds for
our operations for the next twelve months.
Based upon our current business planning, we believe that we will need
approximately $1,000,000 of additional funding over the next twelve months. We
have developed a business strategy, which we hope will enable us to be
profitable. There can be no assurance, however, that such revenue will
materialize or to what extent, if any, our Company will generate profitable
operations. Our operating expenses will likely fluctuate substantially from
quarter to quarter. There can be no assurance that we can achieve profitable
operations on a consistent basis.
Results of Operations
---------------------
Results of Operations Fiscal Year ended October 31, 1999 ("fiscal 1999")
Compared to Fiscal Year Ended October 31, 1998("fiscal 1998")
We had total revenues of $51,600 in fiscal 1999 compared with $Nil in fiscal
1998. This increase in revenue is attributable to 1999 being our first year of
operations, with these sales taking place within the last quarter of the year.
The entire amount of these revenues resulted from the importation and sale of
vodka subsequent to receiving our basic Import Permit from the U.S. Bureau of
Alcohol. During this period, we were in the start up phase of our marketing and
advertising campaign. Since our Company did not have operations during fiscal
1998, revenues from fiscal 1999 and fiscal 1998 are not directly comparable.
Cost of sales was $25,993 in fiscal 1999 or approximately 50.3% of net revenues.
This cost of goods reflects the cost of importing our product under an agreement
we have with our sole supplier "Brilliant Spirit Ltd." General and
administrative expenses were $230,180 or 446% of total revenues in fiscal 1999
versus $90,000 during fiscal 1998. These costs reflect the administrative cost
of the Company, including legal and accounting fees of $24,477, consulting fees
of $61,758, promotion and shareholder information costs of $26,113 travel and
entertainment of $31,249 and executive, administrative and other costs
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associated with managing and operating the Company. These costs were incurred as
part of establishing and developing the Company's business operations during
1999 and additional costs incurred in preparing its Form 10 S-B filing. As a
result of the forgoing, the Company's net loss was $195,805 in fiscal 1999
compared with $90,000 in fiscal 1998.
Results of Operations For The Six Month Period Ended April 30, 2000 Compared to
The Six Month Period Ended April 30, 1999
We had total revenues of $126,387 for the six month period ended April 30, 2000
compared with $Nil for the six month period ended April 30, 1999. The entire
amount of these revenues resulted from the importation and sale of vodka
subsequent to receiving our basic Import Permit from the U.S. Bureau of Alcohol.
Since our Company did not have operations during the six month period ended
April 30, 1999, revenues from this period and the six month period ended April
30, 2000 are not directly comparable. Cost of sales was $58,645 in fiscal 1999
or approximately 46.4% of total revenues. This cost of goods reflects the cost
of importing our product under an agreement we have with our sole supplier
"Brilliant Spirit Ltd. General and administrative expenses were $423,653 or
335.2% of total revenues in the six month period ended April 30, 2000. These
costs reflect the administrative cost, including legal and accounting fees of
$17,238, consulting fees of $64,353, marketing and development costs of $21,348
travel and entertainment of $80,903 and executive, administrative and other
costs associated with managing and operating the Company. These costs were
incurred in establishing and developing the Company's liquor importation
business during 2000 as well as additional costs incurred in preparing its Form
10 S-B filing. As a result of the forgoing, the Company's net loss was $355,911
for the six month period ended April 30, 2000 compared with $Nil for the six
month period ended April 30, 1999.
Liquidity and Capital Resources
-------------------------------
On October 31, 1999 and October 31, 1998, we had negative working capital of
($90,497) and ($Nil) respectively. Our working capital deficit increased during
fiscal 1999 due to an increase in accounts payable and due to related parties.
During fiscal 1999 and 1998, the Company financed its working capital
requirements primarily with loans from directors of the Company. Net cash used
in operating activities was ($260,177) in fiscal 1999 compared with ($90,000) in
fiscal 1998. Net cash provided by investing activities was $1,311 in fiscal 1999
compared with ($Nil) in fiscal 1998. The net cash acquired through investing
activities in 1999 was obtained through the acquisition of White Diamond
Importers LLC. Net cash provided by financing activities was $278,444 in fiscal
1999 and $90,149 in fiscal 1998 both amounts derived through amounts advanced to
the Company by its directors.
On April 30, 2000, we had negative working capital of ($448,974). Our working
capital deficit increased during the six month period ended April 30, 2000 due
to an increase in accounts payable and due to related parties. During the six
month period ended April 30, 2000, the Company financed its working capital
requirements primarily with loans from directors of the Company. Net cash
provided by operating activities was $47,252 for the six month period ended
April 30, 2000 compared with $27,321 for the six month period ended April 30,
1999. Net cash used in investing activities was $3,300 for the six month period
ended April 30, 2000 compared with $Nil for the six month period ended April 30,
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1999. The net cash used in investing activities in 2000 was used for the
purchase of computer equipment. There was no net cash provided by financing
activities for the six month periods ended April 30, 2000 and 1999.
As of April 30, 2000, our cash balances were approximately $63,679 and we had a
working capital deficiency of $448,974 which includes indebtedness to related
parties of $977,771. Based upon our current budget and business planning, we
believe that we will need approximately $1,000,000 of additional funding to
continue our operations over the next twelve months. For the next twelve months,
working capital requirements will be provided by cash flows from the sale of
existing inventory, continuing advances from directors of the Company, as well
as net income derived from the purchase and sale of additional inventory. We
cannot assure you that we will raise sufficient funds to remedy the working
capital deficit or fund the operations. If we are unable to raise sufficient
capital to remedy the working capital deficit and fund our continuing
operations, there will be a material adverse effect on our business and our
ability to continue as a going concern.
As of April 30, 2000 we expect to spend approximately $1,000,000 during the next
twelve months to acquire inventory and to generate income in the amount of
$2,400,000 from the sale of this and our existing inventory. We also expect to
spend approximately $200,000 in general and administrative expenses during the
next twelve months for the maintenance of our corporate offices, as well as
$350,000 for marketing and promotion for our products. During the next twelve
months we expect to incur approximately $250,000 of salary, benefits and other
personnel expenses.
We have no plans for any material capital expenditures over the next twelve
months.
Effect of Inflation:
--------------------
The Company believes that inflation does not have a material affect on its
business.
Item 3. Description of Property
===============================
The Company leases it's 300 square foot office facility in Vancouver, British
Columbia from an unaffiliated third party at $350 USD per month pursuant to a
two year lease expiring in January 2002.
The Company also leases approximately 200 square feet of office space in
Henderson, Nevada from an unaffiliated third party at $1,613 per month pursuant
to a twelve month lease expiring January 31, 2001. The Company pays a per case
inventory and re-distribution charge to bonded warehouse in Napa, California
from which the Company maintains and distributes its inventory.
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Item 4. Security Ownership of Certain Beneficial Owners and Management
=======================================================================
(a) Security Ownership of Certain Beneficial Owners holding five percent or
greater of the 12,400,000 shares of common stock outstanding as of September 11,
2000.
Title Name and Address Amount and Nature % of
of Class of Beneficial Owner of Beneficial Owner Class
------------------------------------------------------------------------------
Common Gordon Witt 900,000 7.3%
121 Algoma Rd.
Wellington, New Zealand
Bruce Adams 800,000 6.5%
22 Dear Leap Rd.
Hamilton, New Zealand
Robert Shiviji 900,000 7.3%
81-4276 Hazelwood St.
Wellington, New Zealand
Victor Hicks 800,000 6.5%
13 Simpson Rd.
Sydney, Australia
(1) All Ownership is directly held by the named individual.
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(b) Security Ownership of Management
Title Name and Address Amount and Nature % of
of Class of Beneficial Owner of Beneficial Owner Class
------------------------------------------------------------------------------
Common Michael Marleau 1,932,250 15.6%
1505-1383 Marinaside Crescent
Vancouver, B.C.
Canada V6V 2W9
Edwin E. Savage 690,250 5.6%
1324 Sunnyside Drive
North Vancouver, B.C.
Canada V7R 1B1
Igor Petrov 648,000 5.2%
1505-1383 Marinaside Crescent
Vancouver, B.C.
Canada V6V 2W9
Greg McCartney 486,000 3.9%
2089 - 134th Street
Surrey, B.C.
Canada V4A 9N8
Lawrence Pasemko 486,000 3.9%
14084 - 28th Avenue
Surrey, B.C.
Canada V4P 2C8
All officers and Directors
as a Group (5 persons) 4,242,500 34.2%
(1) All Ownership is directly held by the named individual.
Item 5. Directors, Executive Officers, Promoters and Control Persons
====================================================================
(a) Directors and Executive Officers
-------------------------------------
MICHAEL MARLEAU - Age 42. President, CEO and Director, 1997 to present, founding
member of White Diamond Importers LLC. Mr. Marleau has extensive experience in
the public markets in the areas of securities brokerage, tax shelter and mutual
funds. From 1989 - 1995 he lived in Russia and established import-export trading
ventures in spirits, commodities and food products. 1990 - 1993 Commercial
Director of British / Russian joint venture of Intershelf. A solid network of
contacts in the distribution of vodka has been maintained and has assisted in
the creation of White Diamond Importers LLC. Education - 1985 Coast Guard
Navigation, Georgian College, Owen, Ontario. 1987 Investment Funds, Institute of
Canada.
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EDWIN E. SAVAGE - Age 45. Vice-President & Director. 1997 to present founding
member of White Diamond Importers LLC. 1976 - 1996, Managing Director of
Continental Importers located in Vancouver, B.C., Canada. The company is engaged
in the import-export business dealing primarily with specialty gourmet-foods,
wines and spirits to and from Europe and North America. Direct trade experience
includes management, sales, marketing, purchasing logistics and national
distribution. Education - Salesian College, London, England. University Prep.
Boston University, Massachusetts, U.S.A.
IGOR PETROV - Age 39. Secretary, Treasurer, C.F.O. & Director. From 1983 to
1990, Mr. Petrov served as Senior Sales Manager of the Russian Foreign Trade
Association, Moscow, Russia, an industry association promoting foreign trade
with Russia. From 1990 to 1994, he was the Commercial Director of Ost - West
Corporation, Moscow, Russia, a government approved corporation which coordinated
Russian based sales and marketing staff for foreign companies doing business in
Russia who were not allowed to directly employ Russian based staff. From 1994 to
1997, Mr. Petrov was the Director of Operations for Clorinda Trading Ltd.
Limassol, Cyprus, an exporter of Russian raw materials such as wool and animal
hides and importer of food products to Russia. From 1997 to the present, Mr.
Petrov has served as C.F.O. and founding member of White Diamond Importers LLC.
Mr. Petrov graduated from Moscow University, degree in Economics.
E. GREG McCARTNEY - Age 48. Chairman of the Board of Directors. Since 1995,
owner and Director of Aspenwood Holdings Corporation, a business consulting firm
specializing in financial and public relations and venture capital. The firm
specializes in developing companies in the technology and manufacturing
industries. Mr. McCartney has over 20 years experience serving as officer and
director of both private and public companies in various manufacturing and
technology industries. Education - University of Saskatchewan, Business
Administration.
LAWRENCE J. PASEMKO - Age 62. Director. Since 1989, owner and Director of
Tynehead Capital Corporation, a management and consulting firm specializing in
assisting start-up and development stage businesses, manage and achieve their
venture capital requirements. Mr. Pasemko has over 30 years experience in
business management, marketing and administration, including extensive knowledge
of financial analysis and inventory controls. Education - University of Alberta,
Industrial Registered Accounting.
(b) Significant Employees:
--------------------------
ROGER BAER - 52- Vice President of Sales and Marketing. Mr. Baer joined White
Diamond Importers, LLC in May 1998. From June 1996 to May 1998, he was the
General Manager-Director of Sales and Marketing for California Beverage
Publications, Los Angeles, California, a state wide trade journal for the
alcoholic and non-alcoholic beverage industry. From August 1994 to June 1996 Mr.
Baer was the Western Regional Manager for Gaetano Specialties, Ltd., Beverly
Hills, California. Mr. Baer has over twenty years experience in the marketing
and distribution of alcoholic beverages.
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Item 6. Executive Compensation Table
====================================
The Summary Compensation Table has been omitted becuase Michael Marleau, the
President and Chief Executive Officer has not received nor accrued any cash or
non-cash compensation during the period of August 1, 1998 to October 31, 1999.
No other officer received a salary greater than $100,000 during the past fiscal
year.
(b) Option/SAR Grants in Last Fiscal Year (Individual Grants)
--------------------------------------------------------------
No options have been granted to date.
The Company has a Stock Option Plan, entitled the "White Diamond Spirits, Inc.,
1998 Directors and Officers. Stock Option Plan" (the "Plan"). Its purpose is to
advance the business and development of the Company and its shareholders by
affording to the employees, directors and officers of the Company the
opportunity to acquire a proprietary interest in the Company by the grant of
Options to such persons under the Plan's terms. By doing so the Company seeks to
motivate, retain and attract highly competent, motivated employees, executive
Officers and Directors to lead the Company. The effective date of the Plan is
July 22, 1998. Article 4 of the Plan provides that the Board shall exercise its
discretion in awarding Options under the Plan, not to exceed a total of
1,000,000 shares. The per share Option price for the stock subject to each
Option shall be as the Board may determine. All Options must be granted within
ten years from the effective date of the Plan. There is no express termination
date for the Options, although the Board may vote to terminate the Plan. Under
the Plan, there have been no Options granted.
(c) Aggregated Option/SAR Exercises and Option/SAR Values for last fiscal year:
None
--------------------------------------------------------------------------------
(d) Long-term Incentive Plans -- Awards in last fiscal year: None
------------------------------------------------------------------
The Company has not otherwise awarded any stock options, stock appreciation
rights or other form of derivative security or common stock or cash bonuses to
its executive officers and directors.
(e) Compensation of Directors
-------------------------------
1. Standard Arrangements: The members of the Company's Board of Directors
are reimbursed for actual expenses incurred in attending Board
meetings.
2. Other Arrangements: There are no other arrangements.
(f) Employment Contracts, Termination of Employment, and Change-in-control
Arrangements
--------------------------------------------------------------------------------
The Company's executive officers do not work pursuant to written employment
agreements and draw salaries which were determined by the Board of Directors and
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are reviewed annually. Edwin Savage, Vice President is paid $3,795 per month.
Michael Marleau, the President and CEO has accrued a salary of $4,222 per month
beginning November 1999. Roger Baer, Vice President of Sales and Marketing is
paid $7,500 per month.
Item 7. Certain Relationships and Related Transactions
======================================================
The Company's Directors are the Company's Founders and Promoters. The Company's
By-Laws include a provision regarding Related Party transactions which requires
that each participant to such transaction identify all direct and indirect
interests to be derived as a result of the Company's entering into the related
transaction. A majority of the disinterested members of the board of directors
must approve any Related Party Transaction.
In April 1999, the Company acquired 100% of the Member Interest of White Diamond
Importers, LLC, in exchange for 2,400,000 shares of the Company's common stock.
White Diamond Importers LLC was formed in 1997 to be the primary importer of the
"Brilliant" line of Ultra-Premium vodka into North America manufactured by
Brilliant Spirit Ltd. of Dublin , Ireland. The Company's Officers and Directors
are the founders of both the Company and White Diamond Importers, LLC.
In March and April, 1999, the Company's directors purchased 1,842,500 at $0.05
per share for a total of $92,125 from several unaffiliated shareholders. Mr.
Marleau acquired 1,092,250 shares, Mr. Savage acquired 402,250 shares, Mr.
Petrov acquired 360,000, Mr. McCartney acquired 270,000 shares and Mr. Pasemko
acquired 270,000 shares.
Item 8. Description of Securities
=================================
The authorized capital stock of Company consists of 200,000,000 shares of common
stock. No warrants to acquire common stock have been authorized. There are no
outstanding obligations of the Company to repurchase, redeem or otherwise
acquire any shares of the Company's common stock.
The common stock carry no preemptive rights, are not convertible, redeemable,
assessable or entitled to the benefits of any sinking fund. The common stock
affords the holders no cumulative voting rights, and the holders of a majority
of the shares voting for the election of the directors can elect all of the
directors if they should choose to do so.
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PART II
=======
Item 1. Market Price of and Dividends on the Company's Common Equity and Other
Shareholder Matters
================================================================================
(a) Market Information
-----------------------
The Company's stock is not listed for sale on any exchange or trading medium.
The Company intends to seek the listing of its Common Stock on the OTC
Electronic Bulletin Board upon the effectiveness of this Form 10-SB. Until such
time, there is no public market for the Company's Common Stock. In July 1998,
the Company sold 10,000,000 shares for $100,000 to twenty investors in a private
placement of securities exempt from registration pursuant to Rule 504 of
Regulation D. The Company then sold 2,400,000 shares in exchange for the shares
of White Diamond Importers, LLC. There are ten holders of restricted securities
as defined by Rule 144, which have been held in excess of one year. The
8,157,500 shares held by non-affiliates may be traded in market transactions
without restriction. The shares held by the affiliates may only be sold pursuant
to Rule 144. The Company has not agreed to file any registration statements for
its existing shareholders.
The Company believes that its common stock will be characterized as "penny
stock" under Securities and Exchange Commission. As such, broker-dealers dealing
in the common stock will be subject to disclosure rules for transactions
involving penny stocks which require the broker-dealer among other things to (i)
determine the suitability of purchasers of the securities, and obtain the
written consent of purchasers to purchase such securities and (ii) disclose the
best (inside) bid and offer prices for such securities and the price at which
the broker-dealer last purchased or sold the securities. The additional burdens
imposed upon broker-dealers may discourage them from effecting transactions in
penny stocks, which could reduce the trading activity in any market which may
develop and reduce the liquidity of the Company's common stock.
(b) Holders
------------
There are 186 holders of the Company's Common Stock as of September 12, 2000.
(c) Dividends
-------------
The Company has paid no dividends to date on its Common Stock. The Company
reserves the right to declare a dividend when operations merit.
Item 2. Legal Proceedings
=========================
The Company is the Defendant is an action filed in August, 1999 by Dr. Werner F.
14
<PAGE>
Greider in the Supreme Court of British Columbia in Vancouver. The action
alleges commissions and expenses due to Dr. Greider in the amount of
approximately $25,000 arising from a verbal agreement to assist the Company in
obtaining financing. The Company has denied the allegations and intends to
vigorously defend the action. The Company does not believe there would be a
materially adverse effect upon the Company even in the unlikely event of
judgment in favor of Dr. Greider.
Item 3. Changes in and Disagreements with Accountants: None
===========================================================
Item 4. Recent Sales of Unregistered Securities
==============================================
During the past three years, the Company sold securities which were not
registered under the Securities Act of 1933, as amended, as set forth below.
Rule 504 Offering
Date Name # of shares Consideration
issued (U.S. $)
--------------------------------------------------------------------------------
072198 Eric Harris 350,000 3,500
072198 Krystyna Kieeberger 250,000 2,500
072198 John Hou 100,000 1,000
072198 Warren Ennis 600,000 6,000
072198 Les Ennis 300,000 3,000
072198 Barry Dunn 50,000 500
072198 Steven Hill 175,000 1,750
072198 Norman Ickert 300,000 3,000
072198 Allen Hackstep 700,000 7,000
072198 Linda Taylor 500,000 5,000
072198 Sharon Wainwright 500,000 5,000
072198 Michael Paul 900,000 9,000
072198 Helen Scott 225,000 2,250
072198 Gorden Witt 900,000 9,000
072198 Bruce Adams 800,000 8,000
072198 Robert Shivji 900,000 9,000
072198 James Connelly 900,000 9,000
072198 Victor Hicks 800,000 8,000
072198 Gary Stewart 450,000 4,500
072198 Bud Losing 300,000 3,000
-------- ---------
Total 10,000,000 $100,000
Exchange Offer exempt pursuant to Section 4(2)
041999 Michael Marleau 840,000 exchange
041999 Edwin Savage 288,000 exchange
041999 Igor Petrov 288,000 exchange
041999 Greg McCartney 216,000 exchange
041999 Larry Pasemko 216,000 exchange
041999 Ruth Marleau 216,000 exchange
15
<PAGE>
041999 Victoria Creighton 96,000 exchange
041999 Alex de Haydu 96,000 exchange
041999 Ken Shaw 24,000 exchange
041999 Roger Baer 120,000 exchange
-------
Total 2,400,000
The Company was not a reporting company pursuant to the Securities Exchange Act
of 1934 nor was it a development stage company with no business plan. Thus it
was eligible to rely upon Rule 504 as a safe harbor exemption from the
registration requirements of the Securities Act of 1933. Moreover, Rule 504 was
available in that the Company sold less than$1,000,000.00 worth of securities in
the previous 12 month period and except for the Company's officers and
directors, the purchasers were unaffiliated investors. The Company relied upon
the Rule 504 safe harbor exemption for the sales of securities for cash. These
sales were entirely private transactions pursuant to which all material
information as specified in Rule 502(b)(2) was made available to the purchasers.
On all transactions depicted, no sales commission was paid by the Company to
Pacific Rim Investment Inc. pursuant to the July 21, 1998, Offering Sales Agency
Agreement. (See Exhibit 10(ii)). Pacific Rim Investment Inc. is a corporation
organized under the law of the Pacific island nation of Vanuatu. Pacific Rim has
two principals. They are Geoffrey Robert Gee and John Caldwell Malcolm.
The Company relied upon the exemption from registration set forth in section
4(2) of the Securities Act of 1933 for its sale of shares pursuant to the
exchange of shares for White Diamond Importers, LLC. The purchasers in this sale
are sophisticated investors who were provided all material information regarding
the Company. In addition, the Company placed a restrictive legend upon the
certificates issued to the purchasers denoting the securities are "restricted
securities" or held by a control person of the Company and may only be sold in
compliance with Rule 144. Thus the exemptions from registration afforded by Rule
4(2) and Rule 3(b) were available to the issuer.
Item 5. Indemnification of Directors and Officers
=================================================
Article 11 of the Company's By-laws provides that every person who was or is a
party or is threatened to be made a party to or is involved in any action, suit
or proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that he or a person for whom he is the legal representative
is or was a director or officer of the corporation or is or was serving at the
request of the corporation or for its benefit as a director or officer of
another corporation, or as its representative in a partnership, joint venture,
trust or other enterprise, shall be indemnified and held harmless to the fullest
extent legally permissible under the General Corporation Law of the State of
Nevada against all expenses, liability and loss (including attorney's fees,
judgments, fines and amounts paid or to be paid in settlement) reasonably
incurred or suffered by him in connection therewith. The expenses of officers
and directors incurred in defending a civil or criminal action, suit or
proceeding must be paid by the corporation as they are incurred and in advance
of the final disposition of the action, suit or proceeding upon receipt of an
undertaking by or on behalf of the director or officer to repay the amount if it
is ultimately determined by a court of competent jurisdiction that he is not
16
<PAGE>
entitled to be indemnified by the corporation. Such right of indemnification
shall be a contract right which may be enforced in any manner desired by such
person. Such right of indemnification shall not be exclusive of any other right
which such directors, officers or representatives may have or hereafter acquire
and, without limiting the generality of such statement, they shall be entitled
to their respective rights of indemnification under any bylaw, agreement, vote
of stockholders, provision of law or otherwise, as well as their rights under
Article 11.
Nevada Revised Statutes Section 78.7502 provides for discretionary and mandatory
indemnification of officers, directors, employees and agents as follows:
1. A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed legal
proceeding, except by or in the right of the corporation, by reason of the
fact that the person is or was a director, officer, employee or agent of
the corporation, against expenses, including attorneys' fees, judgments,
fines and amounts paid in settlement actually and reasonably incurred by
the person in connection with the action, suit or proceeding if the person
acted in good faith and in a manner which was reasonably believed to be in
or not opposed to the best interests of the corporation, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe
the conduct was unlawful.
2. A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the corporation to procure a judgment
in its favor by reason of the fact that the person is or was a director,
officer, employee or agent of the corporation, against expenses, including
amounts paid in settlement and attorneys' fees actually and reasonably
incurred by the person in connection with the defense or settlement of the
action or suit if the person acted in good faith and in a manner reasonably
believed to be in or not opposed to the best interests of the corporation.
Indemnification may not be made for any claim, issue or matter as to which
such a person has been adjudged by a court of competent jurisdiction, after
exhaustion of all appeals therefrom, to be liable to the corporation or for
amounts paid in settlement to the corporation, unless and only to the
extent that the court in which the action or suit was brought or other
court of competent jurisdiction determines upon application that in view of
all the circumstances of the case, the person is fairly and reasonably
entitled to indemnity for such expenses as the court deems proper.
3. To the extent that a director, officer, employee or agent of a corporation
has been successful on the merits or otherwise in defense of any action,
suit or proceeding referred to in subsections 1 and 2, or in defense of any
claim, issue or matter therein, the corporation shall indemnify the person
against expenses, including attorneys' fees, actually and reasonably
incurred in connection with the defense.
Nevada Revised Statutes Section 78.751 requires authorization for discretionary
indemnification; advancement of expenses and limitation on indemnification and
advancement of expenses as follows:
1. Any discretionary indemnification under NRS 78.7502 unless ordered by a
court or advanced pursuant to subsection 2, may be made by the corporation
17
<PAGE>
only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in
the circumstances. The determination must be made:
(a) By the stockholders;
(b) By the board of directors by majority vote of a quorum consisting of
directors who were not parties to the action, suit or proceeding;
(c) If a majority vote of a quorum consisting of directors who were not
parties to the action, suit or proceeding so orders, by independent
legal counsel in a written opinion; or
(d) If a quorum consisting of directors who were not parties to the
action, suit or proceeding cannot be obtained, by independent legal
counsel in a written opinion.
PART F/S
========
The following financial statements are filed as part of this registration
statement:
Consolidated Financial Statements of White Diamond Spirits, Inc., for the fiscal
year ended October 31, 1999
Independent Auditors Report
Consolidated Balance Sheets
Consolidated Statements Of Operations
Consolidated Statements Of Changes In Stockholders' Equity
Consolidated Statements Of Cash Flows
Notes To The Consolidated Financial Statements
Financial Statements of White Diamond Importers, LLC., as of April 15, 1999 and
October 31, 1998
Independent Auditors Report
Balance Sheets
Statements Of Operations and Deficit
Statements Of Cash Flows
Notes To The Consolidated Financial Statements
Pro-Forma Unaudited Consolidated Financial Statements
White Diamond Spirits Inc. And White Diamond Importers, LLC.
Pro-Forma Consolidated Statement Of Operations
Notes To The Pro-Forma Consolidated Financial Statements
Consolidated Financial Statements of White Diamond Spirits, Inc., for the six
months ended April 30, 2000
Consolidated Balance Sheets
Consolidated Statements Of Operations
Consolidated Statements Of Changes In Stockholders' Equity
Consolidated Statements Of Cash Flows
Notes To The Consolidated Financial Statements
18
<PAGE>
WHITE DIAMOND SPIRITS INC.
CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
OCTOBER 31, 1999
19
<PAGE>
DAVIDSON & COMPANY
Chartered Accountants A Partnership of Incorporated Professionals
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
White Diamond Spirits Inc.
We have audited the accompanying consolidated balance sheets of White Diamond
Spirits Inc. as at October 31, 1999 and 1998 and the related consolidated
statements of operations, changes in stockholders' equity and cash flows for the
year ended October 31, 1999 and the period from incorporation on July 20, 1998
to October 31, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement 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 at
October 31, 1999 and 1998 and the results of its operations, changes in its
stockholders' equity and its cash flows for the year ended October 31, 1999 and
the period from incorporation on July 20, 1998 to October 31, 1998, in
conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, unless the Company attains future profitable
operations and/or obtains additional financing, there is 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 1. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
"DAVIDSON & COMPANY"
Vancouver, Canada Chartered Accountants
December 2, 1999
(except as to Note 12, which is
as of April 24, 2000 and Note 3
which is as of June 18, 2000)
A Member of SC INTERNATIONAL
Suite 1200, Stock Exchange Tower, 609 Granville Street, P.O. Box 10372,
Pacific Centre, Vancouver, BC, Canada, V7Y 1G6
Telephone (604) 687-0947 Fax (604) 687-6172
20
<PAGE>
WHITE DIAMOND SPIRITS INC.
CONSOLIDATED BALANCE SHEETS
(Expressed in U.S. Dollars)
AS AT OCTOBER 31
================================================================================
1999 1998
-------------- ---------------
ASSETS
Current
Cash and cash equivalents $ 19,727 $ 149
Accounts receivable 69,667 -
Inventory 127,427 -
Prepaid expenses 368 -
-------------- ---------------
Total current assets 217,189 149
Capital assets (Note 4) 4,070 -
-------------- ---------------
Total assets $ 221,259 $ 149
============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current
Accounts payable $ 29,093 $ -
Due to related parties (Note 5) 278,593 149
-------------- ---------------
Total current liabilities 307,686 149
-------------- ---------------
Stockholders' equity (Note 6)
Capital stock
Authorized
200,000,000 common shares
with a par value of $0.001
Issued and outstanding
October 31, 1999 - 12,400,000
common shares with a par
value of $0.001
October 31, 1998 - 10,000,000
common shares with a par
value of $0.001 12,400 10,000
Additional paid-in capital 241,228 92,250
Deficit (340,055) (102,250)
------------- --------------
Total stockholders' equity (86,427) -
------------- -------------
Total liabilities and stockholders' equity $ 221,259 $ 149
============== ===============
Contingency (Note 11)
Commitments (Note 12)
The accompanying notes are an integral part of these
consolidated financial statements.
21
<PAGE>
WHITE DIAMOND SPIRITS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Expressed in U.S. Dollars)
================================================================================
Period From
Incorporation
on July 20,
Year Ended 1998 to
October 31, October 31,
1999 1998
-------------- ----------------
SALES $ 51,600 $ -
COST OF SALES (25,993) -
-------------- ----------------
25,607 -
-------------- ----------------
EXPENSES
Accounting 20,502 -
Amortization 241 -
Bank charges and interest 2,685 -
Consulting 10,343 90,000
Duties and taxes 18,977 -
Filing fees 16,713 -
Freight 8,005 -
Legal 3,975 -
Office 23,582 -
Promotion and shareholder information 26,113 -
Samples 9,244 -
Telephone and utilities 6,161 -
Transfer agent 975 -
Travel and entertainment 31,249 -
Wages and salaries 93,415 12,250
-------------- ----------------
272,180 102,250
-------------- ----------------
Loss before other item (246,573) (102,250)
OTHER ITEM
Foreign exchange gain 8,768 -
-------------- ----------------
Net loss for the period $ (237,805) $ (102,250)
============== ================
Basic and diluted loss per share $ (0.02) $ (0.01)
============== ================
Weighted average number of common
shares outstanding 11,308,493 10,000,000
============== ================
The accompanying notes are an integral part of these
consolidated financial statements.
22
<PAGE>
<TABLE>
WHITE DIAMOND SPIRITS INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Expressed in U.S. Dollars)
<CAPTION>
================================================================================
Common Stock
--------------- -------------- Additional
Number of Paid-in
Shares Amount Capital Deficit Total
--------------- -------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Balance, July 20, 1998 - $ - $ - $ - $ -
Issued for cash (net of share
issuance costs) 10,000,000 10,000 80,000 - 90,000
Contribution of employment services - - 12,250 - 12,250
Net loss for the period - - - (102,250) (102,250)
-------------- ------------- -------------- -------------- --------------
Balance, October 31, 1998 10,000,000 10,000 92,250 (102,250) -
Shares issued for acquisition of subsidiary 2,400,000 2,400 106,978 - 109,378
Contribution of employment services - - 42,000 - 42,000
Net loss for the year - - - (237,805) (237,805)
-------------- ------------- -------------- -------------- --------------
Balance, October 31, 1999 12,400,000 $ 12,400 $ 241,228 $ (340,055) $ (86,427)
=============== ============== =============== =============== ===============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
23
<PAGE>
WHITE DIAMOND SPIRITS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in U.S. Dollars)
================================================================================
Period From
Incorporation
on July 20,
Year Ended 1998 to
October 31, October 31,
1999 1998
-------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss for the period $ (237,805) $ (102,250)
Items not involving an outlay of cash:
Amortization 241 -
Contribution of employment services 42,000 12,250
Net changes in non-cash working capital items
Increase in accounts receivable (63,577) -
Increase in inventory (52,427) -
Decrease in prepaid expenses 12 -
Increase in accounts payable 24,058 -
-------------- ----------------
Net cash used in operating activities (287,498) (90,000)
-------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in due to related parties 278,444 149
Share issuance costs - (10,000)
Issuance of capital stock - 100,000
-------------- ----------------
Net cash provided by financing activities 278,444 90,149
-------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash from acquisition of subsidiary 1,311 -
Cash advanced by subsidiary prior
to acquisition 27,321 -
-------------- ----------------
Net cash provided by investing activities 28,632 -
-------------- ----------------
Change in cash and cash equivalents
during the period 19,578 149
Cash and cash equivalents, beginning of period 149 -
-------------- ----------------
Cash and cash equivalents, end of period $ 19,727 $ 149
============== ================
Supplemental disclosure with respect to cash flows
Cash paid during the period for interest $ - $ -
Cash paid during the period for
income taxes $ - $ -
Non-cash operating, financing and
investing activities Issuance of
common stock to acquire subsidiary $ 109,378 $ -
============== ================
There were no non-cash operating, financing or investing
transactions for the period ended October 31, 1998.
The accompanying notes are an integral part of
these consolidated financial statements.
24
<PAGE>
WHITE DIAMOND SPIRITS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
OCTOBER 31, 1999
================================================================================
1. HISTORY AND ORGANIZATION OF THE COMPANY
The Company was incorporated on July 20, 1998 under the laws of the
State of Nevada and is in the business of importing spirits and alcohol
for sale and distribution in North America. The Company is the primary
importer of alcohol for a company called Brilliant Spirits Ltd.,
located in Dublin, Ireland. The Company has offices located in
Henderson, Nevada and Vancouver, Canada, and stores its inventory in a
warehouse located in California.
The Company's financial statements are prepared using the generally
accepted accounting principles applicable to a going concern, which
contemplates the realization of assets and liquidation of liabilities
in the normal course of business. Without realization of additional
capital, it would be unlikely for the Company to continue as a going
concern. It is management's plan to seek additional capital through
short-term loans from directors and future equity financings.
1999 1998
--------------- ----------------
Deficit $ (340,055) $ (102,250)
Working capital deficiency (90,497) -
=============== ================
2. SIGNIFICANT ACCOUNTING POLICIES
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amount of assets and
liabilities, disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amount of revenues
and expenses during the period. Actual results could differ from these
estimates.
Principles of consolidation
These financial statements have been prepared on a consolidated basis
and include the operations of the Company and its wholly-owned
subsidiary, White Diamond Importers, LLC ("Importers") (Note 3). All
inter-company transactions have been eliminated upon consolidation.
Cash and cash equivalents
Cash and cash equivalents include highly liquid investments with a
maturity of three months or less.
Inventory
Inventory is valued at the lower of cost (using the first-in, first-out
method of accounting) and net realizable value.
Capital assets
Capital assets are recorded at cost and amortization is provided for
using the following basis:
Computers 30% declining balance
25
<PAGE>
WHITE DIAMOND SPIRITS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
OCTOBER 31, 1999
================================================================================
2. SIGNIFICANT ACCOUNTING POLICIES (cont'd.....)
Foreign currency translation
Transaction amounts denominated in foreign currencies are translated at
exchange rates prevailing at transaction dates. Carrying values of
monetary assets and liabilities are adjusted at each balance sheet date
to reflect the exchange rate at that date. Non-monetary assets and
liabilities are translated at the exchange rate on the original
transaction date. Revenues and expenses are translated at the rates of
exchange prevailing on the dates such items are recognized in earnings.
Gains and losses from restatement of foreign currency monetary and
non-monetary assets and liabilities are included in income. The
Company's functional currency is the United States dollar.
Accounting for derivative instruments and hedging activities
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133") which establishes
accounting and reporting standards for derivative instruments and for
hedging activities. SFAS 133 is effective for all fiscal quarters of
fiscal years beginning after June 15, 1999. In June 1999, FASB issued
SFAS 137 to defer the effective date of SFAS No. 133 to all fiscal
quarters of all fiscal years beginning after June 15, 2000. The Company
does not anticipate that the adoption of the statement will have a
significant impact on its financial statements.
Disclosure about segments of an enterprise and related information
Statement of Financial Accounting Standards No. 131, "Disclosure About
Segments of an Enterprise and Related Information," ("SFAS 131")
requires the use of the "management approach" model for segment
reporting. The management approach model is based on the way a
company's management organizes segments within the company for making
operating decisions and assessing performance. Reportable segments are
based on products and services, geography, legal structure, management
structure, or any other manner in which management disaggregates a
company. Currently, SFAS 131 has no effect on the Company's financial
statements, as substantially all of the Company's operations are
conducted in the United States.
Reporting on costs of start-up activities
In April 1998, the American Institute of Certified Public Accountant's
issued Statement of Position 98-5 "Reporting on the Costs of Start-Up
Activities" ("SOP 98-5") which provides guidance on the financial
reporting of start-up costs and organization costs. It requires costs
of start-up activities and organization costs to be expensed as
incurred. SOP 98-5 is effective for fiscal years beginning after
December 15, 1998 with initial adoption reported as the cumulative
effect of a change in accounting principle. The Company's adoption of
SOP 98-5 during the current period had no effect on its financial
statements.
Stock-based compensation
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation," encourages, but does not require, companies
to record compensation cost for stock-based employee compensation plans
at fair value. The Company has chosen to account for stock-based
compensation using Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees." Accordingly compensation
cost for stock options is measured as the excess, if any, of the quoted
26
<PAGE>
market price of the Company's stock at the date of the grant over the
amount an employee is required to pay for the stock. Because the
Company does not have any outstanding stock options issued, there was
no impact on its financial statements.
27
<PAGE>
WHITE DIAMOND SPIRITS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
OCTOBER 31, 1999
================================================================================
2. SIGNIFICANT ACCOUNTING POLICIES (cont'd.....)
Comprehensive income
The Company has adopted Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" ("SFAS 130"). This statement
establishes rules for the reporting of comprehensive income and its
components. The adoption of SFAS 130 had no impact on total
stockholders' equity as at October 31, 1999.
Earnings (loss) per share
Earnings (loss) per share is computed in accordance with Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS
128"). Under SFAS 128, basic and diluted earnings (loss) per share are
to be presented. Basic earnings (loss) per share is computed by
dividing income available to common shareholders by the weighted
average number of common shares outstanding in the period. Diluted
earnings per share takes into consideration common shares outstanding
(computed under basic earnings per share) and potentially dilutive
common shares.
Revenue recognition
Revenue from operations is recognized when the product is shipped,
which is when the title transfers to the buyer, and collection of
revenue is reasonably assured.
Income taxes
Income taxes are provided in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes". A deferred
tax asset or liability is recorded for all temporary differences
between financial and tax reporting and net operating loss
carryforwards. Deferred tax expenses (benefit) result from the net
change during the year of deferred tax assets and liabilities.
Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion or
all of the deferred tax assets will not be realized. Deferred tax
assets and liabilities are adjusted for the effects of changes in tax
laws and rates on the date of enactment.
3. BUSINESS COMBINATION
Pursuant to an acquisition agreement, effective April 15, 1999, the
Company acquired a 100% ownership interest in White Diamond Importers,
LLC ("Importers") with the issuance of 2,400,000 common shares with a
par value of $0.001 per share.
The cost of an acquisition should be based on the fair value of the
consideration given, except where the fair value of the consideration
given is not clearly evident. In such a case, the fair value of the net
assets acquired is used.
The acquisition of Importers has been accounted for using the purchase
method and accordingly, these financial statements include the results
of operations of Importers from the date of acquisition.
On April 15, 1999, the company's shares were not listed on any market
making it difficult to estimate the actual market value of the 2,400,000
common shares. Therefore, the cost of the acquisition, $109,378 has been
determined by the fair value of Importer's net assets.
28
<PAGE>
WHITE DIAMOND SPIRITS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
OCTOBER 31, 1999
================================================================================
3. BUSINESS COMBINATION (cont'd.....)
The total purchase price of $109,378 was allocated as follows:
Cash $ 1,311
Accounts receivable 6,090
Inventory 75,000
Prepaid expenses 380
Due from related parties 27,321
Capital assets 4,311
Accounts payable and accrued liabilities (5,035)
-------
$109,378
4. CAPITAL ASSETS
================================================================================
Net Book Value
------------------------------
Accumulated
Cost Amortization 1999 1998
--------------- --------------- ------------- ----------------
Computers $ 4,311 $ 241 $ 4,070 $ -
=============== =============== ============= ================
5. DUE TO RELATED PARTIES
Amounts due to related parties are non-interest bearing with no stated
terms of repayment. The amounts due to related parties are amounts
advanced by directors to provide working capital for the Company.
6. STOCKHOLDERS' EQUITY
The authorized capital stock of the Company consists of 200,000,000
shares of common stock. No warrants to acquire common stock have been
authorized. There are no outstanding obligations of the Company to
repurchase, redeem or otherwise acquire any shares of the Company's
common stock.
The common stock carry no pre-emptive rights, are not convertible,
redeemable, assessable or entitled to the benefits of any sinking fund.
The common stock affords the holders no cumulative voting rights and the
holders of a majority of the shares voting for election of the directors
can elect all of the directors if they should choose to do so.
On July 21, 1998, the Company issued 10,000,000 shares of common stock
pursuant to a private placement at a price of $0.01 per share, for total
proceeds of $100,000. These shares were sold pursuant to Rule 504 of
Regulation D. In connection with the above private placement, the Company
paid a $10,000 commission fee to Pacific Rim Investment, Inc., pursuant
to an Offering Sales Agency Agreement and has no further obligations to
Pacific Rim Investment, Inc.
On April 15, 1999, the Company issued 2,400,000 shares of common stock at
a deemed value of $109,378 for the acquisition of its subsidiary.
The Company's Board of Directors approved the reservation of 1,000,000
shares for issuance pursuant to the Company's Stock Option Plan,
effective July 22, 1998. The option price will be $1.00 per share or such
other price as the Board may determine. All options must be granted
within 10 years from the effective date of the plan. At October 31, 1999,
no stock options have been granted under the plan.
29
<PAGE>
WHITE DIAMOND SPIRITS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
OCTOBER 31, 1999
================================================================================
7. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE
The Year 2000 Issue arises because many computerized systems use two
digits rather than four to identify a year. Date-sensitive systems may
incorrectly recognize the year 2000 as some other date, resulting in
errors. The effects of the Year 2000 Issue may be experienced before, on,
or after January 1, 2000 and, if not addressed, the impact on operations
and financial reporting may range from minor errors to significant
systems failure which could affect an entity's ability to conduct normal
business operations. It is not possible to be certain that all aspects of
the Year 2000 Issue affecting the Company, including those related to the
efforts of customers, suppliers, or other third parties, will be fully
resolved.
8. FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash, accounts receivable,
accounts payable, and due to related parties. Unless otherwise noted, it
is management's opinion that the Company is not exposed to significant
interest, currency or credit risks arising from these financial
instruments. The fair value of these financial instruments approximate
their carrying values, unless otherwise noted. The fair value is not
determinable for amounts due to related parties since the amounts do not
have specific terms of repayment or interest rates.
9. RELATED PARTY TRANSACTIONS
The following transaction was entered into with related parties:
a) The Company acquired a wholly-owned subsidiary, White Diamond
Importers, LLC of which certain members of this company are also
directors of the Company (Note 3).
10. DEFERRED INCOME TAXES
The Company's total deferred tax asset is as follows:
1999 1998
-------------- --------------
Tax benefit of net operating
loss carryforwards $ 91,458 $ 28,800
Valuation allowance (91,458) (28,800)
-------------- --------------
$ - $ -
============== ==============
The Company has a net operating loss carryforward of approximately
$324,509 which expires between the years 2018 and 2019. The Company
provided a full valuation allowance on the deferred tax asset because of
the uncertainty regarding realizability.
11. CONTINGENCY
A lawsuit has been commenced against the Company in which the plaintiff
is seeking commissions and expense reimbursements allegedly owing.
Management has denied the allegations and has commenced a counter claim
against the plaintiff. The outcome of these claims cannot be determined
at this time, therefore any amounts relating to the claims will be
reflected in the year of settlement.
30
<PAGE>
WHITE DIAMOND SPIRITS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
OCTOBER 31, 1999
================================================================================
12. COMMITMENTS
a) The Company entered into a marketing agreement with Brilliant Spirits
Ltd. ("Brilliant"), whereby the Company was granted the right to sell
and promote the sale of some of Brilliant's products in the United
States and Canada (except in the State of New Jersey). The Company
has full authority to act on Brilliant's behalf, in appointing
distributors and brokers, registering products and posting prices as
may be required by law. The agreement has a five-year term with
automatic renewal for successive five-year periods, as long as the
Company meets its minimum purchase requirements. The minimum purchase
requirements are as follows:
i) 60,000 cases of Brilliant's products, including mixed sizes,
in the first 18 months;
ii) 90,000 cases of Brilliant's products, including mixed sizes,
for the next 12 months thereafter; and
iii) 300,000 cases of Brilliant's products, including mixed
sizes, for the next 30 months thereafter.
In addition, the Company is obligated to pay a royalty fee of US$0.17
for each unit of 750 ml "Brilliant" vodka sold in the United States
only, which is payable within 30 days of receiving payment.
b) The Company leases an office in Vancouver, British Columbia for $350
per month pursuant to a two-year lease, expiring on January 31, 2002.
c) The Company leases an office in Henderson, Nevada for $1,613 per
month pursuant to a twelve-month lease, expiring on January 31, 2001.
31
<PAGE>
WHITE DIAMOND IMPORTERS, LLC
FINANCIAL STATEMENTS
(Expressed in US Dollars)
APRIL 15, 1999
32
<PAGE>
DAVIDSON & COMPANY
Chartered Accountants A Partnership of Incorporated Professionals
INDEPENDENT AUDITORS' REPORT
To the Members of
White Diamond Importers, LLC
We have audited the accompanying balance sheets of White Diamond Importers, LLC
as of April 15, 1999 and October 31, 1998 and the related statements of
operations and deficit, changes in members' equity and cash flows for the period
from November 1, 1998 to April 15, 1999 and the period from date of organization
on November 11, 1997 to October 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note 1 to the financial
statements, unless the Company attains future profitable operations and/or
obtains additional financing, there is substantial doubt about the Company's
ability to continue as a going concern. Management's plan in regard to these
matters are also described in Note 1. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company as at April 15,
1999 and October 31, 1998 and the results of its operations and its cash flows
for the period from November 1, 1998 to April 15, 1999 and the period from date
of organization on November 11, 1997 to October 31, 1998 in accordance with
generally accepted accounting principles.
"DAVIDSON & COMPANY"
Vancouver, Canada Chartered Accountants
June 16, 1999
A Member of SC INTERNATIONAL
Suite 1200, Stock Exchange Tower, 609 Granville Street, P.O. Box 10372,
Pacific Centre, Vancouver, BC, Canada, V7Y 1G6
Telephone (604) 687-0947 Fax (604) 687-6172
33
<PAGE>
WHITE DIAMOND IMPORTERS, LLC
BALANCE SHEETS
(Expressed in US Dollars)
================================================================================
April 15, October 31
1999 1998
-------------- ----------------
ASSETS
Current
Cash and cash equivalents $ 1,311 $ 992
Accounts receivable 6,090 4,350
Deposit 75,000 -
Prepaid expenses 380 -
-------------- ----------------
Total current assets 82,781 5,342
Due from related party (Note 3) 27,321 149
Capital assets (Note 4) 4,311 2,088
-------------- ----------------
Total assets $ 114,413 $ 7,579
============== ================
LIABILITIES AND MEMBERS' EQUITY
Current liabilities
Accounts payable $ 5,035 $ 2,000
-------------- ----------------
Members' equity
Members' capital 571,767 310,570
Deficit (462,389) (304,991)
-------------- ----------------
109,378 5,579
-------------- ----------------
Total liabilities and members' equity $ 114,413 $ 7,579
============== ================
The accompanying notes are an integral part of these financial statements.
34
<PAGE>
WHITE DIAMOND IMPORTERS, LLC
STATEMENTS OF OPERATIONS
(Expressed in US Dollars)
================================================================================
Period From
Date of
Organization
Period From on
November 1, November 11,
1998 to 1997 to
April 15, October 31,
1999 1998
-------------- ----------------
SALES $ 38,924 $ -
COST OF SALES (21,238) -
-------------- ----------------
17,686 -
-------------- ----------------
EXPENSES
Accounting 1,510 10,791
Amortization 1,107 369
Bank charges and interest 1,501 529
Commissions 1,140 -
Freight and shipping 7,978 -
Office 24,819 10,130
Promotion and shareholder information 3,299 37,278
Rent 1,980 26,730
Telephone and utilities 10,057 21,416
Travel and entertainment 36,552 128,929
Wages and salaries 84,900 75,000
-------------- ----------------
174,843 311,172
-------------- ----------------
Loss before other item (157,157) (311,172)
OTHER ITEM
Foreign exchange gain (loss) (241) 6,181
-------------- ----------------
Net loss for the period (157,398) (304,991)
Deficit, beginning of period (304,991) -
-------------- ----------------
Deficit, end of period $ (462,389) $ (304,991)
============== ================
The accompanying notes are an integral part of these financial statements.
35
<PAGE>
WHITE DIAMOND IMPORTERS, LLC
STATEMENT OF MEMBERS' CAPITAL
(Expressed in US Dollars)
================================================================================
April 15, October 31
1999 1998
Opening balance $ 310,570 $ -
Contributions 798,661 439,692
Drawings (537,464) (129,122)
------------- --------------
Ending balance $ 571,767 $ 310,570
============================================================ ===============
The accompanying notes are an integral part of these financial statements.
36
<PAGE>
WHITE DIAMOND IMPORTERS, LLC
STATEMENTS OF CASH FLOWS
(Expressed in US Dollars)
================================================================================
Period From
Date of
Organization
Period From on
November 1, November 11,
1998 to 1997 to
April 15, October 31,
1999 1998
----------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss for the period $ (157,398) $ (304,991)
Add: Item not involving and outlay of cash:
Amortization 1,107 369
Changes in non-cash working capital items:
Increase in accounts receivable (1,740) (4,350)
Increase in deposit (75,000) -
Increase in prepaid expenses (380) -
Increase in accounts payable 3,035 2,000
----------- ------------
Net cash used in operating activities (230,376) (306,972)
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of capital assets (3,330) (2,457)
----------- ------------
Net cash used in investing activities (3,330) (2,457)
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in due from related party (27,172) (149)
Contributions from members 798,661 439,692
Drawings by members (537,464) (129,122)
----------- ------------
Net cash provided by financing activities 234,025 310,421
----------- ------------
Change in cash and equivalents for the period 319 992
Cash and cash equivalents, beginning of period 992 -
----------- ------------
Cash and cash equivalents, end of period $ 1,311 $ 992
=========== ============
Supplemental disclosure with respect to cash flows
Cash paid during the period for interest $ - $ -
Cash paid during the period for income taxes - -
=========== ============
Therewere no non-cash operating, investing or financing transactions for the
periods ended April 15, 1999 and October 31, 1998.
The accompanying notes are an integral part of these financial statements.
37
<PAGE>
WHITE DIAMOND IMPORTERS, LLC
NOTES TO THE FINANCIAL STATEMENTS
(Expressed in US Dollars)
APRIL 15, 1999
================================================================================
1. HISTORY AND ORGANIZATION OF THE COMPANY
The Company was organized on November 11, 1997 under the Laws of the
State of Nevada and is in the business of importing spirits and alcohol
for sale and distribution in North America. The Company currently has
no operations and, in accordance with SFAS #7, is considered a
development stage company.
The Company's financial statements are prepared using the generally
accepted accounting principles applicable to a going concern, which
contemplates the realization of assets and liquidation of liabilities
in the normal course of business. Without realization of additional
revenue or capital, it would be unlikely for the Company to continue as
a going concern. It is management's plan to seek additional short-term
capital through member capital contributions and a merger with a public
company.
2. SIGNIFICANT ACCOUNTING POLICIES
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amount of assets and
liabilities, disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amount of revenues
and expenses during the period. Actual results could differ from these
estimates.
Foreign currency translation
Transaction amounts denominated in foreign currencies are translated at
exchange rates prevailing at transaction dates. Carrying values of
monetary assets and liabilities are adjusted at each balance sheet date
to reflect the exchange rate at that date. Non-monetary assets and
liabilities are translated at the exchange rate on the original
transaction date. Revenues and expenses are translated at the rates of
exchange prevailing on the dates such items are recognized in earnings.
Gains and losses from restatement of foreign currency monetary and
non-monetary assets and liabilities are included in income. The
Company's functional currency is the United States dollar.
Cash and cash equivalents
Cash and cash equivalents include highly liquid investments with a
maturity of three months or less.
Inventory
Inventory is valued at the lower of cost and net realizable value,
using the first-in, first-out method of accounting.
Capital assets and amortization
Capital assets are recorded at cost less accumulated amortization and
the Company provides for amortization on a declining balance method at
the following rates:
Office equipment 20%
Computer 30%
Revenue recognition
Revenue from operations is recognized when the product is shipped,
which is when title is transferred to the buyer, and collection of
revenue is reasonably assured.
38
<PAGE>
WHITE DIAMOND IMPORTERS, LLC
NOTES TO THE FINANCIAL STATEMENTS
(Expressed in US Dollars)
APRIL 15, 1999
================================================================================
2. SIGNIFICANT ACCOUNTING POLICIES (cont'd.....)
Comprehensive income
The Company has adopted Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" ("SFAS 130"). This statement
establishes rules for the reporting of comprehensive income and its
components. The adoption of SFAS 130 had no impact on total
stockholders' equity as at April 15, 1999.
Accounting for derivative instruments and hedging activities
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133") which establishes
accounting and reporting standards for derivative instruments and for
hedging activities. SFAS 133 is effective for all fiscal quarters of
fiscal years beginning after June 15, 1999. In June 1999, FASB issued
SFAS 137 to defer the effective date of SFAS No. 133 to all fiscal
quarters of all fiscal years beginning after June 15, 2000. The Company
does not anticipate that the adoption of the statement will have a
significant impact on its financial statements.
Disclosure about segments of an enterprise and related information
Statement of Financial Accounting Standards No. 131, "Disclosure About
Segments of an Enterprise and Related Information," is effective for
years beginning after December 15, 1997. This statement requires use of
the "management approach" model for segment reporting. The management
approach model is based on the way a company's management organizes
segments within the company for making operating decisions and
assessing performance. Reportable segments are based on products and
services, geography, legal structure, management structure, or any
other manner in which management dissaggregates a company. The Company
does not anticipate that the adoption of the statement will have a
significant impact on its financial statements other than potentially
providing more financial statement disclosures.
Reporting on costs of start-up activities
In April 1998, the American Institute of Certified Public Accountant's
issued Statement of Position 98-5 "Reporting on the Costs of Start-Up
Activities" ("SOP 98-5") which provides guidance on the financial
reporting of start-up costs and organization costs. It requires costs
of start-up activities and organization costs to be expenses as
incurred. SOP 98-5 is effective for fiscal years beginning after
December 15, 1998 with initial adoption reported as the cumulative
effect of a change in accounting principle. The Company believes that
the adoption of this statement will not have any effect on its
financial statements.
3. DUE FROM RELATED PARTY
The amount due from related party is non-interest bearing and has no
specified terms of repayment.
39
<PAGE>
WHITE DIAMOND IMPORTERS, LLC
NOTES TO THE FINANCIAL STATEMENTS
(Expressed in US Dollars)
APRIL 15, 1999
================================================================================
4. CAPITAL ASSETS
Net Book Value
----------------------
Accumulated April 15, October 31,
Cost Amortization 1999 1998
------- ------------ ----------- ------------
Office equipment $ 370 $ 37 $ 333 $ -
Computer equipment 5,417 1,439 3,978 2,088
------- ------------ ----------- ------------
$5,787 $1,476 $4,311 $ 2,088
======= ============ =========== ============
5. FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash and cash
equivalents, accounts receivable, due from related party and accounts
payable. Unless otherwise noted, it is management's opinion that the
Company is not exposed to significant interest, currency or credit
risks arising from these financial instruments. The fair value of these
financial instruments approximate their carrying values, unless
otherwise noted. The fair value is not determinable for amounts due
from related parties since the amounts do not have specific interest
rates or terms of repayment.
40
<PAGE>
WHITE DIAMOND SPIRITS INC.
CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
(Unaudited)
APRIL 30, 2000
41
<PAGE>
WHITE DIAMOND SPIRITS INC.
CONSOLIDATED BALANCE SHEETS
(Expressed in U.S. Dollars)
(Unaudited)
================================================================================
April 30, October 31,
2000 1999
------------- --------------
ASSETS
Current
Cash $ 63,679 $ 19,727
Accounts receivable 182,309 69,667
Inventory 190,461 127,427
Prepaid expenses and deposits 130,368 368
------------- --------------
Total current assets 566,817 217,189
Capital assets (Note 3) 6,636 4,070
------------- --------------
Total assets $ 573,453 $ 221,259
============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current
Accounts payable $ 38,020 $ 29,093
Due to related parties (Note 4) 977,771 278,593
------------- --------------
Total current liabilities 1,015,791 307,686
------------- --------------
Stockholders' equity (Note 5)
Capital stock
Authorized
200,000,000 common shares
with a par value of
$0.001
Issued and outstanding
April 30, 2000 - 12,400,000
common shares with a par
value of $0.001
April 30, 1999 - 10,000,000
common shares with a par
value of $0.001 12,400 12,400
Additional paid-in capital 241,228 241,228
Deficit (695,966) (340,055)
------------- --------------
Total stockholders' equity (442,338) (86,427)
------------- --------------
Total liabilities and stockholders' equity $ 573,453 $ 221,259
============= ==============
Contingency (Note 9)
Commitments (Note 10)
The accompanying notes are an integral part of these
consolidated financial statements.
42
<PAGE>
<TABLE>
WHITE DIAMOND SPIRITS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Expressed in U.S. Dollars)
================================================================================
<CAPTION>
Three Month Three Month Six Month Six Month
Period Ended Period Ended Period Ended Period Ended
April 30, April 30, April 30, April 30,
2000 1999 2000 1999
---------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C>
SALES $ 126,387 $ - $ 126,387 $ -
COST OF SALES 58,645 - 58,645 -
---------------- --------------- ---------------- ----------------
67,742 - 67,742 -
---------------- --------------- ---------------- ----------------
EXPENSES
Amortization 429 - 734 -
Bank charges and interest 483 - 1,224 -
Consulting 60,695 - 64,353 -
Duties and taxes 4,841 - 43,888 -
Filing fees 3,516 - 8,468 -
Foreign exchange (gain) (279) - (279) -
Freight 10,604 - 10,604 -
Legal and accounting 15,999 - 17,238 -
Marketing and development 1,441 - 21,348 -
Office and rent 36,321 - 56,228 -
Telephone and utilities 3,413 - 6,985 -
Transfer agent 1,442 - 1,623 -
Travel and entertainment 61,083 - 80,903 -
Wages 55,013 10,500 110,336 21,000
---------------- --------------- ---------------- ----------------
255,001 10,500 423,653 21,000
---------------- --------------- ---------------- ----------------
Net loss for the period $ (187,259) $ (10,500) $ (355,911) $ (21,000)
================ =============== ================ ================
Basic and diluted loss per share $ (0.02) $ 0.00 $ (0.03) $ 0.00
================ =============== ================ ================
Weighted average number of
common shares outstanding 12,400,000 10,400,000 12,400,000 10,200,000
================ =============== ================ ================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
43
<PAGE>
<TABLE>
WHITE DIAMOND SPIRITS INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
(Expressed in U.S. Dollars)
<CAPTION>
================================================================================
Common Stock
--------------- -------------- Additional
Number of Paid-in
Shares Amount Capital Deficit Total
--------------- -------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Balance, October 31, 1998 10,000,000 $ 10,000 $ 92,250 $ (102,250) $ -
Shares issued for acquisition of subsidiary 2,400,000 2,400 106,978 - 109,378
Contribution of employment services - - 42,000 - 42,000
Net loss for the year - - - (237,805) (237,805)
--------------- -------------- --------------- --------------- ---------------
Balance, October 31, 1999 12,400,000 12,400 241,228 (340,055) (86,427)
Net loss for the period - - - (355,911) (355,911)
--------------- -------------- --------------- --------------- ---------------
Balance, April 30, 2000 12,400,000 $ 12,400 $ 241,228 $ (695,966) $ (442,338)
=============== ============== =============== =============== ===============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
44
<PAGE>
WHITE DIAMOND SPIRITS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (Expressed in U.S. Dollars)
================================================================================
Six Month Six Month
Period Ended Period Ended
April 30, April 30,
2000 1999
--------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss for the period $ (355,911) $ (21,000)
Item not involving an outlay of cash:
Amortization 734 -
Net changes in non-cash working capital items:
Increase in accounts receivable (112,642) -
Increase in inventory (63,034) -
Increase in prepaid expenses and deposits (130,000) -
Increase in accounts payable 8,927 -
Contribution of employment services - 21,000
--------------- ----------------
Net cash provided by operating activities (651,926) -
--------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in due to related parties 699,178 27,321
--------------- ----------------
Net cash provided by financing activities 699,178 27,321
--------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of capital assets (3,300) -
--------------- ----------------
Net cash used in investing activities (3,300) -
--------------- ----------------
Increase in cash position for the period 43,952 27,321
Cash position, beginning of period 19,727 -
--------------- ----------------
Cash position, end of period $ 63,679 $ 27,321
=============== ================
Supplemental disclosure with respect to cash flows
Cash paid during the period for interest $ - $ -
Cash paid during the period for income taxes - -
=============== ================
Non-cash operating, financing and investing
activities
Issuance of common stock to acquire
subsidiary $ - $ 109,378
Contribution of employment services - 21,000
=============== ================
There were no non-cash transactions for the period ended April 30, 2000.
The accompanying notes are an integral part of these
consolidated financial statements.
45
<PAGE>
WHITE DIAMOND SPIRITS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
(Unaudited)
APRIL 30, 2000
================================================================================
1. HISTORY AND ORGANIZATION OF THE COMPANY
The Company was incorporated on July 20, 1998 under the laws of the
State of Nevada and is in the business of importing spirits and alcohol
for sale and distribution in North America. The Company is the primary
importer of alcohol for Brilliant Spirits Ltd., a company located in
Dublin, Ireland. The Company has offices located in Henderson, Nevada
and Vancouver, Canada, and stores its inventory in a warehouse located
in California.
The Company's financial statements are prepared using the generally
accepted accounting principles applicable to a going concern, which
contemplates the realization of assets and liquidation of liabilities
in the normal course of business. Without realization of additional
capital, it would be unlikely for the Company to continue as a going
concern. It is management's plan to seek additional capital through
short-term loans from directors and future equity financings.
April 30, October 31,
2000 1999
--------------- ----------------
Deficit $ (695,966) $ (340,055)
Working capital surplus (deficiency) (448,974) (90,497)
=============== ================
2. SIGNIFICANT ACCOUNTING POLICIES
Generally accepted accounting principles
In the opinion of management, the accompanying consolidated financial
statements contain all adjustments necessary (consisting only of normal
recurring accruals) to present fairly the financial information
contained therein. These statements do not include all disclosures
required by generally accepted accounting principles and should be read
in conjunction with the audited financial statements of the Company for
the year ended October 31, 1999. The results of operations for the six
month period ended April 30, 2000 are not necessarily indicative of the
results to be expected for the year ending October 31, 2000.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amount of assets and
liabilities, disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amount of revenues
and expenses during the period. Actual results could differ from these
estimates.
Principles of consolidation
These financial statements have been prepared on a consolidated basis
and include the operations of the Company and its wholly-owned
subsidiary, White Diamond Importers, LLC ("Importers"). All
inter-company transactions have been eliminated upon consolidation.
Cash and cash equivalents
Cash and cash equivalents include highly liquid investments with a
maturity of three months or less.
46
<PAGE>
WHITE DIAMOND SPIRITS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
(Unaudited) APRIL 30, 2000
================================================================================
2. SIGNIFICANT ACCOUNTING POLICIES (cont'd.....)
Inventory
Inventory is valued at the lower of cost (using the first-in, first-out
method of accounting) and net realizable value.
Capital assets
Capital assets are recorded at cost and amortization is provided for on
the following basis:
Computers 30% declining balance
Foreign currency translation
Transaction amounts denominated in foreign currencies are translated at
exchange rates prevailing at transaction dates. Carrying values of
monetary assets and liabilities are adjusted at each balance sheet date
to reflect the exchange rate at that date. Non-monetary assets and
liabilities are translated at the exchange rate on the original
transaction date. Revenues and expenses are translated at the rates of
exchange prevailing on the dates such items are recognized in earnings.
Gains and losses from restatement of foreign currency monetary and
non-monetary assets and liabilities are included in income. The
Company's functional currency is the United States dollar.
Accounting for derivative instruments and hedging activities
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133") which establishes
accounting and reporting standards for derivative instruments and for
hedging activities. SFAS 133 is effective for all fiscal quarters of
fiscal years beginning after June 15, 1999. In June 1999, FASB issued
SFAS 137 to defer the effective date of SFAS 133 to all fiscal quarters
of all fiscal years beginning after June 15, 2000. The Company does not
anticipate that the adoption of the statement will have a significant
impact on its financial statements.
Disclosure about segments of an enterprise and related information
Statement of Financial Accounting Standards No. 131, "Disclosure About
Segments of an Enterprise and Related Information," ("SFAS 131")
requires the use of the "management approach" model for segment
reporting. The management approach model is based on the way a
company's management organizes segments within the company for making
operating decisions and assessing performance. Reportable segments are
based on products and services, geography, legal structure, management
structure, or any other manner in which management desegregates a
company. Currently, SFAS 131 has no effect on the Company's financial
statements, as substantially all of the Company's operations are
conducted in the United States.
Reporting on costs of start-up activities
In April 1998, the American Institute of Certified Public Accountant's
issued Statement of Position 98-5 "Reporting on the Costs of Start-Up
Activities" ("SOP 98-5") which provides guidance on the financial
reporting of start-up costs and organization costs. It requires costs
of start-up activities and organization costs to be expensed as
incurred. SOP 98-5 is effective for fiscal years beginning after
December 15, 1998 with initial adoption reported as the cumulative
effect of a change in accounting principle. The Company has adopted the
requirements of SOP 98-5 during the current period.
47
<PAGE>
WHITE DIAMOND SPIRITS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
(Unaudited) APRIL 30, 2000
================================================================================
2. SIGNIFICANT ACCOUNTING POLICIES (cont'd.....)
Stock-based compensation
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation," encourages, but does not require, companies
to record compensation cost for stock-based employee compensation plans
at fair value. The Company has chosen to account for stock-based
compensation using Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees." Accordingly compensation
cost for stock options is measured as the excess, if any, of the quoted
market price of the Company's stock at the date of the grant over the
amount an employee is required to pay for the stock. Because the
Company does not have any outstanding stock options issued, there is no
impact on its financial statements.
Comprehensive income
The Company has adopted Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" ("SFAS 130"). This statement
establishes rules for the reporting of comprehensive income and its
components. The adoption of SFAS 130 had no impact on total
stockholders' equity as at April 30, 2000.
Earnings (loss) per share
Earnings (loss) per share is computed in accordance with Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS
128"). Under SFAS 128, basic and diluted earnings (loss) per share are
to be presented. Basic earnings (loss) per share is computed by
dividing income available to common shareholders by the weighted
average number of common shares outstanding in the period. Diluted
earnings per share takes into consideration common shares outstanding
(computed under basic earnings per share) and potentially dilutive
common shares.
Revenue recognition
Revenue from operations is recognized when the product is shipped, at
which time title transfers to the buyer, and collection of revenue is
reasonably assured.
Income taxes
Income taxes are provided in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes". A deferred
tax asset or liability is recorded for all temporary differences
between financial and tax reporting and net operating loss
carryforwards. Deferred tax expenses (benefit) result from the net
change during the year of deferred tax assets and liabilities.
Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion or
all of the deferred tax assets will not be realized. Deferred tax
assets and liabilities are adjusted for the effects of changes in tax
laws and rates on the date of enactment.
3. CAPITAL ASSETS
Net Book Value
----------------------------
Accumulated April 30, October 31,
Cost Amortization 2000 1999
---------- --------------- ------------- ------------
Computers $ 7,370 $ 734 $ 6,636 $ 4,070
========== =============== ============= ============
48
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WHITE DIAMOND SPIRITS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
(Unaudited)
APRIL 30, 2000
================================================================================
4. DUE TO RELATED PARTIES
Amounts due to related parties are unsecured, non-interest bearing and
have no specific terms of repayment. The amounts due to related parties
are amounts advanced by directors to provide working capital for the
Company.
5. STOCKHOLDERS' EQUITY
The authorized capital stock of the Company consists of 200,000,000
shares of common stock. No warrants to acquire common stock have been
authorized. There are no outstanding obligations of the Company to
repurchase, redeem or otherwise acquire any shares of the Company's
common stock.
The common stock carry no pre-emptive rights, are not convertible,
redeemable, assessable or entitled to the benefits of any sinking fund.
The common stock affords the holders no cumulative voting rights and
the holders of a majority of the shares voting for election of the
directors can elect all of the directors if they should choose to do
so.
On August 5, 1998, the Company issued 10,000,000 shares of common stock
pursuant to a private placement at a price of $0.01 per share, for
total proceeds of $100,000. These shares were sold pursuant to Rule 504
of Regulation D. In connection with the above private placement, the
Company paid a $10,000 commission fee to Pacific Rim Investment, Inc.,
pursuant to an Offering Sales Agency Agreement and has no further
obligations to Pacific Rim Investment, Inc.
On April 15, 1999, the Company issued 2,400,000 shares of common stock
at a deemed value of $109,378 for the acquisition of its subsidiary.
The Company's Board of Directors approved the reservation of 1,000,000
shares for issuance pursuant to the Company's Stock Option Plan,
effective July 22, 1998. The option price will be $1.00 per share or
such other price as the Board may determine. All options must be
granted within 10 years from the effective date of the plan. At April
30, 2000, no stock options have been granted under the plan.
6. FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash, accounts
receivable, accounts payable, and amounts due to related parties.
Unless otherwise noted, it is management's opinion that the Company is
not exposed to significant interest, currency or credit risks arising
from these financial instruments. The fair value of these financial
instruments approximate their carrying values, unless otherwise noted.
The fair value is not determinable for amounts due to related parties
since the amounts do not have specified terms of repayment or interest
rates.
7. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE
The Year 2000 Issue arises because many computerized systems use two
digits rather than four to identify a year. Date-sensitive systems may
recognize the year 2000 as 1900 or some other date, resulting in errors
when information using year 2000 dates is processed. In addition,
similar problems may arise in some systems which use certain dates in
1999 to represent something other than a date. Although the change in
date has occurred, it is not possible to conclude that all aspects of
the Year 2000 Issue that may affect the entity, including those related
to customers, suppliers, or other third parties, have been fully
resolved.
49
<PAGE>
WHITE DIAMOND SPIRITS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
(Unaudited)
APRIL 30, 2000
================================================================================
8. DEFERRED INCOME TAXES
The Company's total deferred tax asset is as follows:
April 30, October 31,
2000 1999
------------- ------------
Tax benefit arising from net
operating loss carryforward $ 173,991 $ 91,458
Valuation allowance (173,991) (91,458)
------------- ------------
$ - $ -
============= ============
The Company has a net operating loss carryforward of approximately
$696,000 which expires between the years 2018 and 2019. The Company
provided a full valuation allowance on the deferred tax asset because
of the uncertainty regarding realizability.
9. CONTINGENCY
A lawsuit has been commenced against the Company in which the plaintiff
is seeking commissions and expense reimbursements allegedly owing.
Management has denied the allegations and has commenced a counter claim
against the plaintiff. The outcome of these claims cannot be determined
at this time, therefore any amounts relating to the claims will be
reflected in the year of settlement.
10. COMMITMENTS
a) The Company leases an office in Vancouver, British Columbia for
$350 per month pursuant to a two-year lease, expiring on January
31, 2002.
b) The Company leases an office in Henderson, Nevada for $1,613 per
month pursuant to a twelve-month lease, expiring on January 31,
2001.
50
<PAGE>
Signatures
In accordance with Section 12 of the Securities Exchange Act of 1934, the
Company caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
WHITE DIAMOND SPIRITS, INC.
(Company)
By: /s/ MICHAEL MARLEAU
-------------------
Michael Marleau, President, Chief Executive Officer, Director
September 11, 2000
/s/ EDWIN SAVAGE
----------------
Edwin Savage, Director
September 11, 2000
/s/ IGOR PETROV
---------------
Igor Petrov, Secretary, Treasurer (Chief Financial Officer), Director
September 11, 2000
/s/ GREG McCARTNEY
------------------
Greg McCartney, Director
September 11, 2000
/s/ LARRY PASEMKO
------------------
Larry Pasemko, Director
September 11, 2000
51
<PAGE>
PART III
========
Item 1. Index to Exhibits
-------------------------
3. (i) Articles of Incorporation (Previously Filed)
(ii) By-laws (Previously Filed)
10.1 Share Purchase Agreement dated April 19, 1999 (Previously Filed)
10.2 Marketing Agreement (Previously Filed)
10.3 Amendment to Marketing Agreement dated April 18, 2000
(Previously Filed)
10.4 Agreement with Frank-Lin Beverage Group(Previously Filed)
10.5 Memorandum Agreement with Majestic Distilling Co., Inc.
(Previously Filed)
27 Financial Data Schedule
99.1 Importer's Basic Permit #NV-I-874 (Previously Filed)
99.2 California Certificate of Qualification to transact intrastate business
(Previously Filed)
99.3 California State Board of Equalization Seller's permit
(Previously Filed)
52
