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EX-31.1 - Latteno Food Corpex31-1.htm
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EX-32.1 - Latteno Food Corpex32-1.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Amendment No.1 to
 
FORM 10-Q
 
x
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2009

¨
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

For the transition period from _______________ to ____________________
Commission File Number: 000-21247

B & D FOOD CORP.

(Exact Name of Small Business Issuer as Specified in Its Charter)
 
Delaware
 
13-2622429
(State or Other Jurisdiction
of Incorporation or Organization)
 
(IRS Employer
Identification No.)
8953 Woodbine Avenue
Markham, Ontario, Canada L3R 0J9
(Address of Principal Executive Offices)
 
(905) 474-5593
(Registrant’s Telephone Number)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant as required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.
YES x NO ¨
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes o No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer
o
 
Accelerated filer
o
         
Non-accelerated filer
o
 
Smaller reporting company
x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ¨     No x
 
As of June 30, 2009, there were 149,986,955 shares of Common Stock, par value $0.001 per share issued and outstanding.
 

 
TABLE OF CONTENTS
 
   
Page
 
PART I
 
     
Item 1.
Financial Statements
1-8
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
13-18
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
19
Item 4.
Controls and Procedures
19
     
 
PART II
 
     
Item 1.
Legal Proceedings
20
Item 1A.
Risk Factors
20
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
20
Item 3.
Defaults Upon Senior Securities
20
Item 4.
Submission of Matters to a Vote of Securities Holders
20
Item 5.
Other Information
20
Item 6.
Exhibits
20
 
 
I

 

Explanatory Note:
 
This Quarterly Report on Form 10-Q/A is being filed as Amendment No. 1 to our Quarterly Report on Form 10-Q which was originally filed with the Securities and Exchange Commission (“SEC”) on August 19, 2009. We are filing this form 10-Q/A to disclose the restatement of the comparative balance sheet for the year ended December 31, 2008 and the corresponding corrections to the deficit and classifications in the June 30, 2009 balance sheet. These corrections are described in more detail in Note 20 of the Financial Statements in our 10-K amendment No. 2. We have updated “Management’s Discussion and Analysis of Financial Condition and Results of Operations” to the extent they are affected by the correction of the aforementioned errors. In addition, we have corrected certain typographical errors throughout the report and have made changes to the equity section to reflect two stock transactions, previously unrecorded during the 2008 fiscal year.

For the convenience of the reader, this Form 10-Q/A sets forth the entire Form 10-Q, which was prepared and relates to the Company as of June 30, 2009. However, this Form 10-Q/A only amends and restates the items described above to reflect the effects of the restatement and no attempt has been made to modify or update other disclosures presented in our June 30, 2009 Form 10-Q. Accordingly, except for the foregoing amended information, this Form 10-Q/A continues to speak as of August 19, 2009 (the original filing date of the June 30, 2009 Form 10-Q), and does not reflect events occurring after the filing of our June 30, 2009 Form 10-Q and does not modify or update those disclosures affected by subsequent events. Forward looking statements made in the June30, 2009 Form 10-Q have not been revised to reflect events, results or developments that have become known to us after the date of the original filing (other than the current restatements described above), and such forward looking statements should be read in their historical context. Unless otherwise stated, the information in this Form 10-Q/A not affected by such current restatements is unchanged and reflects the disclosures made at the time of the original filing.

 
 

 

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS
 
B & D FOOD, CORP.
 
(a Delaware corporation)



INTERIM CONSOLIDATED FINANCIAL
 
REPORTS (UNAUDITED)
 
AS AT
 
JUNE 30, 2009



 
1

 
 
B&D FOOD CORP. AND SUBSIDIARY
 
CONSOLIDATED FINANCIAL STATEMENTS
 
JUNE 30, 2009

 
2

 

B&D FOOD CORP. AND SUBSIDIARY
 
JUNE 30, 2009
 
CONTENTS

 
Page
CONSOLIDATED FINANCIAL STATEMENTS
 
   
Consolidated Balance Sheets as at June 30, 2009 and December 31, 2008
4 - 5
   
Consolidated Statements of Loss and Comprehensive Loss for the Three and Six Months Ended
6 - 7
   
Consolidated Statements of Cash Flows for the Six Months Ended
8
   
Notes to the Consolidated Financial Statements
9 - 12
 
 
3

 

B&D FOOD CORP. AND SUBSIDIARY
 
CONSOLIDATED BALANCE SHEETS
 
AS AT
 
(Expressed in United States Dollars)
 
  
 
Note
 
June 30, 2009
(Unaudited)
   
December 31,
2008
(Audited)
(restated)
 
ASSETS
               
Current Assets
               
Accounts receivable - royalties, net of allowance for doubtful accounts of $Nil (2008 - $Nil)
     
$
122,535
   
$
-
 
Prepaid and sundry assets
       
-
     
12,885
 
Advances to related parties
       
-
     
442,800
 
Note receivable - current portion
       
126,424
     
126,424
 
                     
Total Current Assets
       
248,959
     
582,109
 
                     
Long-Term Assets
                   
                     
Note receivable
       
5,543,604
     
5,606,817
 
Property, plant and equipment, net
       
-
     
2,017
 
                     
Total Long-Term Assets
       
5,543,604
     
5,608,834
 
                     
Other Assets
                   
Intangible assets
       
9,987,200
     
-
 
                     
Total Other Assets
       
9,987,200
     
-
 
                     
Total Assets
     
$
15,779,763
   
$
6,190,943
 
 
The accompanying notes are an integral part of these consolidated financial statements.

 
4

 

B&D FOOD CORP. AND SUBSIDIARY
 
CONSOLIDATED BALANCE SHEETS (Continued)
 
AS AT
 
(Expressed in United States Dollars)
 
  
 
Note
   
June 30, 2009
(Unaudited)
   
December 31,
2008
(Audited)
(restated)
 
LIABILITIES AND STOCKHOLDERS' DEFICIT
                 
Current Liabilities
                 
Bank indebtedness
       
$
-
   
$
669
 
Accounts payable
         
1,023,373
     
379,867
 
Due on acquisition of subsidiary
         
10,375,900
     
-
 
Accrued liabilities and other payables
         
1,108,052
     
2,046,294
 
Convertible debentures - current portion
   
4
     
2,609,394
     
2,404,586
 
                         
Total Current Liabilities
           
15,116,719
     
4,831,416
 
                         
Long-Term Liabilities
                       
Convertible debentures
   
4
     
1,307,607
     
1,350,498
 
                         
Total Liabilities
           
16,424,326
     
6,181,914
 
                         
Minority Interest in Consolidated Subsidiary
           
43,224
     
-
 
                         
Commitments and Contingencies
   
5
                 
                         
Going Concern
   
2
                 
                         
Stockholders' (Deficit) Equity
                       
Preferred shares of $0.001 par value; Authorized: 10,000,000 shares; Issued and outstanding: 3,735,956 shares
           
373,596
     
373,596
 
Additional paid-in capital - preferred shares
           
14,570,228
     
14,570,228
 
Common shares of $0.001 par value; Authorized: 400,000,000 shares; Issued and outstanding: 149,986,955
           
149,987
     
149,987
 
Additional paid-in capital - common shares
           
2,711,769
     
2,711,769
 
Stock to be issued
           
145,000
     
145,000
 
Accumulated other comprehensive income
           
7,161
     
-
 
Accumulated deficit
           
(18,645,528
)
   
(17,941,551
)
                         
Total Stockholders' (Deficit) Equity
           
(687,787
)
   
9,029
 
                         
Total Liabilities and Stockholders' (Deficit) Equity
         
$
15,779,763
   
$
6,190,943
 
 
The accompanying notes are an integral part of these consolidated financial statements.

 
5

 

B&D FOOD CORP. AND SUBSIDIARY
 
CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS
 
FOR THE THREE MONTH PERIOD ENDED JUNE 30
 
(Expressed in United States Dollars)
 
  
 
2009
(Unaudited)
   
2008
(Unaudited)
(restated)
 
REVENUES
 
$
-
   
$
-
 
                 
COST OF GOODS SOLD
   
-
     
45,592
 
                 
GROSS LOSS
   
-
     
(45,592
)
                 
ROYALTIES
   
114,919
         
                 
EXPENSES
               
Rent and occupancy costs
   
200,728
     
-
 
General and administrative
   
(873
)
   
312,292
 
Management and directors fees
   
24,746
     
-
 
Depreciation
   
-
     
33,824
 
                 
TOTAL OPERATING EXPENSES
   
224,601
     
346,116
 
                 
LOSS FROM OPERATIONS
   
(109,682
)
   
(391,708)
 
                 
Interest, net
   
(87,429)
     
(2,231,197)
 
Foreign exchange
   
(403,415
)
   
-
 
Other income, net
   
144,121
     
1,399
 
                 
NET LOSS FROM OPERATIONS BEFORE INCOME TAXES
   
(456,405
)
   
(1,674,427
)
Provision for income taxes
   
-
     
-
 
                 
NET LOSS FROM OPERATIONS BEFORE MINORITY INTEREST
   
(456,405
)
   
(1,674,427
)
                 
Minority interest in income of subsidiaries
   
(43,224
)
   
-
 
                 
NET LOSS
 
$
(499,629
)
 
$
(1,674,427
)
                 
FOREIGN CURRENCY TRANSLATION ADJUSTMENT
   
(7,161
)
   
-
 
                 
COMPREHENSIVE LOSS
 
$
(492,468
)
 
$
(1,674,427
)
                 
LOSS PER WEIGHTED NUMBER OF SHARES OUTSTANDING - BASIC AND DILUTED
 
$
0.00
   
$
(0.01
)
                 
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - BASIC AND DILUTED
   
149,986,955
     
149,986,955
 
 
The accompanying notes are an integral part of these consolidated financial statements.

 
6

 

B&D FOOD CORP. AND SUBSIDIARY
 
CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS
 
FOR THE SIX MONTH PERIOD ENDED JUNE 30
 
(Expressed in United States Dollars)
 
  
 
2009
(Unaudited)
   
2008
(Unaudited)
(restated)
 
REVENUES
 
$
-
   
$
-
 
                 
COST OF GOODS SOLD
   
-
     
80,824
 
                 
GROSS LOSS
   
-
     
(80,824
)
                 
ROYALTIES
   
114,919
         
                 
EXPENSES
               
Rent and occupancy costs
   
401,455
     
-
 
General and administrative
   
27,955
     
878,215
 
Management and directors fees
   
84,746
         
Depreciation
   
-
     
68,406
 
                 
TOTAL OPERATING EXPENSES
   
514,156
     
976,621
 
                 
LOSS FROM OPERATIONS
   
(399,237
)
   
(1,057,445
)
Interest, net
   
(161,917)
     
(2,231,197
)
                 
Foreign exchange
   
(387,843
)
       
Other income, net
   
288,242
     
44,037
 
                 
NET LOSS FROM OPERATIONS BEFORE INCOME TAXES
   
(660,755
)
   
(3,244,605
)
Provision for income taxes
   
-
     
-
 
                 
NET LOSS FROM OPERATIONS BEFORE MINORITY INTEREST
   
(660,755
)
   
(3,244,605
)
Minority interest in income of subsidiaries
   
(43,224
)
   
-
 
                 
NET LOSS
 
$
(703,979
)
 
$
(3,244,605
)
                 
FOREIGN CURRENCY TRANSLATION ADJUSTMENT
   
(7,161
)
   
-
 
                 
COMPREHENSIVE LOSS
 
$
(696,818
)
 
$
(3,244,605
)
                 
LOSS PER WEIGHTED NUMBER OF SHARES OUTSTANDING - BASIC AND DILUTED
 
$
0.00
   
$
(0.02
)
                 
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - BASIC AND DILUTED
   
149,986,955
     
149,986,955
 

The accompanying notes are an integral part of these consolidated financial statements.

 
7

 

B&D FOOD CORP. AND SUBSIDIARY
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
FOR THE SIX MONTH PERIOD ENDED JUNE 30
 
(Expressed in United States Dollars)
 
  
 
2009
(Unaudited)
   
2008
(Unaudited)
(restated)
 
CASH FLOWS FROM OPERATING ACTIVITIES
           
Net loss
 
$
(703,979
)
 
$
(3,244,605
)
Adjustments to reconcile net loss to net cash used in operating activities
               
Depreciation
   
-
     
68,406
 
Stock based compensation
   
-
     
30,000
 
Minority interest
   
43,224
     
-
 
Interest due to convertible notes and bank debts
   
161,917
     
525,038
 
Change in allowance for severance pay
   
-
     
29,254
 
Loss (gain) from disposition of property, plant and equipment
   
2,017
     
(50,000
)
Interest on note receivable
   
(288,242)
     
-
 
                 
Changes in operating assets and liabilities:
               
Accounts receivable
   
(122,535
)
   
2,641
 
Prepaid and sundry assets
   
12,885
     
(132,739
)
Note receivable
   
63,213
         
Accounts payable
   
931,751
     
83,347
 
Due on acquisition of subsidiary
   
388,700
     
-
 
Accrued liabilities and other payables
   
(938,243
)
   
881,624
 
 
               
NET CASH USED IN OPERATING ACTIVITIES
   
(449,292
)
   
(1,807,034
)
                 
CASH FLOWS FROM INVESTING ACTIVITIES
               
Proceeds from disposal of property, plant and equipment, net
   
-
     
50,000
 
Advances to related party
   
442,800
     
-
 
                 
NET CASH FLOWS (USED IN) PROVIDED BY INVESTING ACTIVITIES
   
442,800
     
50,000
 
                 
CASH FLOWS FROM FINANCING ACTIVITIES
               
Repayment of bank loans
   
(669
)
   
314,257
 
Proceeds from long term debt
   
-
     
151,261
 
Proceeds from common stock to be issued
           
145,000
 
Proceeds from convertible debentures
   
-
     
1,145,000
 
 
               
NET CASH FLOWS PROVIDED BY FINANCING ACTIVITIES
   
(669
)
   
1,755,518
 
                 
EFFECT OF FOREIGN CURRENCY TRANSLATION
   
7,161
     
-
 
                 
NET INCREASE IN CASH AND CASH EQUIVALENTS
   
-
     
(1,516
)
                 
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
   
-
     
3,175
 
                 
CASH AND CASH EQUIVALENTS, END OF PERIOD
 
$
-
   
$
1,659
 

The accompanying notes are an integral part of these consolidated financial statements.

 
8

 

B&D FOOD CORP. AND SUBSIDIARY
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
JUNE 30, 2009 and 2008
 
(Expressed in United States Dollars)
 
1.
NATURE OF OPERATIONS AND BUSINESS COMBINATION
 
B&D Food Corp. (“B&D” or “the Company”) is a US corporation that concentrates in acquiring, organizing, developing and upgrading companies in the food industry, and more specifically in the coffee industry. Currently the Company's operates through its subsidiary in Brazil.
 
The Company was incorporated on August 24, 1994 under the laws of the state of Delaware. Until October 2004, the principal business activity of the Company was ownership, management, and sale of residential real estate. This activity was carried on through the wholly owned subsidiary Rickets Enterprises International, Inc. In October 2004, the Company sold all of its remaining revenue producing assets and in December 2004 ceased all its active operations.
 
On July 11, 2005, the Company entered into a Share Purchase Agreement (the “Agreement”) with BDFC Brasil Alimentos LTDA., a company formed pursuant to the laws of Brazil (“BDFC”) and the stockholders of BDFC (the “BDFC stockholders”) dated as July 8, 2005. Pursuant to the Agreement, the Company acquired effectively 100% of the outstanding equity stock of BDFC from the BDFC stockholders. As consideration for the acquisition of BDFC, the Company agreed to issue 95,344,688 shares of the Company’s common stock to the BDFC stockholders. As additional consideration, the company issued an 8% convertible promissory note, in the amount of $10,000,000 to the BDFC stockholders in consideration for the entire preferred stock of BDFC. The note is payable (principal plus accumulated interest) on July 8, 2008 and may be converted, at the option of the holder, at any time, prior to or at the time of repayment by the Company, to the Company’s common stock at the rate of $0.20 per share. At the date of the agreement, BDFC stockholders were also the controlling shareholder of the Company.
 
BDFC was originally incorporated under the name Eastco Corporation do Brasil Ltda (“Eastco), under the laws of Brazil on June 2, 1995. In May 2004, the name of Eastco was changed to Eastco de Alimentos Ltda., as registered with the Junta Comercial de Sao Paolo (Commercial Council) and on June 28, 2005 the name was changed to BDFC Brasil Alimentos Ltda. BDFC has been in the coffee manufacturing business since 1997. The Company manufactures and purchases coffee grains, toasted and milled coffee, soluble coffee and related products, for sale, import and export.
 
On November 1, 2000, due to adverse financial conditions, BDFC filed a Judicial Creditor’s Agreement called “Concordata Preventiva”. This agreement consolidates the Company’s debts and postpones all obligations to suppliers and banks for a period of time. The creditor’s agreement under “Concordata Preventiva” provided for payment in two installments, the first installment of 40% to be paid in one year and the remaining 60% to be paid in two years. BDFC made the full payments of $144,000 and $216,000 on October 30, 2001 and November 25, 2002, respectively. On March 8, 2005, BDFC paid an additional $15,562 as required by the courts. To generate sufficient cash flows, in January 21, 2003 management leased its manufacturing facility and equipment to Comercio e Industrias Brasileiras Coimbre S/A (“Coimbra”), an unrelated party. Rents received from the lease were used by BDFC to pay its debts.
 
On July 1, 2008, the Company completed execution of a stock purchase agreement with SBKF Investments, Ltd. (the “Purchaser”) for the sale of 100% of the issued and outstanding common stock of BDFC Brasil Alimentos LTDA. a subsidiary of the B&D. The purchase price totaled $5,764,847 and in consideration the Company received an note bearing annual interest of 10% repayable in equal annual payments of principal and interest of $702,909. The net liabilities of BDFC at the time of the sale was $6,204,539, resulting in a gain on sale of $11,969,386.

 
9

 

B&D FOOD CORP. AND SUBSIDIARY
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
JUNE 30, 2009 and 2008
 
(Expressed in United States Dollars)
 
1.
NATURE OF OPERATIONS AND BUSINESS COMBINATION (Continued)
 
On May 13, 2009, the Company entered into a purchase and sale agreement to purchase 60% of the outstanding shares of Global Milk Businesses and Administration of Private Properties LTDA. ("Global Milk"), a limited liability company, incorporated in the State of Sao Paulo, Brazil. Global Milk holds the rights of certain intellectual property of the brand name products manufactured and sold under the brand name Teixeira.
 
Pursuant to the agreement, B&D acquired 300 common shares of Global Milk from Castrol, LLC ("Castrol"), a Delaware corporation, representing 60% of the outstanding shares of Global Milk, for consideration of 13,000,000 Brazilian Reals ($6,312,800). B&D and Castrol are then required to contribute 20,000,000 Brazilian Reals to the company based on their ownership. B&D must make the capital contribution of 12,000,000 Brazilian Reals ($5,880,000) and complete payment for the acquired shares of 13,000,000 Brazilian Reals ($6,312,800) by December 10, 2009 or the shares issued will be cancelled. . The Company has not made any payment towards the acquisition or capital contribution. B&D is currently in negotiations with various lenders to raise the 25,000,000 Brazilian Reals to fund the purchase and contribution.
 
In addition, the Company is required to arrange working capital financing, in the form of a bank loan, for Global Milk, within thirty days, in the amount of 4,000,000 Brazilian Reals ($1,960,000).
 
B&D has determined that it is the accounting acquirer and that it will obtain control of Global Milk. B&D will therefore consolidate 100% of Global Milks assets and liabilities. Management has determined that the net assets of Global Milk on the date of acquisition consisted of trademarks and patents valued at $9,987,200 and liabilities of $3,674,400.
 
2.
GOING CONCERN
 
The Company's consolidated financial statements are presented on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company has raised capital and financing to cover all of its losses from operations since inception but the Company's ability to continue as a going concern is contingent upon its ability to attain and sustain profitable operations and to generate sufficient capital and financing from external investors and lenders. For the six months ended June 30 2009 the Company experienced a net loss of $703,979 (June 30, 2008 - $3,244,605) and has a working capital deficiency of $14,867,760 (December 31, 2008 - $4,249,307).
 
Management has recently entered into a joint venture agreement, where B&D has acquired 60% of a Brazilian Company which owns certain rights to the trademarks, customer lists and distribution of food products. The purchase price and contribution to the joint venture will require approximately 25,000,000 Brazilian Reals ($12,192,800). The Company is currently in negotiations to raise these funds. In addition, the Company is seeking financing to fund the ongoing overhead expenses of B&D.
 
In the opinion of the management, the anticipated growth of operations and the financing with potential new investors in the future, will permit the Company to continue as a going concern in the coming year, until such time that the Company obtains profitable operations.
 
The accompanying consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern.

 
10

 

B&D FOOD CORP. AND SUBSIDIARY
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
JUNE 30, 2009 and 2008
 
(Expressed in United States Dollars)
 
3.
BASIS OF PRESENTATION
 
These interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”).

The interim results of operations are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2009. The Company’s financial statements contained herein are unaudited and, in the opinion of management, contain all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of financial position, results of operations and cash flows for the period presented. The Company’s accounting policies and certain other disclosures are set forth in the notes to the consolidated financial statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008. These financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto. The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
 
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and include the accounts of the Company and its effectively 60% owned subsidiary, Global Milk.
 
All significant inter-company accounts and transactions are eliminated on consolidation.
 
4.
CONVERTIBLE DEBENTURES AND PROMISSORY NOTES
 
Composed of:
 
 
 
June 30,
2009
   
December 31,
2008
(Audited)
(restated)
 
             
Convertible debentures
 
$
2,523,836
   
$
2,215,671
 
Promissory notes
   
1,393,165
     
1,539,413
 
   
$
3,917,001
   
$
3,755,084
 
 
The convertible debentures and promissory notes are unsecured and mature and become due as follows:
 
  
 
June 30,
2009
   
December 31,
2008
(Audited)
(restated)
 
             
Amount due in 2009
   
2,498,061
     
2,404,586
 
Amount due in 2010
   
111,333
     
106,361
 
Amount due in 2011
   
320,556
     
310,611
 
Amount due in 2013
   
987,051
     
933,526
 
   
$
3,917,001
   
$
3,755,084
 
 
5.
COMMITMENTS AND CONTINGENCIES
 
On September 26, 2008, the Company entered into a lease agreement with SBKF Investments, Ltd for a term of 18 years, whereby they would leaseback all of the land building and factory that was sold to them, as described in Note 1.  The Company's remaining lease obligations, with future minimum annual payments (exclusive of taxes, insurance and maintenance costs) are as follows:

Year One
   
802,909
 
Year Two
   
802,909
 
Year Three
   
802,909
 
Year Four
   
802,909
 
Year Five and thereafter
   
11,240,726
 
   
$
14,452,362
 
 
 
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B&D FOOD CORP. AND SUBSIDIARY
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
JUNE 30, 2009 and 2008
 
(Expressed in United States Dollars)
 
6.
SUBSEQUENT EVENTS
 
On July 13, 2009, the Company entered into a subscription agreement with an investor to issue a total of 18,500,000 shares of common stock and a total of 3,735,956 warrants which are exercisable at prices of $.02 and $.03 in accordance with the subscription agreement to such individuals as designated by such investor for the payment of $.01 per share or a total of $185,000.

 
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ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
INFORMATION REGARDING FORWARD LOOKING STATEMENTS
 
The following discussion should be read in conjunction with the financial statements and notes thereto set forth in Item 1 of this Report. In addition to historical information, this discussion and analysis contains forward-looking statements that relate to future events and expectations and, as such, constitute forward-looking statements. Forward-looking statements include those containing such words as "anticipates", "believes", "estimates", "expects", "hopes", "targets", "should", “will", "will likely result", "forecast", "outlook", "projects" or similar expressions. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements of the Company to be materially different from those expressed or implied in the forward-looking statements.
 
OVERVIEW
 
The Company (formerly REII Incorporated) is a holding company, which focuses on acquiring, organizing, and developing companies in the food industry, and more specifically in the coffee industry. The Company’s management plans to integrate manufacturing and distribution operations in order to achieve maximum return on capital.
 
In 2005, the Company obtained a manufacturing arm by acquiring BDFC which owns and operates a coffee manufacturing plant. BDFC has the ability to manufacture and pack roasted and ground coffee, instant coffee and several mixtures of coffee and tea like cappuccino and others. Currently, the Company is focusing on selling its coffee products in South America and Eastern Europe. In addition, the Company is looking to acquire a strong marketing capability in the United States.
 
In the summer of 2008, the Company started work on developing a global trading arm.
 
On September 28, 2008, pursuant to a transfer agreement dated the same date between Livorno, Daniel Ollech, Jacques Ollech and Mark Radom (the “Purchasers”), Livorno transferred its right, title and interest in, under and to the Note to the Purchasers in accordance with their respective ownership interests in Livorno. On the same date thereof, pursuant to a preferred share subscription agreement, the Purchasers converted 100% of the outstanding principal and interest into 3,735,956 preferred shares (the “Series A Preferred shares”) of the Company (the Note having been amended on September 28, 2008 to allow for conversion into preferred shares. The Series A Preferred Shares carry the following rights:
 
 
Cumulative dividend of U.S. $100,000 (it being understood that the Company has no obligation to declare and pay any dividends, but that Purchasers shall receive with a right of first priority pro rata to their ownership in Livorno U.S. $100,000 for every full calendar year that elapses before the Company declares and pays a dividend prior to the Company paying any dividends to holders of its common shares);

 
Conversion at the option of each of the Purchasers upon 45 days’ written notice into one hundred shares of the Company’s common stock for each share of Series A Preferred Shares to be converted (it being understood that the Company shall take any action necessary to effect a conversion into shares of common stock promptly upon receiving written notice from a Purchaser); and

 
Priority in distributions in the event of a liquidation or winding down of the Company’s business.
 
On July 1, 2008, pursuant to a sale and leaseback agreement dated the same date between the Company and SBKF, the Company sold 100% of its ownership in BDFC to and leased back the Brazilian coffee roasting facility for a period of 18 years from SBKF. After offsetting the amounts to be received by the Company in payment for BDFC, the Company will have to make a net annual lease payment to SBKF of U.S. $100,000.
 
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The foregoing description of the agreements and the transactions contemplated thereby is not complete and is qualified in its entirety by reference to the forms of agreement attached hereto as Exhibits 10.1, 10.2. and 10.3.

On May 13, 2009, the Company entered into a purchase and sale agreement to purchase 60% of the outstanding shares of Global Milk Businesses and Administration of Private Properties LTDA. ("Global Milk"), a limited liability company, incorporated in the State of Sao Paulo, Brazil. Global Milk holds the rights of certain intellectual property of the brand name products manufactured and sold under the brand name Teixeira.

Pursuant to the agreement, B&D acquired 300 common shares of Global Milk from Castrol, LLC ("Castrol"), a Delaware corporation, representing 60% of the outstanding shares of Global Milk, for consideration of 13,000,000 Brazilian Reals ($6,370,000). B&D and Castrol are then required to contribute 20,000,000 Brazilian Reals to the company based on their ownership. B&D must make the capital contribution of 12,000,000 Brazilian Reals ($5,880,000) and complete payment for the acquired shares of 13,000,000 Brazilian Reals ($6,312,800) by December 10, 2009 or the shares issued will be cancelled. B&D is currently in negotiations with various lenders to raise the 25,000,000 Brazilian Reals to fund the purchase and contribution.

The foregoing description of the agreements and the transactions contemplated thereby is not complete and is qualified in its entirety by reference to the forms of agreement attached hereto as Exhibits 2.1, 10.4, 10.5 and 10.6.
 
Global Milk Ltd. is a Brazilian company that distributes dairy products including various cheese types, milk and powdered milk. The products are sold under the brand names Teixeira and Mestre Cuca. The Teixeira brand name, recently acquired, has been a household name throughout Brazil since its inception over 50 years ago and, according to recent year's market surveys, continues to be one of the most recognized brands being the number one brand in grinded cheeses according to a survey made by some of the leading papers about the retail market in Brazil, having more than 15% of the Brazilian market share.
 
FINANCIAL CONDITION AND LIQUIDITY
 
Unless otherwise specified, all figures are as at the Balance Sheet Date.
 
The Company’s total assets as at June 30, 2009, as reflected in the consolidated balance sheet, totaled $15,779,763 compared to $6,190,943 as at December 31, 2008.
 
The Company’s consolidated deficit in working capital amounted to $14,885,760 and the consolidated quick ratio was 0.02%.
 
The Company has significantly improved its debt to equity position due to two transactions. The first was the sale of its interest in its subsidiary, BDFC. BDFC accounted for approximately $7,945,000 of the total debt of the Company. The second was to convert $14,943,824 of the convertible promissory notes to preferred shares. This has resulted in the decrease to the Company's total debt of approximately $18,300,000.
 
The Company’s remaining long-term financing is mainly based on convertible promissory notes in the aggregate amount of $3,917,001 issued to third parties. The Company is currently assessing its options to convert these debts to common shares.
 
The shareholders’ deficit as at June 30, 2009 totaled $687,787 compared to a shareholders’ equity of $9,029 as at December 31, 2008. The decrease in shareholders’ equity is derived primarily from the transactions described above less the operating losses during the six month period in the aggregate amount of $ $703,979.
 
The Company will need to obtain additional debt or equity financing in the near term in order to have sufficient working capital to execute its business plan, complete the terms of the Global Milk acquisition and continue as a going concern. The Company is in the process of seeking such financing; however, there is no assurance that it will be able to obtain such financing on satisfactory terms or at all. In addition, the Company expects to begin receiving cash flow from the operation of Global Milk as the operations transition from Teixeira over the next six months.

 
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SIX MONTHS ENDED JUNE 30, 2009 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 2008
 
Net Income (Loss)
 
The Company’s consolidated net loss for the six months ended June 30, 2009 amounted to $703,979, compared to a consolidated net loss of $3,244,605 for the previous period.
 
The net loss for the six months ended June 30, 2008 were greater in comparison to the current year mainly due to interest on convertible debt and a one time management and directors fee..
 
Revenue
 
The Company was not in operations the previous period and therefore did not generate any revenue for the fiscal six months ended June 30, 2008. In the current year the company began to recognize royalties related to the Global Milk acquisition. As per the terms of the agreement, the Company will receive royalties on the sales of goods by Teixeira until such time that the operations have transitioned to Global Milk.
 
Cost of Revenues
 
As with the Company’s revenues through the fiscal year ended June 30, 2008, the cost of revenues was minimal.
 
General and Administrative Expenses
 
Expenses have been minimal due to the early stages of the Company's new business plan. They relate mostly to professional fees and travel.
 
Financial Expenses
 
The consolidated financial expenses for the six months ended June 30, 2009 amounted to $161,917 compared to consolidated financial expenses of $2,231,197 or the six months ended June 30, 2008.
 
The decrease in financial expenses through the six months ended June 30, 2009 results from decreased interest and financing charges related to the convertible notes that were converted to equity.

Inflation

Our results of operations have not been affected by inflation and management does not expect that inflation risk would cause material impact on its operations in the future.

Seasonality

Our results of operations are not materially affected by seasonality and we do not expect seasonality to cause any material impact on our operations in the near future.

Critical Accounting Policies
 
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires our management to make assumptions, estimates and judgments that affect the amounts reported in the financial statements, including the notes thereto, and related disclosures of commitments and contingencies, if any. We consider our critical accounting policies to be those that require the more significant judgments and estimates in the preparation of financial statements, including the following:

 
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Principles of Consolidation—The consolidated financial statements include the accounts of the Company, it's wholly owned subsidiary BDFC Brazil Alimentos LTDA (“BDFC”). All material intercompany accounts, transactions and profits have been eliminated in consolidation.
 
Use of Estimates—The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include accrued warranty costs, as well as revenue and costs recorded under the percentage-of-completion method. Actual results could differ from those estimates.
 
Cash Equivalents—The Company classifies any highly liquid investments purchased with a maturity of three months or less as cash equivalents.
 
Accounts Receivable—Accounts receivable are carried at original invoice amount less an estimate for doubtful receivables based on a review of all outstanding amounts at year end. Management determines the allowance for doubtful accounts by using historical experience applied to an aging of accounts. Trade receivables are written off when deemed uncollectible. Recoveries of trade receivables previously written off are recorded when received.
 
Property and Equipment—Property and equipment are recorded at cost, less accumulated depreciation. Depreciation is provided for using straight-line methods over the estimated useful lives of the respective assets, usually five years.
 
Share-Based Payments—The Company adopted Statement of Financial Accounting Standards No 123(R), “Share-Based Payments” (“SFAS No. 123R”) effective January 1, 2006. SFAS No. 123R amends existing accounting pronouncements for share-based payment transactions in which an enterprise receives employee and certain non-employee services in exchange for (a) equity instruments of the enterprise or (b) liabilities that are based on the fair value of the enterprise’s equity instruments or that may be settled by the issuance of such equity instruments. SFAS No.123R generally requires such transactions be accounted for using a fair-value-based method. The Company has never issued any stock options to any employees.
 
Income Taxes—Deferred income tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective income tax bases. Deferred income tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. A valuation allowance is established against deferred tax assets if it is more likely than not that all, or some portion, of such assets will not be realized.

Effective January 1, 2007, we adopted Financial Accounting Standard Board (FASB) Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109, Accounting for Income Taxes. FIN 48 prescribes a comprehensive model for how companies should recognize, measure, present, and disclose in their financial statements uncertain tax positions taken or expected to be taken on a tax return. Under FIN 48, tax positions are initially recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions are initially and subsequently measured as the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and all relevant facts.
 
Impairment of Long-Lived Assets—The Company adopts SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets". The Company periodically evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. If the estimated future cash flows (undiscounted and without interest charges) from the use of an asset were less than the carrying value, a write-down would be recorded to reduce the related asset to its estimated fair value.

 
16

 

The assumptions used by management in determining the future cash flows are critical. In the event these expected cash flows are not realized, future impairment losses may be recorded. Management has determined that no impairments of long-lived assets currently exist.
 
Issuance of Shares by Subsidiaries—Sales of stock by a subsidiary is accounted for in accordance with Staff Accounting Bulletin Topic 5H, “Accounting for Sales of Stock by a Subsidiary.” The Company has adopted the capital transaction method to account for subsidiary stock sales. Accordingly, increases and decreases in the Company’s share of its subsidiary’s net equity resulting from subsidiary stock transactions are recorded on the Consolidated Balance Sheets and Consolidated Statements of Stockholders’ Equity as increases or decreases to Additional paid-in capital.
 
Concentrations of Credit Risk—Financial instruments that subject the Company to credit risk consist primarily of accounts receivable, which are concentrated in a small number of customers in the Chinese governments. The Company performs ongoing credit evaluations of its customers. To date, there has been no bad debt incurred.
 
Statement of Cash Flows—In accordance with SFAS No. 95, "Statement of Cash Flows", cash flows from the Company's operations are based upon the local currencies. As a result, amounts related to assets and liabilities reported on the statement of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheet.
 
Translation Adjustment—The Brazilian Real ("Real"), the national currency of Brazil, is the primary currency of the economic environment in which the operations of BDFC are conducted. The Company uses the United States dollar ("U.S. dollars") for financial reporting purposes.
 
The Company translates BDFC's assets and liabilities into U.S. dollars using the rate of exchange prevailing at the balance sheet date, and the statement of income is translated at average rates during the reporting period. Adjustments resulting from the translation of BDFC's financial statements from Real into U.S. dollars are recorded in stockholders' equity as part of accumulated comprehensive gain - translation adjustments. Gains or losses resulting from transactions in currencies other than Real are reflected in income for the reporting period.
 
Comprehensive Income—Comprehensive income includes accumulated foreign currency translation gains and losses. The Company has reported the components of comprehensive income on its statements of stockholders’ equity.

Fair Value of Financial Instruments— The carrying amounts of cash and cash equivalents, accounts receivable, deposits and accounts payable approximate their fair value because of the short maturity of those instruments.

 
17

 

Off-Balance Sheet Arrangements

We do not have any off-balance arrangements.

MARKET RISK AND CONTINGENT LIABILITIES

The Company is seeking to operate primarily in Brazil, making it susceptible to changes in the economic, political, and social conditions in Brazil. Brazil has experienced political, economic, and social uncertainty in recent years, including an economic crisis characterized by exchange rate instability and Brazilian Real devaluation, increased inflation, high domestic interest rates, negative economic growth, reduced consumer purchasing power and high unemployment. Under its current leadership, the Brazilian government has been pursuing economic stabilization policies, including the encouragement of foreign trade and investment and an exchange rate policy of free market flotation. In the last year, there was an improvement in the Brazilian economic environment. Nevertheless, no assurance can be given that the Brazilian government will continue to pursue these policies, that these policies will be successful if pursued or that these policies will not be significantly altered. In case of a decline in the Brazilian economy, political or social problems or a reversal of Brazil's foreign investment policy it is likely that any such change will have an adverse effect on the Company's results of operations and financial condition. Additionally, inflation in Brazil may lead to higher wages and salaries for employees and increases in the cost of raw materials, which would adversely affect the Company's profitability.

Risks inherent in foreign operations include nationalization, war, terrorism, and other political risks and risks of increases in foreign taxes or changes in U.S. tax treatment of foreign taxes paid and the imposition of foreign government royalties and fees.

 
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not required for smaller reporting companies.
 
ITEM 4T. CONTROLS AND PROCEDURES
 
a)
Evaluation of Disclosure Controls and Procedures. As at June 30, 2009, the Company’s management carried out an evaluation, under the supervision of the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s system of disclosure controls and procedures pursuant to the Securities and Exchange Act, Rule 13a-15(d) and 15d-15(d) under the Exchange Act. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were not effective, as of the date of their evaluation, for the purposes of recording, processing, summarizing and timely reporting material information required to be disclosed in reports filed by the Company under the Securities Exchange Act of 1934 in that they failed to result in the timely reporting of material financial information. The Company intends to implement new controls and procedures in the third quarter of 2009 that will be designed to process, summarize and timely report all material information, including financial, on a going forward basis.
 
 
b)
Changes in internal controls. There were no changes in the Company’s internal controls over financial reporting, that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 
19

 

PART II.   OTHER INFORMATION
 
ITEM 1.   LEGAL PROCEEDINGS
 
As at June 30, 2009, the Company was not a party to any litigation of any kind.
 
ITEM 1A. RISK FACTORS.

As a small business company, we are not required to provide the information required by this item.

ITEM 2.   UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
 
The Company has not issued any shares during this period
 
ITEM 3.   DEFAULTS UPON SENIOR SECURITIES.
 
The Company has not defaulted on any senior securities.
 
ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
Not applicable.
 
ITEM 5.   OTHER INFORMATION
 
Not applicable.

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K
 
 
(a)
EXHIBITS
 
2.1 Share Purchase and Sale Agreement**
10.1 8-K Report re Entry into a Material Definitive Agreement, September 28, 2008 *
10.2 First Amendment to the Series A Preferred Shares Subscription Agreement *
10.3 BDFC Leaseback Agreement *
10.4 Shareholders Agreement of Global Milk Businesses and Administration of Private Properties LTDA. **
10.5 Agreement for the Surrender and Transfer of Trademarks**
10.6 Alteration of Social Contract of Global Milk Businesses and Administration of Private Properties LTDA. **
31.1 Certification by Daniel Ollech, Chief Executive Officer, Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification by Spence Walker, Chief Financial Officer, Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification by Daniel Ollech, Chief Executive Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2 Certification by Spence Walker, Chief Financial Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
* incorporated by reference from our Form 10-Q Current Report, filed November 19, 2008
** incorporated by reference from our Form 10-Q Current Report, filed May 20, 2009
 
 
(b)
Reports on Form 8K

On May 19, 2009, the Company filed a fomr 8k with the SEC for the acquisition of Global Milk Businesses and Administration of Private Properties LTDA

 
20

 

SIGNATURES
 
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized, in Markham, Ontario, on the 10th day of November 2009.
 
 
B & D FOOD, CORP.
   
 
By: /s/ Daniel Ollech
 
 
Daniel Ollech
 
Chief Executive Officer
 
 
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