Attached files
file | filename |
---|---|
EX-31.1 - Latteno Food Corp | ex31-1.htm |
EX-32.2 - Latteno Food Corp | ex32-2.htm |
EX-31.2 - Latteno Food Corp | ex31-2.htm |
EX-32.1 - Latteno Food Corp | ex32-1.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
|
11
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.
12
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.
13
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.
14
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:
15
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.
18
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
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||
Chief
Executive Officer
|
21