UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 8-K/A

(Amendment No. 2)

 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of

the Securities and Exchange Act of 1934

 

PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Date of Report (Date of earliest event reported): December 21, 2012

 

ADVANCED CLOUD STORAGE, INC.

 

(Exact Name of Registrant as Specified in its Charter)

 

Nevada	333-173537	27-4004890
(State of Organization)	(Commission File Number)	(I.R.S. Employer
		Identification No.)

 

112 North Curry Street, Nevada 89703-4934

(Address of principal executive offices)

 

Registrant’s telephone number, including area code: (775) 284-3703

 

Copies to:

Peter Campitiello, Esq.

Kane Kessler, P.C.

1350 Avenue of the Americas

New York, New York 10019

Tel: 212-541-6222

Fax: 212-245-3009

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a -12)

 

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d -2(b))

 

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e -4(c))

 

 

FORWARD-LOOKING STATEMENTS

 

This Current Report on Form 8-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. This Current Report includes statements regarding our plans, goals, strategies, intent, beliefs or current expectations. These statements are expressed in good faith and based upon a reasonable basis when made, but there can be no assurance that these expectations will be achieved or accomplished. These forward-looking statements can be identified by the use of terms and phrases such as “believe,” “plan,” “intend,” “anticipate,” “target,” “estimate,” “expect,” and the like, and/or future-tense or conditional constructions (“will,” “may,” “could,” “should,” etc.). Items contemplating or making assumptions about actual or potential future sales, market size, collaborations, and trends or operating results also constitute such forward-looking statements.

 

Although forward-looking statements in this report reflect the good faith judgment of management, forward-looking statements are inherently subject to known and unknown risks, business, economic and other risks and uncertainties that may cause actual results to be materially different from those discussed in these forward-looking statements. Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. We assume no obligation to update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this report, other than as may be required by applicable law or regulation. Readers are urged to carefully review and consider the various disclosures made by us in our reports filed with the Securities and Exchange Commission (“SEC”) which attempt to advise interested parties of the risks and factors that may affect our business, financial condition, results of operation and cash flows. If one or more of these risks or uncertainties materialize, or if the underlying assumptions prove incorrect, our actual results may vary materially from those expected or projected.

 

BACKGROUND

 

On December 21, 2012, Advanced Cloud Storage, Inc. (the “Registrant”) authorized an amendment to its Articles of Incorporation (the “Amendment”) to change its name to Montalvo Spirits, Inc., to increase the number of its authorized shares of capital stock from 75,000,000 to 310,000,000 shares which 300,000,000 shares were designated common stock, par value $0.001 per share (the “Common Stock”) and 10,000,000 shares were designated “blank check” preferred stock, par value $0.001 per share (the “Preferred Stock”) and to effect a forward split such that 32.4552 shares of Common Stock were issued for every 1 share of Common Stock issued and outstanding immediately prior to the Amendment (the “Forward Split”). On December 21, 2012, the Registrant entered into an Agreement and Plan of Share Exchange (the “Exchange Agreement”) with Casa Montalvo Holdings, Inc., a California corporation (“Casa Montalvo”), whereby the Registrant acquired all of the issued and outstanding capital stock of Casa Montalvo in exchange (the “Exchange”) for approximately 59,000,000 post-split shares of Common Stock. Simultaneously therewith, the Registrant accepted a subscription of a private placement offering of Two Hundred Thousand (200,000) post-split shares of its Common Stock, at an aggregate purchase price of One Hundred Thousand Dollars ($100,000).

 

FORM 10 DISCLOSURE

 

The Company was a “shell company” (as such term is defined in Rule 12b-2 under the Exchange Act) immediately before the completion of the transactions contemplated by the Share Exchange Agreement. Accordingly, pursuant to the requirements of Item 2.01(f) of Form 8-K, set forth below is the information that would be required if the Registrant was required to file a general form for registration of securities on Form 10 under the Exchange Act with respect to its common stock (which is the only class of the Company’s securities subject to the reporting requirements of Section 13 or Section 15(d) of the Exchange Act upon consummation of the transactions contemplated by the Share Exchange Agreement). The information provided below relates to the combined operations of the Registrant after the acquisition of Casa Montalvo Holdings, Inc.

 

ITEM 1.01          ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT.

 

On December 21, 2012, the Registrant entered into and consummated the Exchange. For a description of the Exchange, and the material agreements entered into therewith, please see Item 2.01 of this current report on Form 8-K, which disclosure is incorporated herein by reference.

 

 

 

 

ITEM 2.01          COMPLETION OF ACQUISITION OR DISPOSITION OF ASSETS.

 

SHARE EXCHANGE TRANSACTION WITH CASA MONTALVO HOLDINGS, INC.

 

On December 21, 2012, Advanced Cloud Storage, Inc., a Nevada corporation (the “Registrant” or the “Company”), entered into and consummated the Agreement and Plan of Share Exchange (the “Exchange Agreement”) with Casa Montalvo Holdings, Inc., a California corporation (“Casa Montalvo”) and the shareholders of Casa Montalvo (the “Exchange”). Upon consummation of the transactions set forth in the Agreement (the “Closing”), the Registrant adopted the business plan of Casa Montalvo.

 

Pursuant to the Agreement, the Registrant agreed to acquire all of the outstanding capital stock of Casa Montalvo in exchange for the issuance of an aggregate of approximately 59,000,000 post-split (the “Exchange Shares”) of the Registrant’s common stock, par value $0.001 per share (the “Common Stock”). As a result of the Exchange, Casa Montalvo became a wholly-owned subsidiary of the Registrant. Following the consummation of the Exchange, the shareholders of Casa Montalvo will beneficially own approximately eighty-eight and one half percent (88.5%) of the issued and outstanding Common Stock of the Registrant. The parties have taken the actions necessary to provide that the Exchange is treated as a “tax free exchange” under Section 368 of the Internal Revenue Code of 1986, as amended. Pursuant to the terms of the Exchange Agreement, the Registrant’s principal shareholder agreed to retire 10,000,000 shares of the Registrant’s Common Stock. The Exchange Agreement contains customary representations, warranties and covenants of the Registrant and Casa Montalvo for like transactions. The foregoing descriptions of the above referenced agreements do not purport to be complete. For an understanding of their terms and provisions, reference should be made to the Agreement attached as Exhibits 10.1 to this Current Report on Form 8-K. A copy of the press release dated December 21, 2012 announcing the completion of the Exchange is attached to this Form 8-K as Exhibit 99.1 and incorporated herein by reference.

 

Simultaneously therewith, the Company accepted a subscription in the amount of One Hundred Thousand Dollars ($100,000) for Two Hundred Thousand (200,000) post-split shares of Common Stock, offered pursuant to Section 4(2) under the Securities Act and Rule 506 of Regulation D promulgated thereunder.

 

Additionally on December 21, 2012, holders of a majority of the Company’s outstanding Common Stock voted to amend the Company’s Articles of Incorporation to: (i) change its name to “Montalvo Spirits, Inc.” , (ii) increase the number of its authorized shares of capital stock from 75,000,000 shares to 310,000,000 consisting of (a) 300,000,000 shares were designated as Common Stock and (b) 10,000,000 shares were designated as blank check preferred stock and (iii) effectuate a forward split on a 1:32.4552 basis (“the Amendment”).

 

At the effective time of the Exchange, our board of directors and officers was reconstituted by the resignation of George Frederick Meyer as Chairman of the Board of Directors, President/Secretary/Treasurer and Chief Executive Officer of the Registrant and the appointment of Alex Viecco as Chief Executive Officer and Director, Carlos Gonzalez Rivera as Chief Operating Officer, Chief Financial Officer and Director, Sergio Gonzalez Rivera as President and Director and Daniel Cahill as Director of Sales and Director.

 

POST-EXCHANGE BENEFICIAL OWNERSHIP OF THE COMPANY'S COMMON STOCK

 

The following table provides information, immediately after the Exchange regarding beneficial ownership of our Common Stock by: (i) each person known to us who beneficially owns more than five percent of our common stock; (ii) each of our directors; (iii) each of our executive officers; and (iv) all of our directors and executive officers as a group.

  

 

Shareholder		Beneficial Ownership (a)				Percent of Class (b)
Sergio Gonzalez Rivera			8,037,595				12.1	%
DPC Consultants, LLC (c)			1,157,741				1.7	%
Point Loma Capital, Inc. (d)			10,877,684				16.4	%
Carlos Gonzalez Rivera			8,037,595				12.1	%
Alex Viecco			8,037,595				12.1	%
Charles Duff (e)			12,697,188				19	%
All Directors and Executive Officers as a group			25,270,526				37.9	%

 

(1)The address for all officers, directors and beneficial owners is 4236 Laurel Glen Drive, Moorpark, California 93021.

 

(a) Security ownership is direct unless indicated otherwise. Security ownership information for beneficial owners is taken from statements filed with the Securities and Exchange Commission pursuant to Sections 13(d), 13(g) and 16(a) and/or information made known to the Company.

(b) Based on 66,700,012 shares of our common stock outstanding as of December 21, 2012.

(c) Daniel Cahill, holds voting and dispositive power over DPC Consultants, LLC.

(d) Does not include 1,819,503 shares held by CMFD Group, LLC over which Mr. Duff holds voting and dispositive power.

(e) Includes 10,877,684 shares held by Point Loma Capital, Inc. (“Point Loma”) and 1,819,503 shares held by CMFD Group, LLC (“CMFD”), Charles Duff holds voting and dispositive power over the securities held by Point Loma and CMFD.

 

MANAGEMENT

 

Prior to the Effective Date, Mr. George Frederick Meyer was the sole member of the Registrant's Board of Directors. Immediately following the Exchange, in accordance with the Registrant's bylaws and the Chapter 78 of the Nevada Revised Statutes, the Board of Directors appointed Alex Viecco as Chief Executive Officer and Director, Carlos Gonzalez Rivera as Chief Operating Officer, Chief Financial Officer and Director, Sergio Gonzalez Rivera as President and Director and Daniel Cahill as Director of Sales and Director. Upon closing of the Exchange, the directors and officers of the Registrant, is as follows:

 

Name	Age	Position
Alex Viecco	47	Chief Executive Officer, Director
Carlos Gonzalez Rivera	40	Chief Operating Officer, Chief Financial Officer, Director
Sergio Gonzalez Rivera	42	President, Director
Daniel Cahill	37	Director of Sales, Director

 

Alex Viecco, Chief Executive Officer and Director, has served as the Chief Executive Officer of Casa Montalvo Holdings, Inc. since 2011, prior thereto and from 2000 to 2011, Mr. Viecco served as the Co-Founder and Vice President of New Era Debt Solutions, in Camarillo, California. Under Mr. Viecco’s leadership, New Era Debt Solutions has become an industry leader, providing debt resolution for thousands of clients throughout the United States. With his expertise in the debt resolution field, Mr. Viecco has been featured in numerous industry publications. Mr. Viecco also worked as a Financial Consultant with a division of Citigroup, and consistently led sales throughout his five-year tenure. While serving in this capacity, Mr. Viecco managed, supervised, and trained dozens of representatives into successful positions, and received multiple awards. The Company believed Mr. Viecco’s extensive business and finance expertise made him an ideal candidate to serve in these capacities.

 

 

Sergio Gonzalez Rivera , Chief Operating Officer and Director , has served as the President of Casa Montalvo Holdings, Inc. since 2011, prior thereto and from 2005 to the present, Mr. Gonzalez Rivera has served as a Director of Destilidora Huerta Real, S.A. de C.V., a distillery located in Jalisco, Mexico. From a young age, Mr. Gonzalez Rivera began learning from his father and uncles all of the intricacies of the art of producing tequila, from picking the perfect Blue Agave Weber plants, to identifying the best time to harvest the plants to give the best yield. Sergio learned the secret of producing high quality Tequila is combining ancient techniques with modern world trends. His family’s experience in tequila business dates back to his great grandfather and Sergio has worked in a variety of positions in the industry from sales, engineering, product development, customer service and management. Mr. Gonzalez Rivera earned a degree in Business Management, Project Management, Marketing, Innovation and Strategies, Real Estate Business, and Sales from the University of Guadalajara. Mr. Rivera also continued his studies in Systems Engineering in Germany, with a specialization in business and entrepreneurism. The Company believes Mr. Gonzalez Rivera’s distinguished career in the tequila industry and the region, made him ideal for these positions. Mr. Gonzalez Rivera also serves as Councilman of the Municipality of Tequila, Mexico.

 

Carlos Gonzalez Rivera, President and Director , has served as the Chief Operating of Casa Montalvo Holdings, Inc. since 2011, prior thereto and from 2005 to the present, served as President of Destilidora Huerta Real, S.A. de C.V., a distillery located in Jalisco, Mexico. Mr. Gonzalez Rivera spent many years with his family learning the art of producing tequila. His particular interest was in harvesting the plants and learning their regional attributes and has been recognized by the local farmers as an instrumental representative to ensure fair trade in the region. Mr. Gonzalez Rivera graduated from the University of Guadalajara, Mexico with a degree in Dentistry Medicine in 1994. After further studies and specializing as a dental surgeon, he travelled to the United States to continue his studies in modern dental techniques, where he worked with well respected dentists in Oxnard, California and Thousand Oaks, California. The Company believes Mr. Rivera’s previous experience operating tequilerias make him an asset to the Company.

 

Daniel Cahill, Director of Sales and Director , has served as the Director of Sales of Casa Montalvo Holdings, Inc. since 2011, prior thereto and from 2011 to 2012 Mr. Cahill served as the Managing Director of Point Loma Capital, Inc. Prior thereto and from 2001 to 2011, Mr. Cahill served in various positions at Meyers Associates, Aegis Capital and Maxim Group. Throughout his career, he has executed a wide variety of financing transactions as an investment banker to numerous private and publicly traded companies, as well as spending significant time and resources mentoring and developing new advisors on how to build and maintain client relationships. The Company believes Mr. Cahill’s experience in the finance industry would be an asset to the Company.

 

Summary Compensation of Executive Officers

 

The following table sets forth all of the compensation awarded to, earned by or paid to (i) each individual serving as the Company’s principal executive officer during the last three completed fiscal years ending March 31, 2012, 2011 and 2010; (ii) each other individual that served as an executive officer of the Company at the conclusion of the fiscal year ended March 31, 2012 and who received in excess of $100,000 in the form of salary and bonus during such fiscal year.

 

Summary Compensation of Executive Officers

 

Name and Principal Position			Year				Salary (1)				Bonus				Equity Awards				Option Awards				All Other Compensation				Total
George Frederick			2012				—				—				—				—				—				—
Meyer, President, Secretary, Treasurer			2011				—				—				—				—				—				—
and Chief Executive Officer			2010				—				—				—				—				—				—
Alex Viecco*			2012				—				—				—				—				—				—
Carlos Gonzalez Rivera*			2012				—				—				—				—				—				—
Sergio Gonzalez Rivera*			2012				—				—				—				—				—				—
Daniel Cahill*			2012				—				—				—				—				—				—

 

*Appointed December 21, 2012

 

 

Outstanding Equity Awards at Fiscal Year-End

 

The following table sets forth information regarding each unexercised option and non-vested stock award held by each of the Company’s named executive officers as of December 21, 2012.

  

Name

Number of Securities Underlying Unexercised Options Exercisable

Number of Securities Underlying Unexercised Options Unexercisable

Option Exercise Price ($)

Option Expiration Date

George Frederick Meyer

—

—

—

—

Alex Viecco

—

—

—

—

Carlos Gonzalez Rivera

—

—

—

—

Sergio Gonzalez Rivera

—

—

—

—

Daniel Cahill

—

—

—

—

 

Compensation of Directors

 

The Company did not pay any fees to their respective directors for attendance at meetings of the board; however, the Company may adopt a policy of making such payments in the future.  The Company will reimburse out-of-pocket expenses incurred by directors in attending board and committee meetings.

 

DESCRIPTION OF BUSINESS OF CASA MONTALVO HOLDINGS, INC.

 

COMPANY OVERVIEW

 

Casa Montalvo Holdings, Inc. (“Casa Montalvo”) was incorporated on April 4, 2011 under the laws of the state of California. Casa Montalvo develops, markets and/or distributes alcoholic beverages, primarily in the United States. We sell our products through a network of established spirits distributors, who are licensed to distribute alcoholic beverages throughout the United States. The Company is federally licensed, maintaining the right to sell to distributors in all markets in the U.S. and globally.

 

The Company intends to focus on growing the market share of its initial products, the ultra-premium Montalvo line of tequilas, whose expressions include Plata, Reposado, Anejo and Extra-Anejo. We own the Montalvo brand trademark and have exclusive worldwide master distribution rights to the brands.

 

We intend to grow our business by expanding our portfolio of premium alcoholic beverage brands, including additional spirits categories, as well as beer and wine, through additional importation and distribution contracts of existing brands. In addition, we may choose to develop new brands or acquire existing companies with their own brand portfolios.

 

TARGET MARKETS AND MARKETING STRATEGY

 

While our primary route to market is by selling directly to distributors, who maintain extensive resources to sell to both on and off premise retail accounts, including liquor stores, grocery stores, convenience stores, bars and restaurants, to build our brands, we must effectively communicate with three distinct audiences: the distributors; the retail trade; and the end consumer. We believe advertising, marketing and promotional activities help to establish and reinforce the image and perception of our brand as we strive in building substantial brand value.

 

 

In control states, the state liquor commissions act in place of distributors and decide which products are to be purchased and offered for sale in their respective states. The Company would sell on consignment to any control state in which we do business, whereby the Company would provide inventory to state regulated stores and would be paid upon sale of the product. Should the inventory we provide not sell in a timely manner or at all, this could negatively impact our working capital and tie up our inventory for an unknown period of time.

 

We are currently not transacting in any control states, although we are in the process of listing in Oregon and plan on listing in Wyoming and Massachusetts in the near future.

 

Marketing, sales and customer service functions are provided by the Company’s executive officers and independent contractors who work together with third party design and advertising firms to maintain a high degree of focus on each of our products. We attempt to build brand awareness through innovative marketing activities including social media, brand tastings, as well as competitive spirits competitions. We use a variety of marketing strategies and tactics to build brand equity and increase sales, including consumer and trade advertising, price promotions, point-of-sale materials, event sponsorship, in-store and on-premise promotions and public relations, as well as a variety of other traditional and non-traditional marketing techniques. Our significant public relations campaign has helped gain editorial coverage for our brands, which increases brand awareness. The Company defines editorial coverage as an article in a publication expressing the opinion of its editors or publishers. Montalvo Tequila has been featured in various industry publications, including Tasting Panel Magazine, Beverage Industry and M. Shanken’s Market Watch. Past and future event sponsorship is an economical way for us to have influential consumers taste our brands.

 

PRODUCTS

 

We have an Exclusive Worldwide Distribution Agreement with Destilidora Huerta Real, S.A. de C.V., the producers of Montalvo Tequila. Montalvo, an award winning, ultra-premium tequila brand is a handcrafted, meticulously formulated tequila produced from only the highest quality blue agave plants from the Lowlands of Jalisco, Mexico. Montalvo ensures the brand’s premium quality by handcrafting in small batches, using hand-selected Blue Weber agave plants picked at the peak of maturity and employing a third distillation. Fourth-generation tequila producers Sergio and Carlos Gonzalez Rivera have combined their family’s ancient traditions with modern techniques, resulting in a clean, smooth and memorable tequila. Montalvo is available in four expressions: Plata, Reposado, Añejo and Extra-Añejo.

 

INVENTORY

 

The Company maintains a relatively large inventory based on historical revenues in order to meet unknown customer delivery requirements of new independent distributors the Company is in the process of securing.  The Company feels that the current production capacity of our primary supplier is sufficient to meet demand for the foreseeable future.  In case of an unexpected surge in demand, our primary supplier maintains contract manufacturing arrangements with third-party suppliers capable of producing large-scale volumes of our products.  Based on the relatively short turnaround time from placing an order with our supplier to receiving the product, the Company believes it will be able to effectively manage our inventory in the face of unknown demand.  

 

PATENTS AND TRADEMARKS

 

Pursuant to the Exclusive Distribution Agreement with Destilidora Huerta Real, S.A. de C.V., we own the trademark “Montalvo”. The trademark is registered in the United States, Mexico, Colombia, Brazil and Argentina, and is currently pending in the European Union. We consider the trademark to be valuable and important to our business.

 

CUSTOMERS

 

The U.S. alcoholic beverage industry is a regulated, three-tier system of suppliers, distributors and retailers. The Company currently distributes the Montalvo Tequila brand through a network of independent distributors. The Company also maintains an arrangement with MHW, Ltd., a third-party leading service provider to alcoholic beverage companies, to import the Montalvo brand into the U.S. as well as to sell Montalvo directly to retailers in New York, New Jersey and California. The Company hopes to expand the number of independent distributors in certain existing markets and new markets, when the Company has sufficient funds to maintain a larger marketing campaign.

 

 

COMPETITION

 

The alcohol beverage industry is highly competitive. We compete with other alcohol beverage companies, most of which have significantly more sales and resources than us, and have been in business for much longer than we have. We compete with national and regional beverage producers and "private label" suppliers. Some of our largest competitors are Diageo PLC, Pernod Ricard S.A., Bacardi Limited, Brown-Forman Corporation, Beam Inc., Remy Cointreau S.A. and Constellation Brands, Inc.

 

Over the last decade, the wine and spirits industry in the United States has undergone dramatic consolidation and realignment of brands and brand ownership. The number of major importers, suppliers and distributors in the U.S. has declined significantly due to this consolidation. As a result, we believe there is a great opportunity for smaller companies to develop high-quality, high-margin brands, which can grow to be very attractive acquisition candidates for the larger companies.

 

We believe that we compete on the basis of quality, price, brand recognition and distribution strength. By focusing on the premium and super-premium segments of the market, which typically have higher margins, we believe we are able to gain relatively significant attention from our distributors for a company of our size. Our U.S. sales force have built, and should continue to build sound, long standing relationships with distributors both locally and nationally as well as with their customers. Finally, with the continued consolidation among the major companies that we have seen and expect to continue to see, we feel there is an opportunity for small to mid-size spirits companies such as ours, as the major companies contract their portfolios to focus on fewer brands.

 

There can be no assurance that the Company will compete successfully with existing or new competitors, or that the competition will not have a material adverse effect on the business, operating results or financial condition of the Company (See “RISK FACTORS”).

 

MANAGEMENT AND EMPLOYEES

 

As of the date of this Current Report, the Company has no Executive Staff other than its executive officers.

 

The Company currently has no full time employees other than the above officers. The Company’s sales and marketing team consists of eight (8) independent contractors, which are all at-will contractors. The Company is not a party to any collective bargaining agreements.

 

PROPERTIES

 

The Company’s corporate offices are located at 4236 Laurel Glen Dr., Moorpark, California, 93021, and our telephone number is 818-266-9286. Our Internet address is montalvospirits.com.

 

LIQUIDITY AND CAPITAL RESOURCES

 

The Company’s only known potential sources of capital are possible proceeds from private placements, issuance of notes payable, loans from its officers, and cash from future revenues after the Company commences sales. The Company may require additional financing to continue operations, and there is no assurance that such additional financing will be available.

 

POTENTIAL FUTURE PROJECTS AND CONFLICTS OF INTEREST

 

Members of the Company’s Management may serve in the future as an officer, director or investor in other entities. Neither the Company nor any shareholder would have any interest in these projects. Management believes that they have sufficient resources to fully discharge their responsibilities to all projects they have organized or will organize in the future, if any.

 

 

GOVERNMENT REGULATION

 

The production and marketing of our alcoholic beverages are subject to the rules and regulations of various Federal, provincial, state and local health agencies, including in particular the U.S. Alcohol and Tobacco Tax and Trade Bureau (“TTB”) as well as the Alcoholic Beverage Control Laws of all states in which our products are sold. The TTB also regulates labeling of our products.

 

We believe that we are in material compliance with applicable federal, state, and other regulations and that we have a compliance program in place to ensure compliance with production, marketing and labeling regulations on a going-forward basis. There are no regulatory notifications or actions currently outstanding.

 

LEGAL MATTERS

 

None.

 

RELATED PARTY TRANSACTIONS

 

Notes Payable – Related Party

 

On June 6, 2011, the Company’s Chief Executive Officer loaned the Company $1,000 in the form of a promissory note. The Note is due on June 6, 2013 and bears interest at 8% per annum.

 

On June 21, 2011, a significant stockholder of the Company loaned the Company $10,000 in the form of a promissory note. The Note is due on June 21, 2013 and bears interest at 8% per annum.

 

Related parties with whom the Company had transactions are:

 

Related Parties		Relationship
Alex Viecco		Chief Executive Officer and significant stockholder of the Company
Point Loma Capital, Inc.		An entity owned and controlled by a significant stockholder of the Company

 

RISK FACTORS

 

OUR SECURITIES ARE HIGHLY SPECULATIVE, AND PROSPECTIVE PURCHASERS SHOULD BE AWARE THAT AN INVESTMENT IN THE SECURITIES INVOLVES A HIGH DEGREE OF RISK. ACCORDINGLY, PROSPECTIVE PURCHASERS SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS IN ADDITION TO THE OTHER INFORMATION IN THIS CURRENT REPORT AND RELATED EXHIBITS, INCLUDING OUR FINANCIAL STATEMENTS.

 

RISK FACTORS ASSOCIATED WITH OUR BUSINESS

 

We have inadequate capital and need for additional financing to accomplish our business and strategic plans.

 

We have very limited funds, and such funds are not adequate to develop our current business plan. We believe that for our company to be successful, we will be required to spend significant sums to market our products. If the sales of our products do not enable us to meet this need, our ultimate success may depend on our ability to raise additional capital. In the absence of additional financing or significant revenues and profits, the Company will have to approach its business plan from a much different and much more restricted direction, attempting to secure additional funding sources to fund its growth, borrowing money from lenders or elsewhere or to take other actions to attempt to provide funding. We cannot guarantee that we will be able to obtain sufficient additional funds when needed, or that such funds, if available, will be obtainable on terms satisfactory to us.

 

 

Our limited operating history does not afford investors a sufficient history on which to base an investment decision.

 

We are currently in the early stages of developing our business. There can be no assurance that at this time that we will operate profitably or will have adequate working capital to meet our obligations as they become due.

  

Investors must consider the risks and difficulties frequently encountered by early stage companies, particularly in rapidly evolving and changing markets. Such risks include the following:

  

·	the nature of our competition and our ability to effectively market the Company’s products;
·	ability to anticipate and adapt to the highly competitive alcoholic beverage and spirits market;
·	ability to effectively manage expanding operations; amount and timing of operating costs and capital expenditures relating to expansion of our business, operations, and infrastructure; and
·	dependence upon key personnel to market and sell our services and the loss of one of our key managers may adversely affect the marketing of our services.

  

We cannot be certain that our business strategy will be successful or that we will successfully address these risks. In the event that we do not successfully address these risks, our business, prospects, financial condition, and results of operations could be materially and adversely affected and we may not have the resources to continue or expand our business operations.

 

Recent worldwide and domestic economic trends and financial market conditions could adversely impact our financial performance.

 

The worldwide and domestic economies have experienced adverse conditions and may be subject to further deterioration for the foreseeable future. We are subject to risks associated with these adverse conditions, including economic slowdown and the disruption, volatility and tightening of credit and capital markets. This global economic situation could adversely impact our major suppliers, distributors and retailers. In addition, unfavorable global or domestic economic situations could adversely impact our major suppliers, distributors and retailers. Financial difficulties experienced by our suppliers or customers could result in product delays, possible accounts receivable defaults and inventory challenges. The inability of suppliers, distributors or retailers to conduct business or to access liquidity could impact our ability to distribute our products.

 

There can be no assurance that market conditions will improve in the near future. A prolonged downturn, further worsening or broadening of the adverse conditions in the worldwide and domestic economies could affect consumer spending patterns and purchases of our products, and create or exacerbate credit issues, cash flow issues and other financial hardships for us and for our suppliers, distributors, retailers and consumers. Depending upon their severity and duration, these conditions could have a material adverse impact on our business, liquidity, financial condition and results of operations. We are unable to predict the likely duration and severity of the current disruption in the financial markets and the adverse economic conditions in the U.S. and other markets.

 

We depend on a limited number of suppliers. Failure to obtain satisfactory performance from our suppliers or loss of our existing suppliers could cause us to lose sales, incur additional costs and lose credibility in the marketplace. We also have annual purchase obligations with certain suppliers.

 

We depend on a limited number of third-party suppliers for the sourcing of all of our products, including both our own proprietary brands and those we distribute for others. These suppliers consist of third-party distillers, bottlers and producers in Mexico. For our proprietary products, we may rely on a single supplier to fulfill one or all of the manufacturing functions for a brand. For instance, Destilidora Huerta Real, S.A. de C.V. is the sole producer for Montalvo Tequila. The termination of our written or oral agreements or an adverse change in the terms of these agreements could have a negative impact on our business. If our suppliers increase their prices, we may not have alternative sources of supply and may not be able to raise the prices of our products to cover all or even a portion of the increased costs. Also, our suppliers’ failure to perform satisfactorily or handle increased orders, delays in shipments of products from international suppliers or the loss of our existing suppliers, especially our key suppliers, could cause us to fail to meet orders for our products, lose sales, incur additional costs and/or expose us to product quality issues. In turn, this could cause us to lose credibility in the marketplace and damage our relationships with distributors, ultimately leading to a decline in our business and results of operations. If we are not able to renegotiate these contracts on acceptable terms or find suitable alternatives, our business could be negatively impacted.

 

 

The sales of our products could decrease significantly if we cannot secure and maintain listings in the control states.

 

In the control states, the state liquor commissions act in place of distributors and decide which products are to be purchased and offered for sale in their respective states. Products selected for listing must generally reach certain volumes and/or profit levels to maintain their listings. Products are selected for purchase and sale through listing procedures which are generally made available to new products only at periodically scheduled listing interviews. Products not selected for listings can only be purchased by consumers in the applicable control state through special orders, if at all. If, in the future, we are unable to maintain our current listings in the control states, or secure and maintain listings in those states for any additional products we may acquire, sales of our products could decrease significantly.

 

Currency exchange rate fluctuations and devaluations may have a significant adverse effect on our revenues, sales, costs of goods and overall financial results.

 

For fiscal 2012, non-U.S. operations accounted for none of our revenues but we are dependent upon resources in Mexico for the products we intend to market, distribute and sell. Therefore, gains and losses on the conversion of foreign payments into U.S. dollars could cause fluctuations in our results of operations, and fluctuating exchange rates could cause reduced revenues and/or gross margins from non-U.S. dollar-denominated international sales and inventory purchases. Our ability to acquire spirits and wine and produce and sell our products at favorable prices will also depend in part on the relative strength of the U.S. dollar. We may not be able to hedge against these risks.

 

If our inventory is lost due to theft, fire or other damage or becomes obsolete, our results of operations would be negatively impacted.

 

We expect our inventory levels to fluctuate to meet customer delivery requirements for our products. We are always at risk of loss of that inventory due to theft, fire or other damage, and any such loss, whether insured against or not, could cause us to fail to meet our orders and harm our sales and operating results. Also, our inventory may become obsolete as we introduce new products, cease to produce old products or modify the design of our products’ packaging, which would increase our operating losses and negatively impact our results of operations.

 

Weather conditions may have a material adverse effect on our sales or on the price of raw materials used to produce spirits.

 

We operate in an industry where performance is affected by the weather. Extreme changes in weather conditions may result in lower consumption of tequila and other alcoholic beverages. In particular, unusually cold spells in winter or high temperatures in the summer can result in temporary shifts in customer preferences and impact demand for the alcoholic beverages we produce and distribute. Similar weather conditions in the future may have a material adverse effect on our sales which could affect our business, financial condition and results of operations. In addition, inclement weather may affect the availability of grain used to produce raw spirit, which could result in a rise in raw spirit pricing that could negatively affect margins and sales.

 

Climate change, or legal, regulatory or market measures to address climate change, may negatively affect our business, operations or financial performance, and water scarcity or poor quality could negatively impact our production costs and capacit y.

 

Our business depends upon agricultural activity and natural resources. There has been much public discussion related to concerns that carbon dioxide and other greenhouse gases in the atmosphere may have an adverse impact on global temperatures, weather patterns and the frequency and severity of extreme weather and natural disasters. Severe weather events and climate change may negatively affect agricultural productivity in the regions from which we presently source our agricultural raw materials such as agave. Decreased availability of our raw materials may increase the cost of goods for our products. Severe weather events or changes in the frequency or intensity of weather events can also disrupt our supply chain, which may affect production operations, insurance cost and coverage, as well as delivery of our products to wholesalers, retailers and consumers.

 

Water is essential in the production of our products. The quality and quantity of water available for use is important to the supply of agave and our ability to operate our business. Water is a limited resource in many parts of the world and if climate patterns change and droughts become more severe, there may be a scarcity of water or poor water quality which may affect our production costs or impose capacity constraints. Such events could adversely affect our results of operations and financial condition.

 

 

The Company has limited protection of the Exclusive Master Distribution Agreement (“Distribution Agreement”).

 

The Company currently has an exclusive right to distribute all Casa Montalvo products throughout the world for a three-year term. The term will be extended indefinitely provided the Company hits minimal sales requirements. Any breach of the Distribution Agreement, or an act of terminating cause, could lead to the loss of the Company’s exclusive distribution rights, for the respective jurisdictions which the Company operates, which would have a material adverse effect on the business, results of operations and financial condition.

 

Either our or our strategic partners’ failure to protect our respective trademarks and trade secrets could compromise our competitive position and decrease the value of our brand portfolio.

 

Since we frequently enter into exclusive arrangements to market the Company’s products with unaffiliated agents, our business and prospects depend in part on our, and with respect to our agency or joint venture brands, our strategic partners’ ability to develop favorable consumer recognition of our brands and trademarks. Although both we and our strategic partners actively apply for registration of our brands and trademarks, they could be imitated in ways that we cannot prevent. Also, we rely on trade secrets and proprietary know-how, concepts and formulas. Our methods of protecting this information may not be adequate. Moreover, we may face claims of misappropriation or infringement of third parties’ rights that could interfere with our use of this information. Defending these claims may be costly and, if unsuccessful, may prevent us from continuing to use this proprietary information in the future and result in a judgment or monetary damages being levied against us. We do not maintain non-competition agreements with all of our key personnel or with some of our key suppliers. If competitors independently develop or otherwise obtain access to our or our strategic partners’ trade secrets, proprietary know-how or recipes, the appeal, and thus the value, of our brand portfolio could be reduced, negatively impacting our sales and growth potential.

 

An impairment in the carrying value of goodwill or other acquired intangible assets could negatively affect our operating results and shareholders’ equity.

 

The carrying value of goodwill represents the fair value of acquired businesses in excess of identifiable assets and liabilities as of the acquisition date, net of any cumulative impairments. The carrying value of other intangible assets represents the fair value of trademarks, trade names and other acquired intangible assets as of the acquisition date, net of impairments and accumulated amortization. Goodwill and other acquired intangible assets expected to contribute indefinitely to our cash flows are not amortized, but must be evaluated for impairment by our management at least annually. If carrying value exceeds current fair value as determined based on the discounted future cash flows of the related business, the intangible asset is considered impaired and is reduced to fair value via a non-cash charge to earnings. If the value of goodwill or other acquired intangible assets is impaired, our earnings and shareholders’ equity could be adversely affected.

 

We operate in highly competitive industries, and competitive pressures could have a material adverse effect on our business.

  

The alcoholic beverages production and distribution industries in our region are intensely competitive. The principal competitive factors in these industries include product range, pricing, distribution capabilities and responsiveness to consumer preferences, with varying emphasis on these factors depending on the market and the product. The alcoholic beverage industry competes with respect to brand recognition, product quality, brand loyalty, customer service and price. Failure to maintain and enhance the Company’s competitive position could materially and adversely affect the Company’s business and prospects for business. Wholesaler, retailer and consumer purchasing decisions are influenced by, among other things, the perceived absolute or relative overall value of our products, including their quality or pricing, compared to competitor’s products. Unit volume and dollar sales could also be affected by pricing, purchasing, financing, operational, advertising or promotional decisions made by wholesalers, state and provincial agencies, and retailers which could affect their supply of, or consumer demand for, our products. We could also experience higher than expected selling, general and administrative expenses if we find it necessary to increase the number of our personnel or our advertising or marketing expenditures to maintain our competitive position or for other reasons.

 

 

Our business could be adversely affected by a decline in the consumption of alcohol and spirits we sell.

 

While over the past several years there have been modest increases in consumption of beverage alcohol in most of our product categories and geographic markets, there have been periods in the past in which there were substantial declines in the overall per capita consumption of beverage alcohol products in the U.S. and other markets in which we participate. A limited or general decline in consumption in one or more of our product categories could occur in the future due to a variety of factors, including:

 

	•		A general decline in economic or geopolitical conditions;
	•		Concern about the health consequences of consuming beverage alcohol products and about drinking and driving;
	•		A general decline in the consumption of beverage alcohol products in on-premise establishments, such as may result from smoking bans and stricter laws related to driving while under the influence of alcohol;
	•		Consumer dietary preferences favoring lighter, lower calorie beverages such as diet soft drinks, sports drinks and water products;
	•		The increased activity of anti-alcohol groups;
	•		Increased federal, state, provincial or foreign excise or other taxes on beverage alcohol products and possible restrictions on beverage alcohol advertising and marketing; and
	•		Increased regulation placing restrictions on the purchase or consumption of beverage alcohol products.

 

We are subject to extensive government regulation and are required to obtain and renew various permits and licenses; changes in or violations of laws or regulations or failure to obtain or renew permits and licenses could materially adversely affect our business and profitability.

 

Our business of marketing and distributing alcoholic beverages in the United States is subject to regulation by national and local governmental agencies. These regulations and laws address such matters as licensing and permit requirements, regarding the production, storage and import of alcoholic products; competition and anti-trust matters; trade and pricing practices; taxes; distribution methods and relationships; required labeling and packaging; advertising; sales promotion; and relations with wholesalers and retailers. Loss of production capacity due to regulatory issues can negatively affect our sales and increase our operating costs as we attempt to increase production at other facilities during that time to offset the lost production. It is possible that we could have similar issues in the future that will adversely impact our sales and operating costs. Additionally, new or revised regulations or requirements or increases in excise taxes, customs duties, income taxes, or sales taxes could materially adversely affect our business, financial condition and results of operations.

 

In addition, we are subject to numerous environmental and occupational, health and safety laws and regulations in the countries in which we plan to operate. We may incur significant costs to maintain compliance with evolving environmental and occupational, health and safety requirements, to comply with more stringent enforcement of existing applicable requirements or to defend against challenges or investigations, even those without merit. Future legal or regulatory challenges to the industry in which we operate or our business practices and arrangements could give rise to liability and fines, or cause us to change our practices or arrangements, which could have a material adverse effect on us, our revenues and our profitability.

 

Governmental regulation and supervision as well as future changes in laws, regulations or government policy (or in the interpretation of existing laws or regulations) that affect us, our competitors or our industry generally, strongly influence our viability and how we operate our business. Complying with existing laws, regulations and government policy is burdensome, and future changes may increase our operational and administrative expenses and limit our revenues.

 

Additionally, governmental regulatory and tax authorities have a high degree of discretion and may at times exercise this discretion in a manner contrary to law or established practice. Such conduct can be more prevalent in jurisdictions with less developed or evolving regulatory systems like Mexico. Our business would be materially and adversely affected if there were any adverse changes in relevant laws or regulations or in their interpretation or enforcement. Our ability to introduce new products and services may also be affected if we cannot predict how existing or future laws, regulations or policies would apply to such products or services.

 

 

If we fail to manage growth effectively or prepare for product scalability, it could have an adversely effect on our employee efficiency, product quality, working capital levels and results of operations .

 

Any significant growth in the market for our products or our entry into new markets may require an expansion of our employee base for managerial, operational, financial, and other purposes. As of December 21, 2012, we had no full time employees outside of our management team. During any period of growth, we may face problems related to our operational and financial systems and controls, including quality control and delivery and service capacities. We would also need to continue to expand, train and manage our employee base. Continued future growth will impose significant added responsibilities upon the members of management to identify, recruit, maintain, integrate, and motivate new employees.

 

Aside from increased difficulties in the management of human resources, we may also encounter working capital issues, as we will need increased liquidity to finance the marketing of the products we sell, and the hiring of additional employees. For effective growth management, we will be required to continue improving our operations, management, and financial systems and controls. Our failure to manage growth effectively may lead to operational and financial inefficiencies that will have a negative effect on our profitability. We cannot assure investors that we will be able to timely and effectively meet that demand and maintain the quality standards required by our existing and potential customers.

 

Our management team may not be able to successfully implement our business strategies.

 

If our management team is unable to execute on its business strategies, then our development, including the establishment of revenues and our sales and marketing activities would be materially and adversely affected. In addition, we may encounter difficulties in effectively managing the budgeting, forecasting and other process control issues presented by any future growth. We may seek to augment or replace members of our management team or we may lose key members of our management team, and we may not be able to attract new management talent with sufficient skill and experience.

 

If we are unable to retain key executives and other key affiliates, our growth could be significantly inhibited and our business harmed with a material adverse effect on our business, financial condition and results of operations.

 

Our success is, to a certain extent, attributable to the management, sales and marketing, and operational and technical expertise of certain key personnel. Alex Viecco, our Chief Executive Officer, Carlos Gonzalez Rivera, our Chief Operating Officer, and Sergio Gonzalez Rivera, our President, perform key functions in the operation of our business. The loss of any of these could have a material adverse effect upon our business, financial condition, and results of operations. We do not maintain key-person insurance for members of our management team because it is cost prohibitive at this point. If we lose the services of any senior management, we may not be able to locate suitable or qualified replacements, and may incur additional expenses to recruit and train new personnel, which could severely disrupt our business and prospects.

 

Our success in the future may depend on our ability to establish and maintain strategic alliances, and any failure on our part to establish and maintain such relationships would adversely affect our market penetration and revenue growth.

 

Due to the regulated nature of the alcoholic beverage industry, we will be required to establish strategic relationships with third parties. Our ability to establish strategic relationships will depend on a number of factors, many of which are outside our control, such as the competitive position of our product and marketing plan relative to our competitors. We may not be able to establish other strategic relationships in the future. In addition, any strategic alliances that we establish may subject us to a number of risks, including risks associated with sharing proprietary information, loss of control of operations that are material to developed business and profit-sharing arrangements. Moreover, strategic alliances may be expensive to implement and subject us to the risk that the third party will not perform its obligations under the relationship, which may subject us to losses over which we have no control or expensive termination arrangements. As a result, even if our strategic alliances with third parties are successful, our business may be adversely affected by a number of factors that are outside of our control.

 

 

Our financial results may not meet the expectations of investors and may fluctuate because of many factors and, as a result, investors should not rely on our revenue and/or financial projections as indicative of future results.

 

Fluctuations in operating results or the failure of operating results to meet the expectations investors may negatively impact the value of our securities. Operating results may fluctuate due to a variety of factors that could affect revenues or expenses in any particular quarter. Fluctuations in operating results could cause the value of our securities to decline. Investors should not rely on revenue or financial projections or comparisons of results of operations as an indication of future performance. As a result of the factors listed below, it is possible that in future periods results of operations may be below the expectations of investors. This could cause the market price of our securities to decline. Factors that may affect our quarterly results include:

 

	•	delays in sales resulting from potential customer sales cycles;
	•	variations or inconsistencies in return on investment models and results;
	•	delays in demonstrating product performance or installations;
	•	changes in competition; and
	•	changes or threats of significant changes in legislation or rules or standards that would change the drivers for product adoption.

 

Because our auditors have issued a going concern opinion, there is substantial doubt about our ability to continue as a going concern.

 

Our report from our independent registered public accounting firm for the year ended March 31, 2012 includes an explanatory paragraph stating that our recurring losses from operations and negative cash flows raise substantial doubt about our ability to continue as a going concern. If we are unable to obtain sufficient funding, our business, prospects, financial condition and results of operations will be materially and adversely affected and we may be unable to continue as a going concern. If we are unable to continue as a going concern, we may have to liquidate our assets and may receive less than the value at which those assets are carried on our audited consolidated financial statements, and it is likely that investors will lose all or a part of their investment. After this offering, future reports from our independent registered public accounting firm may also contain statements expressing doubt about our ability to continue as a going concern. If we seek additional financing to fund our business activities in the future and there remains doubt about our ability to continue as a going concern, investors or other financing sources may be unwilling to provide additional funding on commercially reasonable terms or at all.

 

Our strategy may include acquiring companies which may result in unsuitable acquisitions or failure to successfully integrate acquired companies, which could lead to reduced profitability.

 

We may embark on a growth strategy through acquisitions of companies or operations that complement existing product lines, customers or other capabilities. We may be unsuccessful in identifying suitable acquisition candidates, or may be unable to consummate desired acquisitions. To the extent any future acquisitions are completed, we may be unsuccessful in integrating acquired companies or their operations, or if integration is more difficult than anticipated, we may experience disruptions that could have a material adverse impact on future profitability. Some of the risks that may affect our ability to integrate, or realize any anticipated benefits from, acquisitions include:

 

	•	unexpected losses of key employees or customer of the acquired company;
	•	difficulties integrating the acquired company’s standards, processes, procedures and controls;
	•	difficulties coordinating new product and process development;
	•	difficulties hiring additional management and other critical personnel;
	•	difficulties increasing the scope, geographic diversity and complexity of our operations;
	•	difficulties consolidating facilities, transferring processes and know-how;
	•	difficulties reducing costs of the acquired company’s business;
	•	diversion of management’s attention from our management; and
	•	adverse impacts on retaining existing business relationships with customers.

 

 

RISKS RELATED TO OUR INDUSTRY

 

Demand for our products may be adversely affected by many factors, including changes in consumer preferences and trends.

 

Consumer preferences may shift due to a variety of factors including changes in demographic and social trends, public health initiatives, product innovations, changes in vacation or leisure activity patterns and a downturn in economic conditions, which may reduce consumers’ willingness to purchase distilled spirits or cause a shift in consumer preferences toward beer, wine or non-alcoholic beverages. Our success depends in part on fulfilling available opportunities to meet consumer needs and anticipating changes in consumer preferences with successful new products and product innovations.

 

We face substantial competition in our industry and many factors may prevent us from competing successfully.

 

We compete on the basis of product taste and quality, brand image, price, service and ability to innovate in response to consumer preferences. The global spirits industry is highly competitive and is dominated by several large, well-funded international companies which trend toward consolidation. It is possible that our competitors may either respond to industry conditions or consumer trends more rapidly or effectively or resort to price competition to sustain market share, which could adversely affect our sales and profitability.  The dollar amount and unit volume of our sales could be negatively affected by our inability to maintain or increase prices, changes in geographic or product mix, a general decline in beverage alcohol consumption or the decision of wholesalers, retailers or consumers to purchase competitor’s products instead of our products. Wholesaler, retailer and consumer purchasing decisions are influenced by, among other things, the perceived absolute or relative overall value of our products, including their quality or pricing, compared to competitor’s products. Unit volume and dollar sales could also be affected by pricing, purchasing, financing, operational, advertising or promotional decisions made by wholesalers, state and provincial agencies, and retailers which could affect their supply of, or consumer demand for, our products. We could also experience higher than expected selling, general and administrative expenses if we find it necessary to increase the number of our personnel or our advertising or marketing expenditures to maintain our competitive position or for other reasons.

 

Adverse public opinion about alcohol could reduce demand for our products.

 

Anti-alcohol groups have, in the past, advocated successfully for more stringent labeling requirements, higher taxes and other regulations designed to discourage alcohol consumption. More restrictive regulations, negative publicity regarding alcohol consumption and/or changes in consumer perceptions of the relative healthfulness or safety of beverage alcohol could decrease sales and consumption of alcohol and thus the demand for our products. This could, in turn, significantly decrease both our revenues and our revenue growth, causing a decline in our results of operations.

 

Class action or other litigation relating to alcohol abuse or the misuse of alcohol could adversely affect our business.

 

The alcoholic beverage industry faces the possibility of class action or similar litigation alleging that the continued excessive use or abuse of beverage alcohol has caused death or serious health problems. It is also possible that governments could assert that the use of alcohol has significantly increased government funded health care costs. Litigation or assertions of this type have adversely affected companies in the tobacco industry, and it is possible that we, as well as our suppliers, could be named in litigation of this type.

 

Also, lawsuits have been brought in a number of states alleging that beverage alcohol manufacturers and marketers have improperly targeted underage consumers in their advertising. Plaintiffs in these cases allege that the defendants’ advertisements, marketing and promotions violate the consumer protection or deceptive trade practices statutes in each of these states and seek repayment of the family funds expended by the underage consumers. While we have not been named in these lawsuits, we could be named in similar lawsuits in the future. Any class action or other litigation asserted against us could be expensive and time-consuming to defend against, depleting our cash and diverting our personnel resources and, if the plaintiffs in such actions were to prevail, our business could be harmed significantly.

 

Regulatory decisions and legal, regulatory and tax changes could limit our business activities, increase our operating costs and reduce our margins.

 

The production, distribution, marketing, advertising and labeling of beverage alcohol products is subject to extensive regulation in all of the countries in which we operate. We are required to comply with these regulations and to maintain various permits and licenses. We are also required to conduct business only with holders of licenses to import, warehouse, transport, distribute and sell beverage alcohol products. We cannot assure you that these and other governmental regulations applicable to our industry will not change or become more stringent. Moreover, because these laws and regulations are subject to interpretation, we may not be able to predict when and to what extent liability may arise. Additionally, due to increasing public concern over alcohol-related societal problems, including driving while intoxicated, underage drinking, alcoholism and health consequences from the abuse of alcohol, various levels of government may seek to impose additional restrictions or limits on advertising or other marketing activities promoting beverage alcohol products. Failure to comply with any of the current or future regulations and requirements relating to our industry and products could result in monetary penalties, suspension or even revocation of our licenses and permits. Costs of compliance with changes in regulations could be significant and could harm our business, as we could find it necessary to raise our prices in order to maintain profit margins, which could lower the demand for our products and reduce our sales and profit potential.

 

 

Futher, the distribution of beverage alcohol products is subject to extensive taxation both in the U.S. and internationally (and, in the U.S., at both the federal and state government levels), and beverage alcohol products themselves are the subject of national import and excise duties in most countries around the world. An increase in taxation or in import or excise duties could also significantly harm our sales revenue and margins, both through the reduction of overall consumption and by encouraging consumers to switch to lower-taxed categories of beverage alcohol.

 

We could face product liability or other related liabilities that increase our costs of operations and harm our reputation.

 

Although we maintain liability insurance and will attempt to limit contractually our liability for damages arising from our products, these measures may not be sufficient for us to successfully avoid or limit liability.. Our product liability insurance coverage is limited to $1 million per occurrence and $2 million in the aggregate and our general liability umbrella policy is capped at $1 million. Further, any contractual indemnification and insurance coverage we have from parties supplying our products is limited, as a practical matter, to the creditworthiness of the indemnifying party and the insured limits of any insurance provided by these suppliers. In any event, extensive product liability claims could be costly to defend and/or costly to resolve and could harm our reputation.

 

If we become subject to product liability claims, personal injury claims or defective products, our business may be harmed.

 

The marketing and sale of the Company’s products and services entails risk of product liability and there can be no assurance that product liability claims will not be asserted against the Company. While the Company intends to obtain some business liability insurance, insurance designed to cover product liability is expensive, difficult to obtain in some cases and may not be available now or in the future on acceptable terms, if at all. Furthermore, there can be no assurance that such insurance coverage will be adequate, or that a product liability claim, even one without merit, would not have a material adverse effect on the business or financial condition of the Company. As a result, any imposition of product liability could materially harm our business, financial condition and results of operations. In addition, we do not have any business interruption insurance due to the limited coverage of any such business interruption insurance, and as a result, any business disruption or natural disaster could severely disrupt our business and operations and significantly decrease our revenue and profitability.

 

Contamination of our products and/or counterfeit or confusingly similar products could harm the image and integrity of, or decrease customer support for, our brands and decrease our sales.

 

The success of our brands depends upon the positive image that consumers have of them. Contamination, whether arising accidentally or through deliberate third-party action, or other events that harm the integrity or consumer support for our brands, could affect the demand for our products. Contaminants in raw materials purchased from third parties and used in the production of our products or defects in the distillation and fermentation processes could lead to low beverage quality as well as illness among, or injury to, consumers of our products and could result in reduced sales of the affected brand or all of our brands. Also, to the extent that third parties sell products that are either counterfeit versions of our brands or brands that look like our brands, consumers of our brands could confuse our products with products that they consider inferior. This could cause them to refrain from purchasing our brands in the future and in turn could impair our brand equity and adversely affect our sales and operations.

 

 

RISKS RELATED TO THE SECURITIES MARKETS AND INVESTMENTS IN OUR COMMON STOCK

 

Our Executive Officers and certain stockholders possess the majority of our voting power, and through this ownership, control our Company and our corporate actions.

 

Our current executive officers and certain large shareholders of the Company, hold approximately 64% of the voting power of the outstanding shares immediately after the Exchange. These officers have a controlling influence in determining the outcome of any corporate transaction or other matters submitted to our stockholders for approval, including mergers, consolidations and the sale of all or substantially all of our assets, election of directors, and other significant corporate actions. As such our executive officers have the power to prevent or cause a change in control; therefore, without his consent we could be prevented from entering into transactions that could be beneficial to us.  The interests of our executive officers may give rise to a conflict of interest with the Company and the Company’s shareholders.  For additional details concerning voting power please refer to the section below entitled “Description of Securities.”

 

There is a substantial lack of liquidity of our common stock and volatility risks.

 

Our common stock is quoted on the OTCQB under the symbol “ACSR.”  The liquidity of our common stock may be very limited and affected by our limited trading market. The OTCQB market is an inter-dealer market much less regulated than the major exchanges, and is subject to abuses, volatilities and shorting.  There is currently no broadly followed and established trading market for our common stock.  An established trading market may never develop or be maintained.  Active trading markets generally result in lower price volatility and more efficient execution of buy and sell orders.  Absence of an active trading market reduces the liquidity of the shares traded.

 

The trading volume of our common stock may be limited and sporadic.  This situation is attributable to a number of factors, including the fact that we are a small company which is relatively unknown to stock analysts, stock brokers, institutional investors and others in the investment community that generate or influence sales volume, and that even if we came to the attention of such persons, they tend to be risk-averse and would be reluctant to follow an unproven company such as ours or purchase or recommend the purchase of our shares until such time as we became more seasoned and viable. As a consequence, there may be periods of several days or more when trading activity in our shares is minimal or non-existent, as compared to a seasoned issuer which has a large and steady volume of trading activity that will generally support continuous sales without an adverse effect on share price.  We cannot give you any assurance that a broader or more active public trading market for our common stock will develop or be sustained, or that current trading levels will be sustained. As a result of such trading activity, the quoted price for our common stock on the OTCQB may not necessarily be a reliable indicator of our fair market value.  In addition, if our shares of common stock cease to be quoted, holders would find it more difficult to dispose of or to obtain accurate quotation as to the market value of, our common stock and as a result, the market value of our common stock likely would decline.

 

The market price for our stock may be volatile and subject to fluctuations in response to factors, including the following:

  

·	The increased concentration of the ownership of our shares by a limited number of affiliated stockholders following the Exchange may limit interest in our securities;
·	variations in quarterly operating results from the expectations of securities analysts or investors;
·	revisions in securities analysts’ estimates or reductions in security analysts’ coverage;
·	announcements of new attractions or services by us or our competitors;
·	reductions in the market share of our services;
·	announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments;
·	general technological, market or economic trends;
·	investor perception of our industry or prospects;
·	insider selling or buying;
·	investors entering into short sale contracts;
·	regulatory developments affecting our industry; and
·	additions or departures of key personnel.

  

Many of these factors are beyond our control and may decrease the market price of our common stock, regardless of our operating performance.  We cannot make any predictions or projections as to what the prevailing market price for our common stock will be at any time, including as to whether our common stock will sustain current market prices, or as to what effect that the sale of shares or the availability of common stock for sale at any time will have on the prevailing market price.

 

 

Our common stock may never be listed on a major stock exchange.

 

We anticipate seeking the listing of our common stock on a national or other securities exchange at some time in the future, assuming that we can satisfy the initial listing standards for such exchange.  We currently do not satisfy the initial listing standards and cannot ensure that we will be able to satisfy such listing standards or that our common stock will be accepted for listing on any such exchange.  Should we fail to satisfy the initial listing standards of such exchanges, or our common stock is otherwise rejected for listing, the trading price of our common stock could suffer, the trading market for our common stock may be less liquid, and our common stock price may be subject to increased volatility.

 

A decline in the price of our common stock could affect our ability to raise working capital and adversely impact our ability to continue operations.

 

A prolonged decline in the price of our common stock could result in a reduction in the liquidity of our common stock and a reduction in our ability to raise capital.  A decline in the price of our common stock could be especially detrimental to our liquidity and our operations.  Such reductions may force us to reallocate funds from other planned uses and may have a significant negative effect on our business plan and operations, including our ability to develop new services and continue our current operations.  If our common stock price declines, we can offer no assurance that we will be able to raise additional capital or generate funds from operations sufficient to meet our obligations.  If we are unable to raise sufficient capital in the future, we may not be able to have the resources to continue our normal operations.

 

Concentrated ownership of our common stock creates a risk of sudden changes in our common stock price.

 

The sale by any shareholder of a significant portion of their holdings could have a material adverse effect on the market price of our common stock.

 

Sales of our currently issued and outstanding stock may become freely tradable pursuant to Rule 144 and may dilute the market for your shares and have a depressive effect on the price of the shares of our common stock.

 

A substantial majority of the outstanding shares of common stock are “restricted securities” within the meaning of Rule 144 under the Securities Act of 1933, as amended (the “Securities Act”) (“Rule 144”).  As restricted shares, these shares may be resold only pursuant to an effective registration statement or under the requirements of Rule 144 or other applicable exemptions from registration under the Securities Act and as required under applicable state securities laws.  Rule 144 provides in essence that a non-affiliate who has held restricted securities for a period of at least six months may sell their shares of common stock.  Under Rule 144, affiliates who have held restricted securities for a period of at least six months may, under certain conditions, sell every three months, in brokerage transactions, a number of shares that does not exceed the greater of 1% of a company’s outstanding shares of common stock or the average weekly trading volume during the four calendar weeks prior to the sale (the four calendar week rule does not apply to companies quoted on the OTCQB).  Since the Company has previously indicated in its filings with the Commission that it is a shell company, as that term is defined under the Securities Act, pursuant to Rule 144, shareholders must wait at least one year from the date of the filing of this Form 8-K to avail themselves of Rule 144 unless we file a registration statement for the sale of such shares prior thereto. A sale under Rule 144 or under any other exemption from the Securities Act, if available, or pursuant to subsequent registrations of our shares of common stock, may have a depressive effect upon the price of our shares of common stock in any active market that may develop.

 

The securities issued in connection with the Exchange are restricted securities and may not be transferred in the absence of registration or the availability of a resale exemption.

 

The shares of common stock being issued in connection with the Exchange are being issued in reliance on an exemption from the registration requirements under Section 4(2) of the Securities Act and Regulation D promulgated thereunder or Regulation S.  Consequently, these securities will be subject to restrictions on transfer under the Securities Act and may not be transferred in the absence of registration or the availability of a resale exemption.  In particular, in the absence of registration, such securities cannot be resold to the public until certain requirements under Rule 144 promulgated under the Securities Act have been satisfied, including certain holding period requirements.  As a result, a purchaser who receives any such securities issued in connection with the Exchange may be unable to sell such securities at the time or at the price or upon such other terms and conditions as the purchaser desires, and the terms of such sale may be less favorable to the purchaser than might be obtainable in the absence of such limitations and restrictions.

 

 

If we issue additional shares or derivative securities in the future, it will result in the dilution of our existing stockholders.

 

Our Articles of Incorporation authorizes the issuance of up to 300,000,000 shares of common stock, $0.001 par value per share.  Our board of directors may choose to issue some or all of such shares, or derivative securities to purchase some or all of such shares, to provide additional financing in the future. 

 

We do not plan to declare or pay any dividends to our stockholders in the near future.

 

We have not declared any dividends in the past, and we do not intend to distribute dividends in the near future. The declaration, payment and amount of any future dividends will be made at the discretion of the board of directors and will depend upon, among other things, the results of operations, cash flows and financial condition, operating and capital requirements, and other factors as the board of directors considers relevant.  There is no assurance that future dividends will be paid, and if dividends are paid, there is no assurance with respect to the amount of any such dividend.

 

The requirements of being a public company may strain our resources and distract management.

 

As a public company, we are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”). These requirements are extensive. The Exchange Act requires that we file annual, quarterly and current reports with respect to our business and financial condition. The Sarbanes-Oxley Act requires that we maintain effective disclosure controls and procedures and internal controls over financial reporting.

 

We may incur significant costs associated with our public company reporting requirements and costs associated with applicable corporate governance requirements.  We expect all of these applicable rules and regulations to significantly increase our legal and financial compliance costs and to make some activities more time consuming and costly.  This may divert management’s attention from other business concerns, which could have a material adverse effect on our business, financial condition and results of operations.  We also expect that these applicable rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage.  As a result, it may be more difficult for us to attract and retain qualified individuals to serve on our board of directors or as executive officers. We are currently evaluating and monitoring developments with respect to these rules, and we cannot predict or estimate the amount of additional costs we may incur or the timing of such costs.

 

If we do not file our quarterly or annual reports with the SEC, we may be de-listed from the OTCQB.

 

OTCQB is the middle tier of the OTC market. OTCQB companies report to the SEC or a U.S. banking regulator, making it easy for investors to identify companies that are current in their reporting obligations. There are no financial or qualitative standards to be in this tier. OTCQB securities may also be quoted on the FINRA BB. The OTCQB allows investors to easily identify reporting companies traded in the OTC market regardless of where they are quoted.

 

Under OTCQB rules relating to the timely filing of periodic reports with the SEC, any OTCQB issuer who fails to file a periodic report (Forms 10-Q or 10-K) by the due date of such report, period we may be removed from the OTCQB and our common stock may only be able to be traded on the OTC Pink. The OTC Pink is the bottom tier of the OTC market – a speculative trading marketplace that helps broker-dealers get the best prices for investors. Accordingly, our securities may become worthless and we may be forced to curtail or abandon our business plan.

 

Persons associated with securities offerings, including consultants, may be deemed to be broker dealers.

 

In the event that any of our securities are offered without engaging a registered broker-dealer, we may face claims for rescission and other remedies.  If any claims or actions were to be brought against us relating to our lack of compliance with the broker-dealer requirements, we could be subject to penalties, required to pay fines, make damages payments or settlement payments, or repurchase such securities. In addition, any claims or actions could force us to expend significant financial resources to defend our company, could divert the attention of our management from our core business and could harm our reputation.

 

 

Future changes in financial accounting standards or practices may cause adverse unexpected financial reporting fluctuations and affect reported results of operations.

 

A change in accounting standards or practices can have a significant effect on our reported results and may even affect our reporting of transactions completed before the change is effective.  New accounting pronouncements and varying interpretations of accounting pronouncements have occurred and may occur in the future.  Changes to existing rules or the questioning of current practices may adversely affect our reported financial results or the way we conduct business.

 

“Penny Stock” rules may make buying or selling our common stock difficult.

 

Trading in our common stock is subject to the “penny stock” rules. The SEC has adopted regulations that generally define a penny stock to be any equity security that has a market price of less than $5.00 per share, subject to certain exceptions. These rules require that any broker-dealer that recommends our common stock to persons other than prior customers and accredited investors, must, prior to the sale, make a special written suitability determination for the purchaser and receive the purchaser’s written agreement to execute the transaction. Unless an exception is available, the regulations require the delivery, prior to any transaction involving a penny stock, of a disclosure schedule explaining the penny stock market and the risks associated with trading in the penny stock market. In addition, broker-dealers must disclose commissions payable to both the broker-dealer and the registered representative and current quotations for the securities they offer. The additional burdens imposed upon broker-dealers by such requirements may discourage broker-dealers from effecting transactions in our common stock, which could severely limit the market price and liquidity of our common stock.

 

DESCRIPTION OF SECURITIES

 

General

 

The Company’s authorized capital stock consists of 300,000,000 shares of common stock, par value $0.001 per share. After the closing of the Exchange, and giving effect to the forward – split, the retirement of 10,000,000 shares by our principal stockholder, the Company had 66,700,000 shares of common stock issued and outstanding held by approximately 43 shareholders of record, excluding an unknown amount of shareholders holding their ownership in street name.

 

Common Stock

 

Holders of Company’s common stock are entitled to one vote per share on each matter submitted to vote at a meeting of Company’s stockholders. Holders of common stock do not have cumulative voting rights. Stockholders do not have any preemptive rights or other similar rights to acquire additional shares of Company’s common stock or other securities. Subject to preferences that may be applicable to any then-outstanding preferred stock, holders of common stock are entitled to share in all dividends that the board of directors, in its discretion, declares from legally available funds.  In the event of liquidation, dissolution or winding up, subject to preferences that may be applicable to any then-outstanding preferred stock, each outstanding share of common stock entitles its holder to participate ratably in all remaining assets of the Company that are available for distribution to stockholders after providing for each class of stock, if any, having preference over the common stock.

 

Holders of common stock have no conversion, preemptive or other subscription rights, and there are no redemption or sinking fund provisions applicable to the common stock.  The rights of the holders of common stock are subject to any rights that may be fixed for holders of preferred stock, when and if any preferred stock is authorized and issued.

 

Preferred Stock

 

The Company's Amended Articles of Incorporation authorizes the issuance of 10,000,000 shares of “Blank Check” Preferred Stock, par value $0.001 per share, subject to any limitations prescribed by law, without further vote or action by the stockholders, to issue from time to time shares of preferred stock in one or more series. Each such series of Preferred Stock shall have such number of shares, designations, preferences, voting powers, qualifications, and special or relative rights or privileges as shall be determined by the Company's board of directors, which may include, among others, dividend rights, voting rights, liquidation preferences, conversion rights and preemptive rights.

 

MARKET PRICE OF AND DIVIDENDS ON THE COMPANY’S’ COMMON STOCK AND RELATED SHAREHOLDER MATTERS

 

(a)          Market information.

 

Our common stock is quoted on the Over-the-Counter Quotation Board, or “OTCQB” under the trading symbol “ACSR” and was first quoted on October 18, 2011. The following table lists the high and low bid information for our common stock as quoted on the OTCQB for the fiscal years ended 2012 and 2011, respectively:

 

		Price Range
Quarter Ended		High ($)				Low ($)
March 31, 2012			0				0
December 31, 2011			0				0
September 30, 2011			0				0

 

The above quotations from the OTCQB reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not represent actual transactions.

 

(b)          Holders.

 

The number of record holders of our common stock as of December 21, 2012, was approximately 43 based on information received from our transfer agent. This amount excludes an indeterminate number of shareholders whose shares are held in “street” or “nominee” name with a brokerage firm or other fiduciary.

(c)          Dividends.

 

We have not paid or declared any cash dividends on our common stock and we do not anticipate paying dividends on our common stock for the foreseeable future.

 

(d)          Securities authorized for issuance under equity compensation plans.

 

We do not have any the following securities authorized for issuance under an equity compensation plan as of December 21, 2012.

 

INDEMNIFICATION OF OFFICERS AND DIRECTORS

 

The Company’s Articles of Incorporation and By-laws provide, to the fullest extent permitted by Nevada law, that the officers and directors of the Company who was or is a party to or is threatened to be made a party to, any threatened, or pending or completed action, suit or proceeding, whether civil, criminal, administrative, or investigative, by reason of fact that he/she is or was acting as the incorporator, officer, director or nominee officer/director or was serving in any capacity at any time. Furthermore, it is the responsibility of the Company to pay for all legal expenses that may occur on behalf of the party who may come under any such type of action.

 

Nevada Revised Statutes (“N.R.S”) Sections 78.7502 and 78.751 provide the Company with the power to indemnify any of our directors and officers. The director or officer must have conducted himself/herself in good faith and reasonably believe that his/her conduct was in, or not opposed to our best interests. In a criminal action, the director, officer, employee or agent must not have had reasonable cause to believe his/her conduct was unlawful.

 

Under N.R.S Section 78.751, advances for expenses may be made by agreement if the director or officer affirms in writing that he/she believes he/she has met the standards and will personally repay the expenses if it is determined such officer or director did not meet the standards.

 

Pursuant to the Company’s Articles of Incorporation and bylaws, we may indemnify an officer or director who is made a party to any proceeding, because of his position as such, to the fullest extent authorized by Nevada Revised Statutes, as the same exists or may hereafter be amended. In certain cases, we may advance expenses incurred in defending any such proceeding.

 

 

To the extent that indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling our company pursuant to the foregoing provisions, we have been informed that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. If a claim for indemnification against such liabilities (other than the payment by us of expenses incurred or paid by a director, officer or controlling person of our company in the successful defense of any action, suit or proceeding) is asserted by any of our directors, officers or controlling persons in connection with the securities being registered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by us is against public policy as expressed in the Securities Act and will be governed by the final adjudication of that issue.

 

Anti-Takeover Effects of Provisions of Nevada State Law

 

We may be or in the future we may become subject to Nevada's control share law. A corporation is subject to Nevada's control share law if it has more than 200 stockholders, at least 100 of whom are stockholders of record and residents of Nevada, and if the corporation does business in Nevada or through an affiliated corporation.

 

The law focuses on the acquisition of a “controlling interest” which means the ownership of outstanding voting shares is sufficient, but for the control share law, to enable the acquiring person to exercise the following proportions of the voting power of the corporation in the election of directors: (1) one-fifth or more but less than one-third, (2) one-third or more but less than a majority, or (3) a majority or more. The ability to exercise such voting power may be direct or indirect, as well as individual or in association with others.

 

The effect of the control share law is that the acquiring person, and those acting in association with that person, obtain only such voting rights in the control shares as are conferred by a resolution of the stockholders of the corporation, approved at a special or annual meeting of stockholders. The control share law contemplates that voting rights will be considered only once by the other stockholders. Thus, there is no authority to take away voting rights from the control shares of an acquiring person once those rights have been approved. If the stockholders do not grant voting rights to the control shares acquired by an acquiring person, those shares do not become permanent non-voting shares. The acquiring person is free to sell its shares to others. If the buyers of those shares themselves do not acquire a controlling interest, their shares do not become governed by the control share law.

 

If control shares are accorded full voting rights and the acquiring person has acquired control shares with a majority or more of the voting power, any stockholder of record, other than an acquiring person, who has not voted in favor of approval of voting rights, is entitled to demand fair value for such stockholder's shares.

 

Nevada's control share law may have the effect of discouraging corporate takeovers.

 

In addition to the control share law, Nevada has a business combination law, which prohibits certain business combinations between Nevada corporations and "interested stockholders" for three years after the "interested stockholder" first becomes an "interested stockholder" unless the corporation's board of directors approves the combination in advance. For purposes of Nevada law, an "interested stockholder" is any person who is (1) the beneficial owner, directly or indirectly, of ten percent or more of the voting power of the outstanding voting shares of the corporation, or (2) an affiliate or associate of the corporation and at any time within the three previous years was the beneficial owner, directly or indirectly, of ten percent or more of the voting power of the then outstanding shares of the corporation. The definition of the term "business combination" is sufficiently broad to cover virtually any kind of transaction that would allow a potential acquirer to use the corporation's assets to finance the acquisition or otherwise to benefit its own interests rather than the interests of the corporation and its other stockholders.

 

The effect of Nevada's business combination law is to potentially discourage parties interested in taking control of the Company from doing so if it cannot obtain the approval of our Board of Directors.

 

Item 2.02

 

Results of Operations and Financial Condition.

 

Management's Discussion and Analysis or Plan of Operation

 

This discussion should be read in conjunction with the other sections of this Current Report, including “Risk Factors,” “Description of the Company” and the Financial Statements attached hereto as Exhibits 99.2 and 99.3 and the related exhibits. The various sections of this discussion contain a number of forward-looking statements, all of which are based on our current expectations and could be affected by the uncertainties and risk factors described throughout this Current Report. See “Cautionary Statement Regarding Forward-Looking Statements.” Our actual results may differ materially.

 

Pursuant to the Agreement, the Registrant agreed to acquire all of the outstanding capital stock of Casa Montalvo in exchange (the “Exchange”) for the issuance of an aggregate of 59,000,000 shares (the “Exchange Shares”) of the Registrant’s common stock, par value $0.001 per share (the “Common Stock”). As a result of the Exchange, Casa Montalvo became a wholly-owned subsidiary of the Registrant. Following the consummation of the Exchange, the shareholders of Casa Montalvo will beneficially own approximately eighty-nine percent (89%) of the issued and outstanding Common Stock of the Registrant. Pursuant to the terms of the Share Exchange Agreement, the Registrant’s principal shareholder agreed to retire 10,000,000 shares of the Registrant’s Common Stock. The parties have taken the actions necessary to provide that the Exchange is treated as a “tax free exchange” under Section 368 of the Internal Revenue Code of 1986, as amended. The Agreement contains customary representations, warranties and covenants of the Registrant and Casa Montalvo for like transactions. The foregoing descriptions of the above referenced agreements do not purport to be complete. For an understanding of their terms and provisions, reference should be made to the Agreement attached as Exhibits 10.1 to this Current Report on Form 8-K. A copy of the press release dated December 21, 2012 announcing the completion of the documents relating to the Share Exchange is attached to this Form 8-K as Exhibit 99.1 and incorporated herein by reference

 

Additionally, on December 21, 2012, holders of a majority of the Company’s outstanding Common Stock voted to amend the Company’s Articles of Incorporation to: (i) change its name to Montalvo Spirits, Inc.; (ii) increase the number of its authorized shares of capital stock from 75,000,000 shares to 310,000,000 consisting of (a) 300,000,000 shares were designated as Common Stock and (b) 10,000,000 shares were designated as blank check preferred stock., and (iii) effectuate a forward split on a 1:32.4552 basis (the “Amendment”).

 

Background

 

Advanced Cloud Storage, Inc. (the “Company”) was incorporated in the State of Nevada on November 18, 2010. The Company is in the initial development stage and was organized to engage in the business of online data storage.

 

On December 21, 2012, Advanced Cloud Storage, Inc. (the “Registrant”) authorized an amendment to its Articles of Incorporation (the “Amendment”) to change its name to Montalvo Spirits, Inc., to increase the number of its authorized shares of capital stock from 75,000,000 to 310,000,000 shares which 300,000,000 shares were designated common stock, par value $0.001 per share (the “Common Stock”) and 10,000,000 shares were designated “blank check” preferred stock, par value $0.001 per share (the “Preferred Stock”) and to effect a forward split such that 32.4552 shares of Common Stock were issued for every 1 share of Common Stock issued and outstanding immediately prior to the Amendment (the “Forward Split”). On December 21, 2012, the Registrant entered into an Agreement and Plan of Share Exchange (the “Exchange Agreement”) with Casa Montalvo Holdings, Inc., a California corporation (“Casa Montalvo”), whereby the Registrant acquired all of the issued and outstanding capital stock of Casa Montalvo in exchange (the “Exchange”) for approximately 59,000,000 post-split shares of Common Stock. Simultaneously therewith, the Registrant accepted a subscription of a private placement offering of Two Hundred Thousand (200,000) post-split shares of its Common Stock, on a post-Split basis, at an aggregate purchase price of One Hundred Thousand Dollars ($100,000).

  

TARGET MARKETS AND MARKETING STRATEGY

 

While our primary route to market is by selling directly to distributors, who maintain extensive resources to sell to both on and off premise retail accounts, including liquor stores, grocery stores, convenience stores, bars and restaurants, to build our brands, we must effectively communicate with three distinct audiences: the distributors; the retail trade; and the end consumer. We believe advertising, marketing and promotional activities help to establish and reinforce the image and perception of our brand as we strive in building substantial brand value.

 

 

We employ, in-house marketing, sales and customer service personnel who work together with third party design and advertising firms to maintain a high degree of focus on each of our products. We attempt to build brand awareness through innovative marketing activities including social media, brand tastings, as well as competitive spirits competitions. We use a variety of marketing strategies and tactics to build brand equity and increase sales, including consumer and trade advertising, price promotions, point-of-sale materials, event sponsorship, in-store and on-premise promotions and public relations, as well as a variety of other traditional and non-traditional marketing techniques. Our significant public relations campaign has helped gain editorial coverage for our brands, which increases brand awareness. Past and future event sponsorship is an economical way for us to have influential consumers taste our brands.

 

PLAN OF OPERATIONS

 

Casa Montalvo develops, markets and/or distributes alcoholic beverages, primarily in the United States. We sell our products through a network of established spirits distributors, who are licensed to distribute alcoholic beverages throughout the United States. The Company is federally licensed, maintaining the right to sell to distributors in all markets in the U.S. and globally.

 

The Company intends to focus on growing the market share of its initial products, the ultra-premium Montalvo line of tequilas, whose expressions include Plata, Reposado, Anejo and Extra-Anejo. We own the Montalvo brand trademark and have exclusive worldwide master distribution rights to the brands.

 

We intend to grow our business by expanding our portfolio of premium alcoholic beverage brands, including additional spirits categories, as well as beer and wine, through additional importation and distribution contracts of existing brands. In addition, we may choose to develop new brands or acquire existing companies with their own brand portfolios.

 

To achieve our goal of building a distinctive portfolio of premium craft spirits, we seek to:

 

·

grow revenues by securing additional independent distributors for Montalvo Tequila in multiple states in the U.S. and potentially in additional countries internationally and by targeted marketing activities. As the independent distributors are generally large, well-recognized companies, the Company feels that accounts receivable financing should be available, though it may not be on favorable terms. We anticipate that increased sales revenues from Montalvo Tequila will contribute to improving our cash flow and provide additional liquidity from operations.  The Company may require additional financing through private placements or issuance of notes payable, and there is no assurance that such financing will be available. In the event we are not able to increase our working capital, we will not be able to implement or may be required to delay all or part of our business plan, and our ability to attain profitable operations, generate positive cash flows from operating and investing activities and materially expand the business will be materially adversely affected.

  

·

explore the potential of developing or acquiring new or existing brands. We intend to finance our brand acquisitions through a combination of third party financing and, in appropriate circumstances, the further issuance of equity and/or debt securities. Acquiring additional brands could have a significant effect on our financial position, and could cause substantial fluctuations in our quarterly and yearly operating results. Also, the pursuit of acquisitions and other new business relationships may require significant management attention. We may not be able to successfully identify attractive acquisition candidates, obtain financing on favorable terms or complete these types of transactions in a timely manner and on terms acceptable to us, if at all.

 

PRODUCTS

 

We have an Exclusive Worldwide Distribution Agreement with Destilidora Huerta Real, S.A. de C.V., the producers of Montalvo Tequila. Montalvo, an award winning, ultra-premium tequila brand is a handcrafted, meticulously formulated tequila produced from only the highest quality blue agave plants from the Lowlands of Jalisco, Mexico. Montalvo ensures the brand’s premium quality by handcrafting in small batches, using hand-selected Blue Weber agave plants picked at the peak of maturity and employing a third distillation. Fourth-generation tequila producers Sergio and Carlos Gonzalez Rivera have combined their family’s ancient traditions with modern techniques, resulting in a clean, smooth and memorable tequila. Montalvo is available in four expressions: Plata, Reposado, Añejo and Extra-Añejo.

 

 

CUSTOMERS

 

The U.S. alcoholic beverage industry is a regulated, three-tier system of suppliers, distributors and retailers. The Company currently distributes the Montalvo Tequila brand through a network of independent distributors. The Company also maintains an arrangement with MHW, Ltd., a third-party leading service provider to alcoholic beverage companies, to import the Montalvo brand into the U.S. as well as to sell Montalvo directly to retailers in New York, New Jersey and California. The Company hopes to expand the number of independent distributors in certain existing markets and new markets, when the Company has sufficient funds to maintain a larger marketing campaign.

 

GOING CONCERN

 

We have incurred losses from operations of $302,794 and have had limited revenues from operations through the period ended September 30, 2012. Further, the Company has inadequate working capital to maintain or develop its operations, and is dependent upon funds from private investors and the support of certain stockholders.

 

These factors raise substantial doubt about the ability of the Company to continue as a going concern. Management is planning to raise necessary additional funds through loans and additional sales of its common stock. There is no assurance that the Company will be successful in raising additional capital or in further developing its operations

 

Liquidity and Capital Resources

 

We will require substantial additional financing in order to execute our business expansion and development plans and we may require additional financing in order to sustain substantial future business operations for an extended period of time. We currently do not have any firm arrangements for financing and we may not be able to obtain financing when required, in the amounts necessary to execute on our plans in full, or on terms which are economically feasible. If we are unable to obtain the necessary capital to pursue our strategic plan, we may have to reduce the planned future growth of our operations.

 

Off Balance Sheet Arrangements

 

As of December 21, 2012, there were no off balance sheet arrangements.

 

Basis of Presentation

 

The financial statements of the Company are presented in United States dollars and have been prepared in accordance with accounting principles generally accepted in the United States.

 

Critical Accounting Policies

 

Use of Estimates and Assumptions

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions that affect (i) the reported amounts of assets and liabilities, (ii) the disclosure of contingent assets and liabilities known to exist as of the date the financial statements are published, and (iii) the reported amount of net sales and expenses recognized during the periods presented. Adjustments made with respect to the use of estimates often relate to improved information not previously available. Uncertainties with respect to such estimates and assumptions are inherent in the preparation of financial statements; accordingly, actual results could differ from these estimates. These estimates and assumptions also affect the reported amounts of revenues, costs and expenses during the reporting period. Management evaluates these estimates and assumptions on a regular basis.  Actual results could differ from those estimates.

 

Revenue Recognition

 

The Company recognizes revenue from product sales in accordance with Topic 360 “ Revenue Recognition in Financial Statements ,” which is when all of the following criteria are met: (1) persuasive evidence of an arrangement exists, (2) delivery of products and services has occurred, (3) the fee is fixed or determinable and (4) collectability is reasonably assured.

 

 

Cash and Cash Equivalents

 

The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. At September 30, 2012 , cash and cash equivalents include cash on hand and cash in the bank.

 

Property and Equipment

 

Property and equipment is recorded at cost and depreciated over the estimated useful lives of the assets using principally the straight-line method. When items are retired or otherwise disposed of, income is charged or credited for the difference between net book value and proceeds realized. Ordinary maintenance and repairs are charged to expense as incurred, and replacements and betterments are capitalized.

 

The range of estimated useful lives used to calculated depreciation for principal items of property and equipment are as follow:

 

Asset Category		Depreciation/ Amortization Period
Furniture and Fixture		3 Years
Office equipment		3 Years

 

At September 30, 2012, property and equipment consisted of office equipment purchased during the period.

 

Impairment of Long-Lived Assets

 

Long-Lived Assets, such as property, plant, and equipment and purchased intangibles, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Any goodwill or other intangible assets are tested at least annually for impairment. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset. There were no events or changes in circumstances that necessitated an impairment of long lived assets as of September 30, 2012.

 

Income Taxes

 

Deferred income taxes are provided to reflect the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

 

ASC Topic 740 contains a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not, that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount, which is more than 50% likely of being realized upon ultimate settlement. The Company considers many factors when evaluating and estimating the Company's tax positions and tax benefits, which may require periodic adjustments. At September 30, 2012, the Company did not record any liabilities for uncertain tax positions.

 

Concentration of Credit Risk

 

The Company maintains its operating cash balances in banks located in California. The Federal Depository Insurance Corporation (“FDIC”) insures accounts at each institution up to $250,000. At September 30, 2012, the Company’s cash accounts were below the insured limit.

 

 

Earnings Per Share

 

Basic earnings per share is computed by dividing net income (loss) available to common shareholders by the weighted average number of common shares outstanding during the reporting period. Diluted earnings per share reflects the potential dilution that could occur if stock options, warrants, and other commitments to issue common stock were exercised or equity awards vest resulting in the issuance of common stock that could share in the earnings of the Company. The Company does not have any options, warrants or other common stock equivalents outstanding as of December 21, 2012.

 

Fair Value of Financial Instruments

 

The Company's financial instruments consist primarily of cash, accounts payable, accrued liabilities, and advances from affiliates. The carrying amounts of such financial instruments approximate their respective estimated fair value due to the short-term maturities of these instruments. The estimated fair value is not necessarily indicative of the amounts the Company would realize in a current market exchange or from future earnings or cash flows.

 

ASC Topic 820, “ Fair Value Measurements ” (“ASC Topic 820”) defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements.  The standard provides a consistent definition of fair value that focuses on an exit price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  The standard also prioritizes, within the measurement of fair value, the use of market-based information over entity specific information and establishes a three-level hierarchy for fair value measurements based on the nature of inputs used in the valuation of an asset or liability as of the measurement date.

 

The three-level hierarchy for fair value measurements is defined as follows:

 

	Level 1 – inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets;
	Level 2 – inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, or inputs that are observable for the assets or liabilities other than quoted prices, either directly or indirectly, including inputs in markets that are not considered to be active;
	Level 3 – inputs to the valuation methodology are unobservable and significant to the fair value measurement.

 

ITEM 3.02 UNREGISTERED SALES OF EQUITY SECURITIES

 

As disclosed in Item 2.01, in connection with the Exchange, the Company issued an aggregate of 59,000,000 shares of its common stock to the former holders of Casa Montalvo Common Stock.

 

On December 21, 2012, the Company accepted a subscription in the amount of One Hundred Thousand Dollars ($100,000) for Two Hundred Thousand (200,000) post-split shares of Common Stock, offered pursuant to Section 4(2) under the Securities Act and Rule 506 of Regulation D promulgated thereunder.

 

The Company relied on the exemption from federal registration under Section 4(2) of the Securities Act of 1933, as amended, and Rule 506 promulgated thereunder, based on its belief that the issuance of such securities did not involve a public offering, as there were fewer than 35 "non-accredited" investors, all of whom, either alone or through a purchaser representative, had such knowledge and experience in financial and business matters so that each was capable of evaluating the risks of the investment.

 

ITEM 5.01.     CHANGES IN CONTROL OF REGISTRANT.

 

The disclosures set forth in Item 2.01 are hereby incorporated by reference into this Item 5.01.

 

I TEM 5.02      DEPARTURE OF DIRECTORS OR CERTAIN OFFICERS; ELECTION OF DIRECTORS; APPOINTMENT OF CERTAIN OFFICERS; COMPENSATORY ARRANGEMENTS OF CERTAIN OFFICERS

 

The disclosures set forth in Item 2.01 are hereby incorporated by reference into this Item 5.02.

 

 

ITEM 5.06      CHANGE IN SHELL COMPANY STATUS.

 

The Registrant has determined that, as a result of the Exchange, the Registrant has ceased to be a Shell Company as that term is defined in Rule 12b-2 of the Securities Exchange Act of 1934, as amended please refer to Item 2.01 of this current report, which is incorporated by reference to this Item 5.06

 

ITEM 9.01     FINANCIAL STATEMENTS AND EXHIBITS

 

(a) The audited financial statements as of December 31, 2011, and the unaudited financial statements as of September 30, 2012, of Casa Montalvo Holdings, Inc. are attached hereto as Exhibit 99.2 and Exhibit 99.3, respectively, pursuant to Item 2.01 of Form 8-K.

 

(b) As a result of its acquisition of Casa Montalvo described in Item 2.01, the Company is filing the pro forma financial information required by Item 9.01 herewith as Exhibit 99.3.

 

(c) Exhibits

 

Number		Description
2.1		Agreement and Plan of Share exchange by and among Advanced Cloud Storage, Inc., Casa Montalvo Holdings, Inc. and the shareholders of Casa Montalvo Holdings, Inc., dated December 21, 2012 (1)
3.1		Amended and Restated Articles of Incorporation of Advanced Cloud Storage, Inc. (1)
10.1		Exclusive Master Distribution Agreement (1)
10.2		Form of Employment Agreement (1)
10.3		Form of Director Agreement (1)
99.1		Press Release, dated December 21, 2012 (1)
99.2		Audited financial statements as of December 31, 2011 of Casa Montalvo Holdings, Inc. (1)
99.3		Unaudited financial statements as of September 30, 2012 of Casa Montalvo Holdings, Inc. (1)
99.4		Unaudited condensed combined pro forma financial statements as of September 30, 2012 (2)
(1)		Incorporated by reference to our Current Report on Form 8-K filed on December 24, 2012.
(2)		Filed herewith.

 

SIGNATURES

 

Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

Date: February 25, 2013	MONTALVO SPIRITS, INC.
	By:	/s/ Alex Viecco
		Name: Alex Viecco
		Title: Chief Executive Officer

  

 

Exhibit Index

 

Number		Description
2.1		Agreement and Plan of Share exchange by and among Advanced Cloud Storage, Inc., Casa Montalvo Holdings, Inc. and the shareholders of Casa Montalvo Holdings, Inc., dated December 21, 2012 (1)
3.1		Amended and Restated Articles of Incorporation of Advanced Cloud Storage, Inc. (1)
10.1		Exclusive Master Distribution Agreement (1)
10.2		Form of Employment Agreement (1)
10.3		Form of Director Agreement (1)
99.1		Press Release, dated December 21, 2012 (1)
99.2		Audited financial statements as of December 31, 2011 of Casa Montalvo Holdings, Inc. (1)
99.3		Unaudited financial statements as of September 30, 2012 of Casa Montalvo Holdings, Inc. (1)
99.4		Unaudited condensed combined pro forma financial statements as of September 30, 2012 (2)
(1)		Incorporated by reference to our Current Report on Form 8-K filed on December 24, 2012.
(2)		Filed herewith.