UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-KSB
Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
For the Fiscal Year Ended December 31, 2004
Commission File Number 0-50092
360 GLOBAL WINE COMPANY
(Name of Small Business Issuer in Its Charter)
Nevada 98-0231440
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(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
One Kirkland Ranch Road, Napa, California 94558
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(Address of Principal Executive Offices) (Zip Code)
(707) 254-9100
(Issuer's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.001 par value
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Act during the past 12 months and (2) has been
subject to such filing requirement for the past 90 days.
X YES NO
----- -----
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
The issuer's revenues for its most recent fiscal year were: $3,111,403.
The aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant as of April 14, 2005 was $3,739,830 (computed
by multiplying the closing sales price for our common stock on such date by the
number of shares of common stock held by persons other than officers, directors
or by record holders of 10% or more of the registrant's outstanding common
stock. This characterization of officers, directors and 10% or more beneficial
owners as affiliates is for purposes of computation only and is not an admission
for any purposes that such people are affiliates of the registrant).
The number of shares of the Company's common stock outstanding on April 14, 2005
was 42,540,797.
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TABLE OF CONTENTS
Page
PART I
Item 1. Description of Business.......................................... 1
Item 2. Description of Property.......................................... 8
Item 3. Legal Proceedings................................................ 8
Item 4. Submission of Matters to a Vote of Security Holders.............. 8
PART II
Item 5. Market for Common Equity, Related Stockholder Matters and
Small Business
Issuer Purchases of Equity Securities............................ 9
Item 6. Management's Discussion and Analysis or Plan of Operation........12
Item 7. Financial Statements.............................................23
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial
Disclosure.......................................................37
Item 8A. Controls and Procedures..........................................38
PART III
Item 9. Directors and Executive Officers of the Registrant...............38
Item 10. Executive Compensation...........................................42
Item 11. Security Ownership of Certain Beneficial Owners, and
Management and Related Stockholder Matters......................43
Item 12. Certain Relationships and Related Transactions...................45
Item 13. Exhibits List and Reports on Form 8-K............................46
Item 14. Principal Accountants Fees and Services..........................49
Signatures .................................................................50
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PART I.
CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING INFORMATION
Under the Private Securities Litigation Reform Act of 1995, companies
are provided with a "safe harbor" for making forward-looking statements about
the potential risks and rewards of their strategies. Forward-looking statements
often include the words "believe," "expect," "anticipate," "intend," "plan,"
"estimate" or similar expressions.
Our ability to achieve our goals depends on many known and unknown
risks and uncertainties, including changes in general economic and business
conditions. These factors could cause our actual performance and results to
differ materially from those described or implied in forward-looking statements.
In addition, these forward-looking statements speak only as of the date
of this filing. We believe it is in the best interest of our investors to use
forward-looking statements in discussing future events. However, we are not
required to, and you should not rely on us to, revise or update these statements
or any factors that may affect actual results, whether as a result of new
information, future events or otherwise.
ITEM 1. DESCRIPTION OF BUSINESS
Overview
360 Global Wine Company "360 Global" was incorporated in the State of
Nevada, on October 8, 2002 with a vision and objective to establish and build a
diversified international wine company. 360 Global believes that currently there
is an oversupply of small and mid-sized wineries lacking effective sales,
marketing, and branding strength, which has created an opportunity to
consolidate and build an efficient operation that can maximize economies of
scale, increase utilization of production assets, and provide a more streamlined
and effective sales, marketing, and distribution group. We also believe that by
adopting and applying consumer beverage marketing principals within the wine
industry we can further enhance operating results beyond what is currently
achieved by many small and mid-sized wineries, thereby creating a comparative
advantage for us. On August 1, 2003, we completed a reverse acquisition of
Tech-net Communications, Inc., a Nevada corporation, incorporated on May 15,
2000. Following the reverse acquisition, we changed the name of Tech-net
Communications, Inc. to "Knightsbridge Fine Wines, Inc." Effective February 15,
2005, we changed our name from Knightsbridge Fine Wines, Inc. to 360 Global Wine
Company, Inc. 360 Global Wine Company is now the parent company to our operating
subsidiaries.
On April 21, 2004 we acquired 50% of Kirkland Knightsbridge, LLC, a
California limited liability company, pursuant to a Capital Stock Contribution
Agreement, dated as of April 21, 2004, by and among Kirkland Ranch, LLC, a
California limited liability company, Kirkland Knightsbridge, Knightsbridge and
Mr. Larry Kirkland.
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Most of our current costs consist primarily of expenses associated with
developing our corporate strategy. As a result of our plan to expand our
operations through new internal and external initiatives to expand revenue
growth, we expect these costs to increase. Our profitability and success depends
upon our success in executing our strategy to consolidate and build an efficient
operation, as well as our ability to raise capital to execute our growth plans.
Industry Background
The wine industry is generally segregated into three categories:
premium table wines that retail for more than $3 per 750ml bottle; "jug" wines
that retail for less than $3 per 750 ml bottle; and other wine products, such as
sparkling wines, fortified wines, wine coolers and flavored wines. We produce
and sell only premium table wines. The premium category is generally divided by
the trade into four segments: popular-premium ($3-$7 per 750ml); super-premium
($7-$14 per 750 ml); ultra-premium ($14-$25 per 750 ml); and luxury (over $25
per 750 ml). We sell wines in each segment of the premium table wine market.
Corporate History
We were incorporated under the laws of the state of Nevada in May 15,
2000, with the name Tech-Net Communications, Inc. Our original business was
establishing an Internet e-commerce gateway, the Technet Gateway, for exchange
of telecommunications services specifically targeted to small and medium size
users of such services. It was our intention to provide the US
telecommunications industry an online tool enabling them to market and sell
their products through our website thereby allowing them to reach an untapped
market of buyers consisting of small to medium size businesses in need of
telecommunication products.
Due to deteriorating market conditions and lack of additional
financing, in the summer of 2003, we determined that we would search for an
ongoing business that we could purchase solely for stock rather than having to
raise capital necessary to completely launch our existing business enterprise.
On August 1, 2003, we completed a share exchange with Knightsbridge Fine Wines,
Inc. and changed our name, Tech-Net Communications, Inc. to Knightsbridge Fine
Wines, Inc. As a result of the share exchange, Knightsbridge became our wholly
owned subsidiary. On February 15, 2005, we changed our name from Knightsbridge
Fine Wines, Inc. to 360 Global Wine Company.
Products
As of the date of this filing, with the exception of wines produced by
Kirkland Knightsbridge, LLC, our joint venture with the Kirkland Ranch, we
currently market and distribute wines produced by third parties under our own or
such other parties' labels. These include a variety of red and white wines
produced under the following labels by the following parties:
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Wine/Label Producer Ownership of Label
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<S> <C> <C>
The Global Collection of Guy Buffet Kirkland Knightsbridge, LLC 360 Global (1)
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Kirkland Ranch Estate Wines Kirkland Knightsbridge, LLC Kirkland Knightsbridge (2)
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Kirkland Ranch Kirkland Knightsbridge, LLC Kirkland Knightsbridge (2)
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Jamieson Canyon Kirkland Knightsbridge, LLC Kirkland Knightsbridge (2)
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Alexander Park Dominion Wines, Ltd (3) Dominion Wines, International
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Vinus Dominion Wines, Ltd (3) Dominion Wines, International
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Saddle Mountain Dominion Wines, Ltd. (3) Dominion Wines, International
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(1) During the first run of this line of wines, which was produced by a
third party, we were the sole marketer and distributor. Kirkland
Knightsbridge, LLC produced the second run of this line at the Kirkland
Ranch, but we will be the sole owners of this label.
(2) Pursuant to the Capital Stock Contribution Agreement, from which
Kirkland Knightsbridge, LLC was formed, we have a 50% ownership interest in
this wine.
(3) We do not provide any services to Dominion Wines, Ltd. We are the
majority owner of Dominion Wines International, maintaining a 56% ownership
interest.
Current Sales and Marketing
Prior to our acquisition of Kirkland Knightsbridge, LLC we marketed and
distributed wines produced by third parties under such other parties' labels.
However, with the acquisition, we entered into an exclusive agreement with the
Kirkland Knightsbridge, LLC to sell wine and wine related products under its
label. In addition, under a separate bottling agreement, Kirkland Knightsbridge,
LLC agreed to serve as the exclusive bottler of our products in California. We
sell our wines through direct sales, independent distributors, our own customer
list, and in limited quantities, directly from the winery. Distributors
generally remarket the wines through specialty wine shops and grocery stores,
selected restaurants, hotels and private clubs across the country, and in
certain overseas markets. We rely primarily on word-of-mouth recommendation,
wine tastings, positive reviews in various publications, select wine
competitions and company-sponsored promotional activities in order to increase
public awareness of our wines.
Independent distributors market our wines throughout the United States,
including the District of Columbia and Puerto Rico, and internationally in the
Caribbean Islands and Canada. We are currently investigating how to extend our
distribution network into the Far East and Europe. As part of this process, we
recently signed a sales and marketing agreement with a European winery. We
employ 3 dedicated sales and marketing professionals who work directly with
distributors in a particular region of the United States, and their customers.
In addition, we have 25 broker agents who assist our sales and marketing forces
with the distribution of our wines.
Customers
Since the distributors we sell our wine to remarket the wine to
grocery stores, wine shops, restaurants, etc, our end-customer is the general
public. Accordingly, we are not dependent on a particular customer or small
group of customers.
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Growth Strategy
We intend to grow our operations through both internal initiatives and
external acquisitions. The internal initiatives include developing new and
innovative brands and alliances with noted artists that leverage their
proprietary designs into award winning wine labels that produce a differentiated
consumer product. We further intend to internally grow sales by providing a
wider selection of brands and products for our sales force to introduce into the
marketplace thereby reducing average sales cost per product and increasing
product variety to our client base. We believe that by increasing our ability to
provide an ever-growing inventory of brands and products we will be able to
increase our ability to provide wholesalers with better promotional advantages
than our smaller peers. This could lead to an increased competitive position and
drive internal growth. The external initiatives include targeting and
subsequently acquiring small to mid-sized wineries and distressed brands or
inventory, which we can assimilate into our business model. We believe that by
assimilating the small to mid-sized wineries we can add brands to our portfolio,
which we can introduce into our sales and marketing channels. In turn, that
should provide wider public awareness and a greater level of sales.
The following initiatives represent the internal and external
transactions that we have recently initiated, developed, or acquired.
The Artist Series of Fine Wines
In order to complement our growth, we decided to create new brands
based upon world-renowned artists to maximize brand name recognition while
minimizing marketing costs. As part of this strategy, we entered into two
agreements with renowned artists.
On July 9, 2003, we entered into a license agreement with Guy Buffet to
market an international collection of wines that blends Mr. Buffet's artistic
talent with the winemaking talent of 360 Global's winemakers. This collection of
wines, each featuring a unique Guy Buffet designed label, initially features
California Chardonnay, Merlot, Cabernet Sauvignon, Sauvignon Blanc, and Shiraz
from Australia. As distribution grows internationally, we intend to add varietal
blends from New Zealand and Bordeaux. In addition, we have the right to use Guy
Buffet's name, portrait, or picture in advertising and other promotional
materials associated with the sale of products licensed under the agreement. Guy
Buffet receives non-refundable royalties, at a rate of $5.00 per twelve-bottle
wine cases on sales of the licensed products we sell. In addition, we will pay
Guy Buffet a non-refundable Guaranteed Minimum Royalty in the amount of
$150,000 in 12 monthly installments during the term of the agreement as an
advance against the royalties previously described. The agreement expires on
July 8, 2006 and we launched this artist series during the fourth quarter of
2003.
On September 22, 2003, the Company entered into a license agreement
with the Andy Warhol Foundation for the Visual Arts to market an international
collection of wines. The agreement expires on December 31, 2006, and we
anticipate launching this artist series during the second half of 2005. Under
the agreement, we were granted a non-exclusive license to use Andy Warhol's
artwork throughout North America, in connection with our wine products.
Specifically, we are entitled to use artwork and quotations created by Andy
Warhol on our wine labels; use of such artwork and quotations must be
pre-approved on a case by case basis by the Andy Warhol Foundation. Pursuant to
the terms of the agreement, the Andy Warhol Foundation will receive four percent
(4%) of all net sales of the wine containing Andy Warhol's artwork or quotes
that we sell. We are also required to pay the following minimum royalty fees to
the Andy Warhol Foundation: $40,000 on December 31, 2003; $45,000 on December
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15, 2004; $135,000 on December 15, 2005; and, $180,000 on December 15, 2006. A
portion of the proceeds from the sale of these art-inspired releases will
benefit the Andy Warhol Foundation and its mission, fostering innovative
artistic expression and advancing the visual arts through support of cultural
organizations.
Gutsverwaltung Niederhausen Schlossbockenheim sales and marketing agreement
On February 1, 2004, we entered into a sales and marketing agreement
with Gutsverwaltung Niederhausen Schlossbockenheim, a German Winery.
Gutsverwaltung produces and sells certain wines under the name Gutsverwaltung
Niederhausen-Schlossboeckelheim. Pursuant to the agreement, we have the
exclusive right to sell Gutsverwaltung's wines in North America, Asia, and duty
free shops. Under the agreement, we have a goal to purchase at least 70,000, 750
milliliter bottles of wine; our target for 2004 however, was 100,000 bottles.
Due to various constraints, we were unable to reach that goal. We solicit and
confirm all orders we choose to accept and arrange for shipments to be sent
directly from Gutsverwaltung or such warehouse or shipping location as we
designate. We are also responsible for all freight charges. The agreement
expired on December 31st 2004, but was automatically renewed for the year ending
December 31, 2005 per the terms of the contract.
Vanderbilt Series of Wines
In November 2004, we entered into a worldwide licensing agreement with
Consuelo Vanderbilt Costin. Under the agreement, we agreed to an initial
ten-year sales and marketing agreement covering a select series of Vanderbilt
label premier wines and Consuelo Vanderbilt Costin agreed to lend her name and
talent to the joint venture, serving as the spokesperson for this series of
Vanderbilt wines.
The Vanderbilt series will include Consuelo Vanderbilt Wines,
Vanderbilt Estates, Vanderbilt Reserve Wines, and Vanderbilt Cellars offering a
wide range of premier wines to discerning wine enthusiasts across the globe.
Both Consuelo Vanderbilt and the Company have received correspondence
from an attorney representing The Biltmore Company claiming that they owned the
rights to the name "Vanderbilt" and requesting that we cease and desist from
using such name in connection with the sale of our products. Unless this dispute
is settled, it is possible that we will be unable to proceed with this series of
wines. For additional information please see Item 3 - Legal Proceedings.
Acquisitions During the Fiscal Year Ended December 31, 2004
Acquisition of Kirkland Knightsbridge, LLC
On April 21, 2004, we acquired a 50% membership interest in Kirkland
Knightsbridge, LLC, a California limited liability company pursuant to that
certain Capital Stock Contribution Agreement, dated as of April 21, 2004, by and
among Kirkland Ranch, LLC, a California limited liability company, Kirkland
Knightsbridge, LLC, 360 Global Wine Company and Mr. Larry Kirkland. In exchange
for our 50% membership interest, we made an initial capital contribution equal
in value of $10 million through the initial issuance of 4,255,320 shares of our
common stock, par value $.001 per share, at an initial valuation of $2.35 per
share. Also, as part of the financing for the joint venture transaction, we
provided loans to Kirkland Knightsbridge, LLC in the aggregate amount of $2.4
million to be paid pari passu with other debt from any initial profits of
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Kirkland Knightsbridge, LLC. We obtained the necessary financing for the
acquisition through the issuance of a $2 million senior secured convertible
promissory note to an existing investor, details of which financing are
disclosed under Item 5 to this Annual Report on Form 10-KSB.
In connection with the closing under the Contribution Agreement and to
finance the joint venture transaction, we entered into a guaranty, dated as of
April 21, 2004, in favor of The Travelers Insurance Company, pursuant to which
we guaranteed the obligations under that certain promissory note in the amount
of $20 million issued by Travelers to Kirkland Cattle Co., a California general
partnership, Kirkland Ranch, and Mr. Larry Kirkland, as co-borrowers. The
obligations under the Travelers Note are secured by, among other things, a
mortgage on certain land and a lien on certain assets, excluding inventory,
owned by Kirkland Knightsbridge, LLC.
Pursuant to the Contribution Agreement, Kirkland Ranch contributed all
of its assets and certain of its liabilities to Kirkland Knightsbridge, LLC,
including all of the assets of the Kirkland Ranch Winery located in Napa Valley,
California. Kirkland Knightsbridge, LLC has title and ownership to all of the
Kirkland Ranch assets including, without limitation, sixty-nine (69) acres of
vineyard land, a 57,000 square foot state-of-the-art winemaking facility, wine
labels including Kirkland Ranch Winery and Jamieson Canyon, inventory, accounts
receivable, intellectual property and general intangibles. In connection with
the transaction, we entered into an exclusive distribution and marketing
agreement with Kirkland Knightsbridge, LLC to sell wine and wine related
products under its labels with an initial annual minimum purchase requirement
equal to $3 million. Under a separate bottling agreement, Kirkland
Knightsbridge, LLC will serve as the exclusive bottler of our products in
California.
In connection with the operations of Kirkland Knightsbridge, LLC and
subject to the budget approval process of Kirkland Knightsbridge, LLC, we are
required to make additional cash capital contributions in accordance with the
approved budget of Kirkland Knightsbridge, LLC. Such cash contributions include,
solely to the extent not previously paid from cash provided at closing, certain
principal and interest payments owed under the Travelers Note through April 21,
2007. We also agreed, solely upon the occurrence of non-payment of principal and
interest payments owed under the Travelers Note, to risk forfeiture of our
membership interest in Kirkland Knightsbridge, LLC.
Recent Developments
On December 16, 2004, we entered into an agreement to divest ourselves
of our ownership interest in Bodegas Y Vinedos Anguinan S.A, an Argentine wine
company in which we acquired an interest in November 2003. Pursuant to the
Termination, Settlement & Release of Claims Agreement signed between us, our
wholly owned subsidiary, KFWBA Acquisition Corp., and Bodegas and its former
principals, both parties agreed to return any equity in the other party and to
terminate any further obligations between them, including, but not limited to
the put options we granted as part of the acquisition and any employment
agreements between us and the principals of Bodegas.
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Competition
The premium segment of the wine industry is intensely competitive. Our
competitors produce table, premium and other wines in the United States of
America, Europe, South Africa, South America, Australia and New Zealand. Our
domestic competitors in the popular-premium and super-premium segments include
Beringer Blass Wine Estates (Beringer, Meridian), Brown-Forman
(Fetzer),Constellation Brands (Estancia, Talus, Vendange, Nathanson Creek),
Diageo (Beaulieu Vineyards), Kendall-Jackson, and the Wine Group (Glen Ellen).
Our higher-priced wines compete with several hundred smaller California
wineries, generally from Napa or Sonoma County, and with numerous foreign
vintners, that produce premium wines. In recent years some very large producers
of primarily generic wines have introduced varietal wines in the growing premium
wine market. Our wines also compete with other alcoholic and non-alcoholic
beverages for shelf space in retail stores and for marketing focus by our
independent distributors, all of which also carry other wine or beverage brands.
Many of our domestic and international competitors have significantly greater
resources and as a result, there can be no assurance that we will be able to
successfully compete with these competitors or that we will not face greater
competition from other wineries and beverage manufacturers.
At present, we do not have a single main competitor. Rather, we compete
with different companies in different wine categories. In addition, we compete
with various beverage companies for shelf space in retail stores that carry wine
or other beverage brands. Since inception, we have only had a relatively small
competitor position within the industry, but we believe that as we execute upon
our business strategy, our relative position within the industry should rise.
Industry Taxes and Costs
The United States Government imposes a federal excise tax of
$2.55 per case on table wine. In addition, various states (including California)
also impose excise taxes on wine. There can be no guarantee that the Federal or
State Governments will not increase excise tax on wines in the near future.
Regulatory Environment
Regulation; Permits and Licenses
The wine industry is subject to extensive regulation by the Federal
Alcohol and Tobacco Tax and Trade Bureau, various foreign agencies and state and
local liquor authorities. These regulations and laws dictate such matters as
licensing requirements, trade and pricing practices, permitted distribution
channels, permitted and required labeling, advertising restrictions and
relations with wholesalers and retailers. Expansion of our existing facilities
and development of new vineyards and wineries may be limited by present and
future zoning ordinances, environmental restrictions and other legal
requirements. In addition, new regulations or requirements or increases in
excise taxes, sales taxes or international tariffs, could materially adversely
affect the financial results of the Company. Currently, however, we believe we
are in compliance with all currently applicable federal and state regulations.
The Securities and Exchange Commission has adopted regulations which
generally define a "penny stock" to be any equity security that has a market
price (as therein defined) less than $5.00 per share or with an exercise price
of less than $5.00 per share, subject to certain exceptions. Additionally, if
the equity security is not registered or authorized on a national securities
exchange or Nasdaq, the equity security also would constitute a "penny stock."
Since our common stock falls within the definition of penny stock, these
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regulations require the delivery, prior to any transaction involving our common
stock, of a risk disclosure schedule explaining the penny stock market and the
risks associated with it. Disclosure about compensation payable to both the
broker-dealer and the registered representative and current quotations for the
securities is also required. In addition, monthly statements are required to be
sent disclosing recent price information for the penny stocks. The ability of
broker/dealers to sell our common stock and the ability of shareholders to sell
our common stock in the secondary market could be limited, which could severely
and adversely affect the market liquidity of our common stock. We can provide no
assurance that trading in our common stock will not be subject to these or other
regulations in the future, which would negatively affect the market for our
common stock.
Research and Development
We did not conduct any significant research and development activities
during the fiscal years ended December 31, 2004 and December 31, 2003.
Employees
At December 31, 2004, we had 6 full time employees based throughout the
United States. We also pay approximately 25 broker-agents on a commission basis,
as independent contractors, to assist our sales and marketing forces with the
distribution of our wines.
None of our employees is represented by a labor union and we consider
our relationships with our employees to be good.
ITEM 2. DESCRIPTION OF PROPERTY
For the fiscal year ended December 31, 2003, our U.S. corporate office
was located at 65 Shrewsbury Road, Livingston, NJ 07039. This space was provided
on a rent-free basis by our majority shareholder. As a result, the Company did
not recognize rental expense in the previous fiscal year.
Commencing April 21, 2004, our principal corporate office was moved to
One Kirkland Ranch Road, Napa, California 94558. The property is owned by
Kirkland Knightsbridge, LLC and has an existing mortgage securing a $20,000,000
loan. The Kirkland Ranch consists of sixty-nine (69) acres of vineyard land and
a 57,000 square foot winemaking facility. Since relocation, our office in
Livingston, NJ has been closed. The company now has a satellite U.S. office in
New Canaan, CT.
ITEM 3. LEGAL PROCEEDINGS
On April 14, 2004, a complaint was filed by the California Wine
Company, as plaintiff, against us in Napa County Superior Court of the State of
California. The complaint alleges breach of contract, anticipatory breach of
contract, breach of an interim sales agent agreement and breach of the implied
covenant of good faith and fair dealing. Although management disputes any claims
for damages, plaintiff seeks damages in excess of $2.5 million, which are based
on future events which management believes will not occur. The plaintiff
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alleges, among other things, the failure of us to perform our obligations to
purchase grapes under a certain grape purchase agreement, and costs incurred for
moving and storing bulk wines. We are currently negotiating a settlement with
the plaintiff.
Due to the uncertainties of litigation, it is, however, reasonably
possible that an unfavorable outcome, resulting in a loss, will occur, although
the amount of such an effect cannot currently be estimated.
In September 2004, we received correspondence from counsel to an entity
purportedly known as Knightsbridge Wine Shoppe, which alleged that we were
infringing upon its use of the trademark "Knightsbridge Wine." Due to the high
cost of litigating this type of claim and the Company's pre-existing plan to
re-brand its products, management believed that it was in the best interest of
the Company to settle the case. Accordingly, we signed a settlement agreement
with Knightsbridge Wine Shoppe in November 2004. Pursuant to the settlement
agreement, we agreed to change our name on or before February 15, 2005.
Effective as of February 15, 2005, our name was changed from Knightsbridge Fine
Wines, Inc. to 360 Global Wine Company.
Management has been informed that a former shareholders of the Company
filed a suit against the Company and that four former shareholders may file suit
against the Company. Management has not yet reviewed the claim, but believes
that the suit was filed because the Company cancelled stock owned by the
plaintiff shareholders for non-payment. Management does not believe that this
will have a material adverse impact on the Company and intends to defend the
claim vigorously.
On March 11, 2005 the Company received correspondence from counsel to
seven former employees of the Company, which alleges that the Company has
outstanding debts due to the former employees. The Company is currently in
negotiations to settle this dispute.
On January 7, 2005, we received correspondence from an attorney
representing The Biltmore Company claiming that they owned the rights to the
name "Vanderbilt" and requesting that we cease and desist from using such name
in connection with the sale of our products. At the time, 360 Global Wine
Company instructed representatives of Consuelo Vanderbilt Costin to contact the
attorney representing The Biltmore Company in order to settle the claim. On
April 12, 2005, we received a second correspondence from the attorney
representing The Biltmore Company informing us that they have yet to reach an
acceptable settlement agreement with representatives of Consuelo Vanderbilt
Costin. Furthermore, their attorney stated that The Biltmore Company would still
consider our use of "Vanderbilt" to be unacceptable and would likely initiate
legal action seeking remedies if we proceed with the introduction of a
"Vanderbilt Series" of wines. Although Company believes that this dispute will
eventually be settled, it is possible that the parties will not be able to
settle their differences and that the Company will not be able to proceed with
the introduction of a "Vanderbilt Series" of wines or its introduction will be
substantially delayed.
On February 10, 2005, Larry Kirkland, purportedly on behalf of Kirkland
Knightsbridge, LLC, filed a corrective statement with the California Secretary
of State alleging that the financing statement filed by Gryphon Master Fund in
connection with its April 2004 financing of 360 Global Wine Company was
wrongfully filed and that no financing statement was agreed to by Kirkland
Knightsbridge. 360 Global Wine Company has taken the position that the financing
statement was properly authorized by Kirkland Knightsbridge, LLC, and believes
further that Mr. Kirkland had no authority pursuant to the operating agreement
of Kirkland Knightsbridge to file the corrective statement. Accordingly, we are
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cooperating with Gryphon in a lawsuit filed in the U.S. District Court for the
Northern District of Texas, Dallas Division, by Gryphon seeking a declaration
that a valid and enforceable security agreement exists between Gryphon and
Kirkland Knightsbridge and that Kirkland Knightsbridge had no authority to file
the corrective statement with the California Secretary of State.
Except as otherwise disclosed herein, we are not involved in any other
material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
We did not submit any matters to a vote of the security holders at a
shareholder meeting during the fourth quarter of the fiscal year ended December
31, 2004. We did, however, solicit written consents from a majority of its
shareholders on December 27, 2004 to change the Company's name from
Knightsbridge Fine Wines, Inc. to 360 Global Wine Company and amend the Articles
of Incorporation accordingly. 60.56% of our outstanding shares consented to the
action. We filed an Information Statement Pursuant to Section 14C of the
Securities Exchange Act of 1934 on January 19, 2005, with the Securities and
Exchange Commission to report this action.
PART II
ITEM 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL
BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock is currently quoted on the OTC Bulletin Board under
the symbol "TGWC." Prior to February 24, 2005, the date on which our symbol
change became effective, the Common Stock traded under the symbol "KFWI."
The following table sets forth the quarterly high and low bid prices for our
common stock since the share exchange and reverse acquisition between Tech-Net
Communications, Inc. and us on August 1, 2003. The prices set forth below
represent interdealer quotations, without retail markup, markdown or commission
and may not be reflective of actual transactions.
Fiscal Quarter High Low
----- -----
Third Quarter 2003............................... $5.00 $0.12
Fourth Quarter 2003.............................. $3.95 $1.16
First Quarter 2004............................... $2.90 $1.69
Second Quarter 2004.............................. $2.53 $0.83
Third Quarter 2004............................... $1.28 $0.46
Fourth Quarter 2004.............................. $0.97 $0.27
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<TABLE>
At December 31, 2004, the closing bid price of our common stock was
$0.35. At December 31, 2004, there were approximately 500 record holders of our
common stock. This number excludes any estimate by us of the number of
beneficial owners of shares held in street name, the accuracy of which cannot be
guaranteed.
At April 14, 2005, the closing bid price of our common stock was $0.30
and there were approximately 500 record holders of our common stock. This number
excludes any estimate by us of the number of beneficial owners of shares held in
street name, the accuracy of which cannot be guaranteed.
Dividends
We have not paid cash dividends on any class of its capital stock since
formation and does not anticipate paying any dividends on its outstanding common
stock in the foreseeable future.
Securities Authorized for Issuance Under Equity Compensation
Plans _UPDATE AS NEEDED
The following table provides information as of December 31, 2004 with
respect to compensation plans (including individual compensation arrangements)
under which equity securities of the Company are authorized for issuance:
- --------------------------------- ------------------------------ ------------------------------- ------------------------------
Number of securities to be Weighted-average exercise Number of securities
issued upon exercise of price of outstanding options, remaining for future
outstanding options, warrants and rights (b) issuance under equity
warrants and rights (a) compensation plans
(excluding securities
reflected in column (a))
(c)
- --------------------------------- ------------------------------ ------------------------------- ------------------------------
<S> <C> <C>
Equity compensation plans -0- N/A -0-
approved by security holders
- --------------------------------- ------------------------------ ------------------------------- ------------------------------
Equity compensation plans not 100,000 (1) $1.50 -0-
approved by security holders
- --------------------------------- ------------------------------ ------------------------------- ------------------------------
Equity compensation plans not 25,000(2) 1.90 0
approved by security holders
- --------------------------------- ------------------------------ ------------------------------- ------------------------------
Equity compensation plans not 25,000(3) 1.90 0
approved by security holders
- --------------------------------- ------------------------------ ------------------------------- ------------------------------
Equity compensation plans not 40,000(4) 2.01 0
approved by security holders
- --------------------------------- ------------------------------ ------------------------------- ------------------------------
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Equity compensation plans not 10,000(5) 2.00 0
approved by security holders
- --------------------------------- ------------------------------ ------------------------------- ------------------------------
Equity compensation plans not 15,000(6) 2.00 0
approved by security holders
- --------------------------------- ------------------------------ ------------------------------- ------------------------------
Equity compensation plans not 20,000(7) 0.86 0
approved by security holders
- --------------------------------- ------------------------------ ------------------------------- ------------------------------
Equity compensation plans not 10,000(8) 0.90 0
approved by security holders
- --------------------------------- ------------------------------ ------------------------------- ------------------------------
Equity compensation plans not 15,000(9) 0.92 0
approved by security holders
- --------------------------------- ------------------------------ ------------------------------- ------------------------------
Equity compensation plans not 100,000(10) 1.05 0
approved by security holders
- --------------------------------- ------------------------------ ------------------------------- ------------------------------
Equity compensation plans not 20,000(11) 0.90 0
approved by security holders
- --------------------------------- ------------------------------ ------------------------------- ------------------------------
- --------------------------------- ------------------------------ ------------------------------- ------------------------------
Total 390,000 $1.50 -0-
- --------------------------------- ------------------------------ ------------------------------- ------------------------------
</TABLE>
(1) We issued 100,000 warrants, each of which entitles the holder to
purchase one share of our common stock for a period of five years from
the date of issuance at a price of $1.50 per share pursuant to a
consulting agreement dated November 24, 2003.
(2) We issued these options, which entitle the holder to purchase one share
of our common stock for a period of five years until February 16, 2009
at a price of $1.90 per share pursuant to the recipient's employment
agreement.
(3) We issued these options, which entitle the holder to purchase one share
of our common stock for a period of five years until February 16, 2009
at a price of $1.90 per share pursuant to the recipient's employment
agreement.
(4) We issued these options, which entitle the holder to purchase one share
of our common stock for a period of five years until February 8, 2009
at a price of $2.01 per share pursuant to the recipient's employment
agreement.
(5) We issued these options, which entitle the holder to purchase one share
of our common stock for a period of ten years until January 5, 2015 at
a price of $2.00 per share pursuant to the recipient's employment
agreement.
(6) We issued these options, which entitle the holder to purchase one share
of our common stock for a period of ten years until January 5, 2015 at
a price of $2.00 per share pursuant to the recipient's employment
agreement.
(7) We issued these options, which entitle the holder to purchase one share
of our common stock for a period of ten years until October 14, 2014 at
a price of $0.86 per share pursuant to the recipient's employment
agreement.
(8) We issued these options, which entitle the holder to purchase one share
of our common stock for a period of ten years until July 2, 2014 at a
price of $0.90 per share pursuant to the recipient's employment
agreement.
(9) We issued these options, which entitle the holder to purchase one share
of our common stock for a period of ten years until October 2, 2014 at
a price of $0.92 per share pursuant to the recipient's employment
agreement.
(10) We issued these options, which entitle the holder to purchase one share
of our common stock for a period of ten years until June 27, 2014 at a
price of $1.05 per share pursuant to the recipient's employment
agreement.
(11) We issued these options, which entitle the holder to purchase one share
of our common stock for a period of ten years until July 2, 2014 at a
price of $0.90 per share pursuant to the recipient's employment
agreement.
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Recent Sales of Unregistered Securities
In order to accomplish the August 2003 share exchange with
Knightsbridge, we issued an aggregate of 12,402,500 (24,803,000 as of our
forward split effective August 13, 2003) shares of our common stock in exchange
for all of the issued and outstanding capital stock of Knightsbridge from the
shareholders of Knightsbridge. The shares issued to Knightsbridge shareholders
were issued to 35 persons, 7 of whom are employees of Knightsbridge whose shares
in Knightsbridge were originally issued in accordance with Rule 701 and the
remainder of whom are accredited investors, pursuant to the exemption from
registration provided by Section 4(2) of the Securities Act of 1933, as amended,
for issuances not involving a public offering.
On August 6, 2003, we issued 130,000 shares of restricted common stock
to Michael McIntyre pursuant to a consulting agreement. The shares were issued
pursuant to an exemption from registration under Section 4(2) of the Securities
Act, for issuances not involving a public offering. The shares were valued at
$0.12 per share, the market price for shares of our common stock at the time of
issuance. Therefore, the total aggregate value of the consideration paid to
Michael McIntrye was $15,600. These restricted shares will vest 20,000 in August
and 10,000 per month thereafter. (from 10-KSB 5/11/2004)
On August 6, 2003, we issued 60,000 shares of restricted Common Stock
to Michael McIntyre pursuant to a consulting agreement. The shares were issued
pursuant to an exemption from registration under Section 4(2) of the Securities
Act, for issuances not involving a public offering. The shares were valued at
$0.13 per share, the market price for shares of our common stock at the time of
issuance. Therefore, the total aggregate value of the consideration paid to
Michael McIntrye was $7,800. As per the consulting agreement, Michael McIntyre
is to receive an additional 70,000 shares for his services. These restricted
shares will vest 10,000 per month beginning on January 6, 2004.
In connection with a series of private debt financings between December
16, 2002 and September 23, 2003, we issued 510,000 warrants, each of which
entitles the holder to purchase one share of our common stock for a period of
five years from the date of issuance at a price of between $1.50 and $2.70 per
share, to eight accredited investors pursuant to a private debt financing. The
private debt financing described above was made pursuant to the exemption from
the registration provisions of the Securities Act provided by Section 4(2) of
the Securities Act for issuances not involving a public offering.
On October 16, 2003, we issued to Gryphon Master Fund, L.P. a 7.5%
convertible note for $1,500,000 that is due together with all accrued but unpaid
interest thereon, if any, on the third anniversary of the issuance date, to the
extent such principal amount and interest have not been repaid or converted into
shares of our common stock, at a price per share of $1.80. In addition, as
further consideration to the investor, we issued 416,667 common stock purchase
warrants, each of which entitles the holder to purchase one share of the our
common stock, $.001 par value, for a period of three years from the date of
issuance at a price of $2.40 per share. The private equity financing described
above was made pursuant to the exemption from the registration provisions of the
Securities Act provided by Section 4(2) of the Act and Rule 506 of Regulation D
promulgated thereunder.
On October 16, 2003, we issued 25,000 common stock purchase warrants,
each of which entitles the holder to purchase one share of the our common stock,
$.001 par value, for a period of three years from the date of issuance at a
price of $2.40 per share. The private equity financing described above was made
pursuant to the exemption from the registration provisions of the Securities Act
provided by Section 4(2) of the Act and Rule 506 of Regulation D promulgated
thereunder.
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<PAGE>
On November 24, 2003, we issued 100,000 warrants, each of which
entitles the holder to purchase one share of our common stock for a period of
five years from the date of issuance at a price of $1.50 per share, to three
accredited investors pursuant to a consulting agreement. The warrants were
issued pursuant to an exemption from registration under Section 4(2) of the
Securities Act.
On December 22, 2003, we issued 60,000 common stock purchase warrants,
each of which entitles the holder to purchase one share of the our common stock,
$.001 par value, for a period of three years from the date of issuance at a
price of $0.70 per share. The private equity financing described above was made
pursuant to the exemption from the registration provisions of the Securities Act
provided by Section 4(2) of the Act and Rule 506 of Regulation D promulgated
thereunder.
On December 22, 2003, we issued to Gryphon Master Fund, L.P. a 7.5%
convertible note for $2,000,000 that is due together with all accrued but unpaid
interest thereon, if any, on the third anniversary of the issuance date, to the
extent such principal amount and interest have not been repaid or converted into
shares of our common stock, at a price per share of $1.80. In addition, as
further consideration to the investor, we issued 1,111,111 common stock purchase
warrants, each of which entitles the holder to purchase one share of the our
common stock, $.001 par value, for a period of three years from the date of
issuance at a price of $0.70 per share. The private equity financing described
above was made pursuant to the exemption from the registration provisions of the
Securities Act provided by Section 4(2) of the Act and Rule 506 of Regulation D
promulgated thereunder.
On April 21, 2004 the Company acquired a 50% membership interest in
Kirkland Knightsbridge, LLC, a California limited liability company (the "Joint
Venture Subsidiary") pursuant to that certain Capital Stock Contribution
Agreement, dated as of April 21, 2004 (the "Contribution Agreement"), by and
among Kirkland Ranch, LLC, a California limited liability company ("Kirkland
Ranch"), Kirkland Knightsbridge, LLC, the Company and Mr. Larry Kirkland. In
exchange for its 50% membership interest, the Company made an initial capital
contribution equal in value of $10 million through the initial issuance of
4,255,320 shares of its common stock, par value $.001 per share, at an initial
valuation of $2.07 per share. As part of the financing for the joint venture
transaction, the Company provided loans to Kirkland Knightsbridge, LLC in the
aggregate amount of $2.4 million to be paid pari passu with other debt from any
initial profits of Kirkland Knightsbridge, LLC. The Company obtained the
necessary financing for the acquisition through the issuance of a $2 million
senior secured convertible promissory note to an existing financing partner,
details of which financing is disclosed under Item 5 to this Annual Report on
Form 10-KSB.
On April 21, 2004, as part of the financing of our purchase of 50%
membership interest in Kirkland Knightsbridge, LLC, the Company completed a
senior secured convertible note financing with gross proceeds to the Company of
$2 million. Net proceeds from the note offering, after estimated costs and
expenses, were approximately $1,950,000 and were utilized to pay off certain
debts and for working capital to Kirkland Knightsbridge, LLC. In connection with
14
<PAGE>
the offering, the Company entered into a Securities Exchange Agreement with
Gryphon Master Fund, L.P. ("Gryphon") pursuant to which, among other things, the
Company issued a 7.5% senior secured convertible note due April 21, 2006 in the
principal amount of $5,500,000 (the "Note"), $3,500,000 of which principal
amount was previously outstanding and payable to Gryphon. The Company also
issued to Gryphon: (i) a warrant to purchase 3,055,556 shares of the Company's
common stock exercisable for a period of five (5) years from the date of
issuance at an exercise price of $0.70 cents per share, 1,527,778 of which
warrant shares were previously issued to Gryphon and outstanding, and (ii) a
warrant to purchase 5,000,000 shares of the Company's common stock exercisable
for a period of five (5) years from the date of issuance at an exercise price of
$0.01 per share. The holder of the Note has the option, during the term of the
Note, to convert the outstanding principal amount under the Note into the
Company's common stock at a conversion price of $1.80 per share, subject to
certain anti-dilution adjustments. Pursuant to the Amended and Restated Security
Agreement, dated as of April 21, 2004, by and between the Company and Gryphon,
the Note is secured by a lien and pledge of all of the assets of the Company.
The private equity financing described above was made pursuant to the exemption
from the registration provisions of the Securities Act provided by Section 4(2)
of the Securities Act and Rule 506 of Regulation D promulgated thereunder.
On April 21, 2004, we issued 140,000 common stock purchase warrants,
each of which entitles the holder to purchase one share of the our common stock,
$.001 par value, for a period of three years from the date of issuance at a
price of $0.70 per share. The private equity financing described above was made
pursuant to the exemption from the registration provisions of the Securities Act
provided by Section 4(2) of the Act and Rule 506 of Regulation D promulgated
thereunder.
On May 28, 2004, we issued 50,000 shares of restricted common stock to
Longview Fund, LP, 40,000 shares of restricted common stock to Longview Equity
Fund, LP and 10, 000 shares of restricted common stock to Longview International
Equity Fund, LP pursuant to private debt financing. The private equity financing
described above was made pursuant to the exemption from the registration
provisions of the Securities Act provided by Section 4(2) of the Act and Rule
506 of Regulation D promulgated thereunder.
On June 18, 2004, we issued 250,000 shares of restricted Common Stock
to Logic's Consulting, Inc. pursuant to a consulting agreement. The shares were
issued pursuant to an exemption from registration under Section 4(2) of the
Securities Act, for issuances not involving a public offering. The shares were
valued at $1.20 per share, the market price for shares of our common stock at
the time of issuance. Therefore, the total aggregate value of the consideration
paid to Logic's Consulting, Inc. was $300,000. These restricted shares will vest
41,666 immediately and 41,666 per month thereafter.
On June 18, 2004, we issued 100,000 shares of restricted Common Stock
to Galatin Consulting, Inc. pursuant to a consulting agreement. The shares were
issued pursuant to an exemption from registration under Section 4(2) of the
15
<PAGE>
Securities Act, for issuances not involving a public offering. The shares were
valued at $1.20 per share, the market price for shares of our common stock at
the time of issuance. Therefore, the total aggregate value of the consideration
paid to Galatin Consulting, Inc. was $120,000. These restricted shares will vest
25,000 shares per quarter.
On June 18, 2004, we issued 85,500 shares of restricted Common Stock to
twelve employees. The shares were issued in accordance with Rule 506 under
Section 4(2) of the Securities Act, for issuances not involving a public
offering. The shares were valued at $1.20 per share, the market price for shares
of our common stock at the time of issuance. Therefore, the total aggregate
value of the consideration paid to certain employees was $102,600.
On June 18, 2004, we issued 80,500 shares of restricted Common Stock to
seven consultants. The shares were issued in accordance with Rule 506 under
Section 4(2) of the Securities Act, for issuances not involving a public
offering. The shares were valued at $1.20 per share, the market price for shares
of our common stock at the time of issuance. Therefore, the total aggregate
value of the consideration paid to certain employees (or consultants) was
$96,600.
In July 2004, we completed a transaction with Armadillo Investments,
Plc., a UK publicly traded investment trust, in which it exchanged seven million
two hundred seventy two thousand seven hundred twenty seven (7,272,727) shares
of restricted common stock for 4,444,444 ordinary shares of the investment
trust. Per the agreement, we simultaneously completed a transaction where we
sold two million two hundred twenty two thousand two hundred twenty two
(2,222,222) or fifty percent (50%) of the ordinary shares for approximately
$2,000,000. The remaining fifty percent (50%) or two million two hundred twenty
two thousand two hundred twenty two (2,222,222) of the ordinary shares we
received were placed in escrow for two years pursuant to an escrow agreement.
After two years, according to the terms of the Escrow Agreement, we may be
required to sell the Escrowed Shares to Armadillo. If the market value of our
Common Stock two years after Closing is less than the closing bid price of the
Common Stock on the day of Closing, which was $1.10 per share, then for each one
percent (1%) that the market value has decreased, a total of two percent (2%) of
the Escrowed Shares shall be sold to Armadillo at a price per share of 10p
($0.05 equivalent, subject to change of current exchange rate). Market Value is
defined in the Escrow Agreement as the average of the ten (10) closing bid
prices per share of the Company's Common Stock during the ten (10) trading days
immediately preceding the two year anniversary of the Closing. In the event
there is no Percentage Decrease or some Escrowed Shares remain unsold at the 10p
purchase price, then the Company shall sell to Armadillo any remaining Escrow
Shares at a price per Ordinary Share equal to the original Armadillo Purchase
Price of $1.11 per share. After the shares held in escrow are sold, this will be
recorded as additional paid in capital.
In July 2004, we exercised our sole and absolute discretion to reject
the subscription agreements of certain shareholders for failure to pay the
purchase price for the shares and/or provide other services for consideration.
As such, we canceled 2,594,000 shares of our common stock held by 10
shareholders. The Shares are null and void and may not be sold or otherwise
transferred to any third party.
In August 2004, we terminated a consulting contract and canceled the
250,000 shares that were originally granted on June 18, 2004. The shares were
issued pursuant to an exemption from registration under Section 4(2) of the
Securities Act, for issuances not involving a public offering.
On October 22, 2004, we issued 150,000 shares of restricted common
stock to Longview Fund, LP, 120,000 shares of restricted common stock to
Longview Equity Fund, LP and 30,000 shares of restricted common stock to
Longview International Equity Fund, LP pursuant to private debt financing
restructuring agreement. The private equity financing described above was made
pursuant to the exemption from the registration provisions of the Securities Act
provided by Section 4(2) of the Act and Rule 506 of Regulation D promulgated
thereunder.
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<PAGE>
On October 22, 2004, we issued 20,000 shares of restricted common stock
to CK Cooper and Company pursuant to a settlement agreement. The private equity
financing described above was made pursuant to the exemption from the
registration provisions of the Securities Act provided by Section 4(2) of the
Act and Rule 506 of Regulation D promulgated thereunder.
On November 22, 2004, we issued 825,000 shares of restricted Common
Stock to two directors, one consultant and three consultants. The shares were
issued in accordance with Rule 506 under Section 4(2) of the Securities Act, for
issuances not involving a public offering. The shares were valued at $0.48 per
share, the market price for shares of our common stock at the time of issuance.
Therefore, the total aggregate value of the consideration paid to certain
employees was $396,000.
On January 5, 2005 the Company canceled 100,000 shares that were
originally granted pursuant to the acquisition of Bodegas y Venedos Anguinan
S.A. by the Company's wholly -owned subsidiary, KFWBA Acquisition Corp.
(hereinafter "KFWBA") and repurchased by the company subject to a put agreement
in July 2004.
On February 9, 2005, we issued 117,500 shares of restricted Common
Stock to eight employees. The shares were issued in accordance with Rule 506
under Section 4(2) of the Securities Act, for issuances not involving a public
offering. The shares were valued at $.33 per share, the market price for shares
of our common stock at the time of issuance. Therefore, the total aggregate
value of the consideration paid to certain employees was $38,775.
On March 2, 2005, we issued 150,000 shares of restricted Common Stock
to one consultant. The shares were issued in accordance with Rule 506 under
Section 4(2) of the Securities Act, for issuances not involving a public
offering. The shares were valued at $0.50 per share, the market price for shares
of our common stock at the time of issuance. Therefore, the total aggregate
value of the consideration paid to the consultant was $75,000.
On March 10, 2004, we issued 800,000 shares of restricted common stock
to Longview Fund, LP, 640,000 shares of restricted common stock to Longview
Equity Fund, LP and 160,000 shares of common stock to Longview International
Equity Fund, LP pursuant to private debt financing restructuring agreement. The
shares were paid on behalf of 360 Global Wine by Mr. Joel Shapiro, our CEO, in a
private transfer. The shares were valued at $0.50 per share, the market price
for shares of our common stock at the time of transfer. Therefore, the total
aggregate value of the transaction was $800,000.
On April 1, 2005, we issued 150,000 shares of restricted common stock
to Longview Fund, LP, 120,000 shares of restricted common stock to Longview
Equity Fund, LP and 30,000 shares of restricted common stock to Longview
International Equity Fund, LP pursuant to private debt financing restructuring
agreement. The private equity financing described above was made pursuant to the
exemption from the registration provisions of the Securities Act provided by
Section 4(2) of the Act and Rule 506 of Regulation D promulgated thereunder.
On April 13, 2005, we issued 500,000 shares of restricted common stock
to two individuals pursuant to pursuant to private debt financing. The private
equity financing described above was made pursuant to the exemption from the
registration provisions of the Securities Act provided by Section 4(2) of the
Act and Rule 506 of Regulation D promulgated thereunder. The shares were paid on
17
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behalf of 360 Global Wine by Mr. Joel Shapiro, our CEO, in a private transfer.
The shares were valued at $0.35 per share, the market price for shares of our
common stock at the time of transfer. Therefore, the total aggregate value of
the transaction was $175,000.
On April 19, 2005, we issued 75,000 shares of restricted common stock
to two individuals pursuant to pursuant to private debt financing. The private
equity financing described above was made pursuant to the exemption from the
registration provisions of the Securities Act provided by Section 4(2) of the
Act and Rule 506 of Regulation D promulgated thereunder. The shares were paid on
behalf of 360 Global Wine by Mr. Joel Shapiro, our CEO, in a private transfer.
The shares were valued at $0.27 per share, the market price for shares of our
common stock at the time of transfer. Therefore, the total aggregate value of
the transaction was $20,250.
Purchases of Equity Securities by the Small Business Issuer and Affiliated
Purchasers
No purchases were made by or on behalf of 360 Global Wine or any
"affiliated purchaser," as defined in Rule 10b-18(a)(3) under the Securities
Exchange Act of 1934, of shares or other units of any class of the Company's
equity securities within the last quarter of the fiscal year ended December 31,
2004.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion should be read in conjunction with our financial
statements and the notes thereto which appear elsewhere in this report. The
results shown herein are not necessarily indicative of the results to be
expected in any future periods. This discussion contains forward-looking
statements based on current expectations, which involve uncertainties. Actual
results and the timing of events could differ materially from the
forward-looking statements as a result of a number of factors. Readers should
also carefully review factors set forth in other reports or documents that we
file from time to time with the Securities and Exchange Commission.
Overview
In April 2004, we acquired a 50% membership interest in Kirkland
Knightsbridge, LLC. In connection with this acquisition, we entered into an
exclusive distribution and marketing agreement with the Kirkland Knightsbridge,
LLC to sell wine and wine related products under its labels. Under a separate
bottling agreement, the Joint Venture Subsidiary will serve as the exclusive
bottler of our products in California. As a result, we plan to develop our
business along two lines; internal and external initiatives. Internally, we plan
to grow our operations by developing new innovative brands of wines produced at
Kirkland Knightsbridge, LLC and expanding our current product portfolio.
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Externally, we plan identify and target other small and mid-sized wineries,
brands and/or inventories that we can acquire and assimilate into our
operations.
We have experienced significant integration issues between our
management and the management of the Kirkland Ranch, with whom we share
operating responsibility at Kirkland Knightsbridge, LLC. In particular, we
experienced problems integrating the accounting and record keeping systems of
Kirkland Ranch with our own accounting and record keeping systems. Other issues
have involved differing management philosophies between our Board and executive
officers and the management of the Kirkland Ranch. These integration problems
resulted in significant delays of our filing the Form 8-K/A with regard to the
financial information for the joint venture with Kirkland Ranch. The delay in
these filings contributed to delays in our ability to have our registration
statement for Gryphon Master Fund L. P. declared effective, which has cost us
substantial penalties, as well as the goodwill of our investors, and may have
contributed to our difficulty securing additional financing. We have taken steps
to correct these issues, such as appointing a new controller for the joint
venture and working to integrate the accounting systems of the joint venture
with our own systems. However, if these steps do not prove sufficient and if
management cannot be more fully integrated, we may experience additional
material setbacks in carrying out our current business plans.
Liquidity and Cash Resources
At December 31, 2004, we had a cash balance of $79,892. We expect to
achieve operating positive cash flow no earlier than the second quarter.
However, there is no assurance that we will achieve positive cash flow.
Additionally, we are in default on our short-term notes payable. As a result, we
will be required to raise substantial amounts of cash during 2005. There can be
no assurance that we will be successful in our efforts and any failure to raise
such monies would have a material negative effect on our business and
operations.
Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the accounts
of the acquired entities since their respective dates of acquisition. All
significant inter-company amounts have been eliminated. This includes Kirkland
Knightsbridge LLC. The Company does not have voting control, it is shared with
its joint venture partner, but management has concluded that it must be
consolidated under the principles set-forth in FASB Interpretation No. 46
(Revised) - Consolidation of Variable Interest Entities ("FIN 46(R)").
Voting control of Kirkland Knightsbridge, LLC is formerly split between
360 Global Wine and Kirkland Ranch. Pursuant to the Operating Agreement of
Kirkland Knightsbridge, LLC, we were granted disproportionate control over
certain budgetary and expenditure matters while Kirkland Ranch has
disproportionate control over certain operating matters. Although we do not have
voting control, management has concluded that it must be consolidated under the
principles set forth in FIN 46(R) The reasons for consolidation, which are
explained further below, are the fact that we are responsible for maintaining
the value of its initial capital contribution to Kirkland Knightsbridge, LLC,
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which was made in the form of common stock, and the fact that substantially all
of Kirkland Knightsbridge, LLC's activities involve or are conducted on behalf
of 360 Global Wine whose obligations to absorb the expected losses of Kirkland
Knightsbridge, LLC exceed that of Kirkland Ranch.
Ownership interests in Kirkland Knightsbridge, LLC are based on the
maintenance of capital accounts, rather than shares as would be the case with a
corporation. The minority interest in Kirkland Knightsbridge, LLC as shown on
the balance sheet represents the joint venture partner's share of Kirkland
Knightsbridge, LLC's net assets based on the partner's capital account. As
described in EITF Issue No. 98-2 - Accounting by a Subsidiary or Joint Venture
for an Investment in the Stock of Its Parent Company of Joint Venture Partner,
there is no consensus as to the methodology under generally accepted accounting
principles for eliminating parent company stock owned by a consolidated, partly
owned subsidiary. Because Kirkland Knightsbridge, LLC owns a material amount of
our stock, any policy adopted by 360 Global Wine in this unsettled area is a
particularly significant accounting policy.
As of the date of this filing, almost the entirety of Kirkland
Knightsbridge, LLC's activities involve and are conducted on behalf of 360
Global Wine. Kirkland Knightsbridge, LLC maintains the right to conduct
independent bottling and storage of third party wines, but it has been
conducting minimal third party work since the creation of the joint venture. In
addition, Kirkland Knightsbridge, LLC is the production facility which produces
Napa Valley, Central Coast and California Appellation products which are sold
solely be 360 Global Wine. The brands owned by Kirkland Knightsbridge, LLC are
sold through channels which are developed by 360 Global Wine. Kirkland
Knightsbridge, LLC exists to fill the needs of the distribution channels opened
by 360 Global Wine.
Under the terms of the Kirkland Knightsbridge, LLC's governing
document, 360 Global Wine and the Kirkland Ranch share equally in all gains and
losses of our common stock which is owned by Kirkland Knightsbridge, LLC.
However, we have guaranteed a minimum value to the stock, which will eventually
be distributed to the Kirkland Ranch. Because we will receive full credit in our
capital account for any payment of the guarantee, and the Kirkland Ranch will be
charged with the full fair value of the stock withdrawn. Our policy is to
eliminate half of the common stock owned by Kirkland Knightsbridge, LLC as
treasure stock, valued at the date of teh acquisition and to eliminate the other
half as minority interest.
In connection with the operations of the joint venture and subject to
the occurrence of certain events, we are required to make additional cash
capital contributions in order to fund the budget of the joint venture for
certain business purposes. Such cash contributions include but are not limited
to certain principal and interest payments owned under the Travelers Note
through April 21, 2007, to the extent not previously paid from cash at closing.
We also agreed, solely upon occurrence of non-payment of principal and interest
payments owed under the Travelers Note, to risk forfeiture of our membership
interest in Kirkland Knightsbridge, LLC.
Because of the requirement for 360 Global Wine to make additional
capital contributions to fund certain operating expenses and debt payments, and
the requirement to make additional capital contributions should the shares of
our common stock owned by Kirkland Knightsbridge, LLC be worth less than
$10,000,000 on April 27, 2007, 360 Global Wine would incur the majority of
Kirkland Knightsbridge, LLC's "expected losses" as defined by FIN 46(R). We
believe this is true despite sharing of income and losses between 360 Global
Wine and Kirkland Ranch on an equal basis. This basic equal sharing of income
20
<PAGE>
and loss results in "expected losses" and any relatively small overall losses
being shared equally. The equal allocation of losses is, however, limited by
each partner's capital account which means that in all reasonable scenarios
involving relatively large losses 360 Global Wine would incur more than 50% of
the loss.
For the reasons stated above, we have concluded that Kirkland
Knightsbridge, LLC is a Variable Interest Entity under FIN 46R and must be
consolidated.
Use of Estimates
The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents include cash and all highly liquid financial
instruments with purchased maturities of three months or less. Cash as of
December 31, 2004 was $79,892.
Accounts Receivable
Credit is extended based on evaluation of a customers' financial
condition and, generally, collateral is not required. Accounts receivable are
due within 30 to 45 days and are stated at amounts due from customers net of an
allowance for doubtful accounts. Accounts outstanding longer than the
contractual payment terms are considered past due. The Company determined its
allowance by considering a number of factors, including the length of time trade
accounts receivable are past due, our previous loss history, the customer's
current ability to pay its obligation to 360 Global Wine and the condition of
the general economy and the industry as a whole. We write-off accounts
receivables when they become uncollectible and payments subsequently received on
such receivables are credited to the allowance for doubtful accounts.
Inventory
Bulk wine and case goods are stated at the lower of average cost or net
realizable value. Inventories of supplies are stated at the lower of first-in,
first-out (FIFO) cost or replacement cost. Costs associated with the current
year's unharvested grape crop are deferred and recognized in the subsequent year
when the grapes are harvested. Wine inventories are classified as current assets
in accordance with recognized trade practice although some products will not be
sold in the following year.
We established a reserved for finished products which have been
identified as slow moving inventory.
We have initiated production of an Artist Series brand in which we are
building inventory through contract producers and the procurement of goods. We
have adopted the FIFO ("first in first out") method of accounting for this
inventory.
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We may also contract for the warehousing and sale of our products in
areas where we are not ourselves licensed to sell.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation and
amortization are computed using the straight-line method over the estimated
lives of the related assets, as follows:
Years
-----
Land Improvements 25
Vineyards 25
Buildings 40
Cooperage 40
Equipment 3-7
Costs incurred in developing vineyards, including related interest
costs, are capitalized until the vineyards become commercially productive.
Maintenance and repairs are charged to operating costs as incurred. The cost of
improvements is capitalized. Gains or losses on the disposition of assets are
included in income.
Concentrations of Credit Risk
Financial instruments that potentially subject us to credit risk
consist of cash and cash equivalents, accounts receivable, and notes receivable.
Foreign Currency Translation
The functional currency of our foreign subsidiaries is the local
foreign currency. All assets and liabilities denominated in foreign currencies
are translated into U.S. dollars at the exchange rate prevailing on the balance
sheet date. Revenues, costs and expenses are translated at average rates of
exchange prevailing during the period. Translation adjustments resulting from
translation of the subsidiaries' accounts are accumulated as a separate
component of shareholders' equity. Gains and losses resulting from foreign
currency transactions are included in the consolidated statements of operations
and have not been significant.
Revenue Recognition
Revenue is recognized when product is shipped FOB winery. The cost
of price promotions, rebates and coupon programs are treated as reductions of
revenues. Revenue from items sold through the Company's retail locations is
recognized at the time of sale. No products are sold on consignment.
Income Taxes
We account for income taxes in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes." Under SFAS
No.109, deferred tax assets and liabilities are computed based on the difference
between the financial statement and income tax bases of assets and liabilities
22
<PAGE>
using the enacted marginal tax rate. SFAS No. 109 requires that the net deferred
tax asset be reduced by a valuation allowance if, based on the weight of
available evidence, it is more likely than not that some portion or all of the
net deferred tax asset will not be realized. 360 Global continues to reduce our
net deferred tax assets by a 100% valuation allowance.
Stock-based Compensation
We account for stock-based employee compensation arrangements using the
intrinsic value method in accordance with the provisions of Accounting
Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to
Employees," and complies with the disclosure provisions of SFAS No. 123
"Accounting for Stock-Based Compensation." Under APB Opinion No. 25,
compensation cost is generally recognized based on the difference, if any, on
the date of grant between the fair value of our common stock and the amount an
employee must pay to acquire the stock.
Basic and Diluted Net Loss Per Share
Basic income or loss per share includes no dilution and is computed by
dividing net income or loss by the weighted-average number of common shares
outstanding for the period. Diluted income or loss per share includes the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are
reasonably likely to have a current or future effect on our financial condition,
changes in financial condition, revenues or expenses, results of operations,
liquidity, capital expenditures or capital resources that is material to our
investors.
Comparison of results for the fiscal year ended December 31, 2004, to the fiscal
year ended December 31, 2003.
Revenues. Revenues for the fiscal year ended December 31, 2004, were
approximately $2,868,000. We had revenues of approximately $690,000 for the
fiscal year ended December 31, 2003. This is an increase of approximately
$2,178,000 or 316%. In 2004, the majority of our revenue resulted from sales of
wines produced by our joint venture and custom services events at our joint
venture. Prior to the acquisition, our revenue resulted from commissions and
sales of products from the sales and marketing relationships we entered into
with two wineries in July and August of 2003.
Sales and marketing expenses. Sales and marketing expenses for the
fiscal year ended December 31, 2004, were approximately $1,890,000. Sales and
marketing expenses for the fiscal year ended December 31, 2003 were
approximately $1,130,000. This is an increase of approximately $760,000 or 40%.
Our sales and marketing expenses were a result of expenses associated with
establishing, building, and funding our sales and marketing team which is the
major direct expense related to producing our sales commissions. We anticipate
our sales and marketing expenses to grow as we continue to establish and build a
sales and marketing infrastructure to support the anticipated sales volume of
both our own brands and our sales and marketing relationships.
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<PAGE>
General and administrative. General and administrative expenses for the
fiscal year ended December 31, 2004, were approximately $4,207,000. Our general
and administrative expenses were approximately $1,020,000 for the fiscal year
ended December 31, 2003. This is an increase of approximately $3,187,000 or
312%. Our general and administrative expenses for the year ended December 31,
2004 were attributable to costs associated with establishing, building, and
supporting our infrastructure and included various consulting costs, legal and
accounting fees, overhead, realized stock compensation and salaries. We
anticipate that these costs will rise as we continue to expand our operations.
Stock compensation expense. During the year ended December 31, 2004,
our Board of Directors authorized the issuance of shares of our restricted
common stock to various consultants and employees in lieu of cash payments and
in conjunction with various debt financing and refinancing completed during
2004. Based upon the common stock trading price at the times of issuance, and
FASB rules, we were required to incur non-cash expenses of approximately
$2,973,622 for the issuance of these shares during the year ended December 31,
2003 and $1,938,846 for the issuance of these shares during the year ended
December 31, 2004.
Other income (expense), net. We had interest income of approximately
$30,000 for the fiscal year period ended December 31, 2004. For the fiscal year
ended December 31, 2003, we had interest income of approximately $13,000. This
represents an increase in interest income of approximately $17,000 or 131%.
Interest expense for the fiscal year ended December 31, 2004 was approximately
$3,522,000, due to various notes payable and interest on outstanding payables.
The interest expense for the fiscal year ended December 31, 2003 was
approximately $447,000 attributable to interest from short term loans entered
into by the Company to fund operations. This represents an increase in interest
expense of $3,075,000 or 687%. For the fiscal year ended December 31, 2004 we
had a gain of approximately $3,800 on currency transactions. We had no gain on
currency transaction for the year end ended December 31, 2003. As a result, we
had net other expense of approximately $3,733,000 for the year ended December
31, 2004 and approximately $434,000 for the year ended December 31, 2003
Minority Interest. Minority interest in the consolidated loss was
approximately $880,000 for the year ended December 31, 2004. This minority
interested was a result of our Joint Venture subsidiary Kirkland-Knightsbridge,
LLC. As a result of diminishing activities at our Dominion Wines, Ltd.
subsidiary and the fact that all losses for minority shareholders were fully
absorbed in 2003, there was no minority interest generated by Dominion Wines,
Ltd. for the year ended December 31, 2004. For the year ended December 31, 2003,
minority interest of approximately $14,000 was generated due to income from our
Dominion Wines, Ltd. subsidiary.
Net loss. As a result of the above, the net loss for the year ended
December 31, 2004, was approximately $13,201,000 as compared to a net loss of
approximately $5,043,000 for the year ended December 31, 2003.
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<PAGE>
Risk Factors
Risks Relating to our Business
Our auditors have expressed substantial doubt about our ability to
continue as a going concern because our business has been funded largely through
the sale of our securities and, as a result, the growth and success of our
business depends upon obtaining future financings, without which we will not
have the necessary capital spending and working capital funds to continue our
business.
The premium wine industry is a capital-intensive business, which
requires substantial capital expenditures to develop and acquire vineyards and
to improve or expand wine production. Further, the farming of vineyards and
acquisition of grapes and bulk wine require substantial amounts of working
capital. We project the need for significant capital spending and increased
working capital requirements over the next several years. There can be no
assurance that we will be able to secure such financing on terms that are
acceptable, if at all. Additionally, we are in default on some of our short-term
notes payable, payment of which has currently been extended by the lenders
pending the refinance of our liabilities. As a result, we will be required to
raise substantial amounts of cash during 2005. There can be no assurance that we
will be successful in our efforts and any failure to raise such monies would
have a material negative effect on our business and operations. Finally, our
auditors have expressed substantial doubt about our ability to continue as a
going concern. If we are unable to secure necessary financing with favorable
terms, we will not have the funds to continue to produce, market and sell our
products.
Our business is seasonal, which could cause our market price to fluctuate.
Our industry is subject to seasonal as well as quarterly fluctuations
in revenues and operating results. Sales volume tends to increase during summer
months and the holiday season and decrease after the holiday season. As a
result, our sales and earnings are likely to be highest during the fourth
calendar quarter and lowest in the first calendar quarter. This and other
factors may cause fluctuations in the market price of our common stock.
We are dependent on third parties for supply of our products and if we are not
able to maintain good working relationships with these parties or enter into new
third party agreements, we may not be able to meet our distribution and sale
goals.
We currently own two vineyards with the facilities for wine production.
However, 360 Global Wine primarily markets and distributes wines produced by
third parties under our own label or the label of such third party producers.
Except for any contractual rights and remedies that 360 Global Wine may have
with such producers, we have no control over the availability of 360 Global
Wine's products, their quality or cost. If for any reason we are unable to
maintain or acquire new relationships with third party producers on commercially
acceptable terms, we may not be able to distribute our products as planned. If
we encounter delays or difficulties with contract producers in producing or
packaging our products, the distribution, marketing and subsequent sales of
these products would be adversely affected, and we may have to seek alternative
sources of supply or abandon or sell product lines on unsatisfactory terms. 360
Global Wine may not be able to enter into alternative supply arrangements on
commercially acceptable terms, if at all. There can be no assurance that the
25
<PAGE>
producers that 360 Global Wine has engaged will be able to provide sufficient
quantities of these products or that the products supplied will meet with 360
Global Wine's specifications.
We are dependent on certain key existing and future personnel, without whom the
Company will not run as efficiently as it has in the past.
Our success will depend, to a large degree, upon the efforts and
abilities of our officers and key management employees such as Joel Shapiro, our
Chief Executive Officer. The loss of Mr. Shapiro's services, or other key
employees could have a material adverse effect on our operations. Joel Shapiro
has vast experience in the finance industry and has been with us since our Share
Exchange on August 1, 2003, which gives him unprecedented knowledge about our
Company's history. We do not currently maintain key man life insurance on any of
our key employees. In addition, as our business plan is implemented, we will
need to recruit and retain additional management and key employees in virtually
all phases of our operations. Key employees will require a strong background in
the wine industry and we cannot assure that we will be able to successfully
attract and retain such key personnel. If, for any reason our current key
employees leave our employ and we are unable to retain comparable replacements,
our Company will lack a strong management team and that could lead to a
temporary or permanent breakdown of the Company.
We have experienced significant difficulty integrating the management of the
Kirkland Ranch with our Management.
We have experienced significant difficulty in integrating the
management of Kirkland Ranch, with whom we share operating responsibility at our
joint venture, Kirkland Knightsbridge, LLC.. Differences have arisen as to
management style and practices and as to future goals for the joint venture.
Often we have found that the goals of the Kirkland Ranch are not aligned with
those of our own management. This situation has resulted in, among other things,
difficulty in integrating systems and controls, difficulty in setting goals and
objectives and difficulty in agreeing to terms with potential investors.
Although we have taken steps to more fully integrate the two operations and to
create greater trust and cooperation between our management and that of the
Kirkland Ranch, there can be no guarantee that such efforts will be successful.
If the current difficulties continue or increase it could have a material
negative impact on our business and operations.
We may have difficulty competing with larger and better-financed companies in
our sector, which could result in a decrease of sales.
The premium table wine industry is intensely competitive and highly
fragmented. Our wines may compete in the premium wine market segments with many
other premium domestic and foreign wines. Our wines may also compete with
popular-priced generic wines and with other alcoholic and, to a lesser degree,
non-alcoholic beverages, for shelf space in retail stores and for marketing
focus by our independent distributors, many of which carry extensive brand
portfolios. Being a fairly new, and smaller company than many of our competitors
who have greater financial, technical, marketing and public relations resources
than we presently do, may put us at a disadvantage. Our sales may be harmed to
26
<PAGE>
the extent we are not able to compete successfully against such wine or
alternative beverage producers.
Winemaking and grape growing are subject to a variety of agricultural risks that
may lead to a decrease in supply of our product.
Various diseases, pests, fungi, viruses, drought, frosts and certain
other weather conditions can affect the quality and quantity of grapes
available, decreasing the supply of our products and negatively impacting
profitability. Many California vineyards have been infested in recent years with
phylloxera. Although we intend to work towards limiting the risk from
phylloxera, there can be no assurance that the vineyards owned or utilized by
the producers with whom we have contracted, or future vineyards that we may
acquire, will not become susceptible to current or new strains of phylloxera.
Pierce's Disease is a vine bacterial disease that has been in California for
more than 100 years. It kills grapevines and there is no known cure. Small
insects called sharpshooters spread this disease. A new strain of the
sharpshooter, the glassy winged, was discovered in Southern California and is
believed to be migrating north. The agricultural industry is actively trying to
control this pest and is making every reasonable effort to prevent an
infestation in vineyards. We cannot, however, guarantee that our current
producers will succeed in preventing contamination in existing vineyard or that
we will succeed in preventing contamination in future vineyards we may acquire.
Future government restrictions regarding the use of certain materials used in
grape growing may increase vineyard costs and/or reduce production. Grape
growing also requires adequate water supplies. A substantial reduction in water
supplies could result in material losses of grape crops and vines, which could
lead to a shortage of our product supply.
Our business may be adversely affected by our ability to grow or acquire enough
high quality grapes for our wines, which could result in a supply shortage.
The adequacy of our grape supply is influenced by consumer demand for
wine in relation to industry-wide production levels. While we believe that we
can secure sufficient regular supplies of grapes from a combination of
acquisitions and from grape supply contracts with independent growers, we cannot
be certain that grape supply shortages will not occur. A shortage in the supply
of wine grapes could result in an increase in the price of some or all grape
varieties and a corresponding increase in our wine production costs. An increase
in production cost could lead to an increase in our wine prices, which may
ultimately have a negative effect on our sales. Depending upon our independent
growers and acquisitions, a shortage in grape supply could have a stronger
effect on our Company than our competitors. Since wine is our only product at
this time, a shortage like the one described above would harm our business.
A potential oversupply of grapes due to an increase in domestic and foreign
vineyards could cause our prices to decrease and reduce sales.
Current trends in the domestic and foreign wine industry point to rapid
plantings of new vineyards and replanting of old vineyards to greater densities,
with the expected result of significantly increasing the worldwide supply of
premium wine grapes and the amount of wine which will be produced in the future.
This increase in grape production has resulted in an excess of supply over
demand and has forced wineries to reduce, or maintain prices without the ability
to increase them. A reduction in our wine prices could have a material adverse
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effect on our sales and overall business. Specifically, reduced grape prices
could result in a greater number of wine companies and increased competition for
our product.
We may experience barriers to conducting business due to government regulations.
The United States wine industry is subject to extensive regulation by
the Federal Bureau of Alcohol, Tobacco and Firearms and various foreign
agencies, state liquor authorities and local authorities. These regulations and
laws dictate such matters as licensing requirements, trade and pricing
practices, permitted distribution channels, permitted and required labeling,
advertising and relations with wholesalers and retailers. Any acquisition of new
vineyards or wineries may be limited by present and future zoning ordinances,
environmental restrictions and other legal requirements. In addition, new
regulations or requirements or increases in excise taxes, income taxes, property
and sales taxes or international tariffs, could reduce our profits. Future legal
challenges to the industry, either individually or in the aggregate, could harm
our business if they mandate documents to continue our business and we are
unable to obtain such documents.
Foreign exchange rates risk, political stability risk, and/or the imposition of
adverse trade regulations could harm our business.
We conduct some of our business in foreign currencies. We previously
owned and operated a winery in Argentina and currently own a majority interest
in a sales and marketing business in Australia, which formerly exported
Australian sourced wines. As part of our plans to acquire other businesses we
may expand our operations to other countries, operate those businesses in
foreign currencies, and export goods from the United States of America.
Presently, we have not engaged in any financial hedging activities to offset the
risk of exchange rate fluctuations. We may in the future, on an as-needed basis,
engage in limited financial hedging activities to offset the risk of exchange
rate fluctuations. Presently, we have not engaged in any financial hedging
activities to offset the risk of exchnage rate fluctuations. We may in the
future, on an as-needed basis, engage in limited financial hedging activities to
offset the risk of exchange rate fluctuations. There is a risk that a shift in
certain foreign exchange rates or the imposition of unforeseen and adverse
political instability and/or trade regulations could adversely impact the costs
of these items and the liquidity of our assets, and have an adverse impact on
our operating results. In addition, the imposition of unforeseen and adverse
trade regulations could have an adverse effect on our imported wine operations.
We expect the volume of international transactions to increase, which may
increase our exposure to future exchange rate fluctuations.
Our business may be adversely affected by changing public opinions about
alcohol.
A number of research studies suggest that various health benefits may
result from the moderate consumption of alcohol, but other studies suggest that
alcohol consumption does not have any health benefits and may in fact increase
the risk of stroke, cancer and other illnesses. If an unfavorable report on
alcohol consumption gains general support, it could harm the wine industry as a
whole, including our Company.
Contamination of our wines could lead to a diminishing reputation of our
product, which would harm our business.
Because our products are designed for human consumption, our business
is subject to certain hazards and liabilities related to food products, such as
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contamination. A discovery of contamination in any of our wines, through
tampering or otherwise, could result in a recall of our products. Any such
recall would significantly damage our reputation for product quality, which we
believe is one of our principal competitive assets, and could seriously harm our
business and sales. Although we maintain insurance to protect against such
risks, we may not be able to maintain such insurance on acceptable terms and
such insurance may not be adequate to cover any resulting liability. Therefore,
if our products are recalled and we do not have adequate insurance coverage, our
business will suffer a significant loss of sales and profit, as well as capital
to cover the difference in the liability cost.
Infringement of our brand name may damage our business.
Our wines are branded consumer products. Our ability to distinguish our
brand name from those of our competitors depends, in part, on the strength and
vigilant enforcement of our brand name. Competitors may use trademarks,
trade-names or brand names that are similar to those we use, thereby weakening
our intellectual property rights. If our competitors infringe on our rights, we
may have to litigate in order to protect such rights. Litigation may result in
significant expense and divert our attention from business operations. In
addition, we cannot assure you that we would be successful in protecting our
rights.
One of our key investors maintains the right to declare us in default of our
obligations under a Note.
The Company entered a Note dated April 21, 2004 with Gryphon Master
Fund, LP. Under the Note, if Gryphon declares an event of default it has the
option to either foreclose on all of our assets or require us to immediately pay
the entire outstanding Principal amount of the Note and any accrued and unpaid
interest thereon in cash. One of the events of default listed in the Note is the
failure to have the current registration statement declared effective by June
15, 2004. Since this date has passed and the registration statement has not yet
been declared effective, Gryphon maintains the right to declare us in default
under the Note and to require payment within 20 days from the date of notice. If
we are unable pay the amount due under the Note, Gryphon's investment is secured
by a first priority security interest in all of the assets and property of our
Company, including our interest in Kirkland Knightsbridge LLC. Although Gryphon
has agreed, for the present time to waive the default, there is no assurance
that they will not demand payment in the future.
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To the Board of Directors
360 Global Wine Company (Formerly Knightsbridge Fine Wines, Inc.)
Napa, California
We have audited the accompanying consolidated balance sheet of 360 Global Wine
Company (Formerly Knightsbridge Fine Wines, Inc.) as of December 31, 2004, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for the year then ended. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining on a
test basis, evidence supporting the amount and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of 360
Global Wine Company (Formerly Knightsbridge Fine Wines, Inc.) as of December 31,
2004, and the results of its operations and its cash flows for the year then
ended, in conformity with accounting principles generally accepted in the United
States of America.
The accompanying consolidated financial statements have been prepared assuming
that 360 Global Wine Company (Formerly Knightsbridge Fine Wines, Inc.) will
continue as a going concern. As discussed in Note 15 to the consolidated
financial statements, 360 Global Wine Company (Formerly Knightsbridge Fine
Wines, Inc.) has incurred losses of $13,201,462 and $5,042,785 for the years
ended December 31, 2004 and 2003. 360 Global will require additional working
capital to develop its business until 360 Global either (1) achieves a level of
revenues adequate to generate sufficient cash flows from operations; or (2)
obtains additional financing necessary to support its working capital
requirements. These conditions raise substantial doubt about 360 GLobal's
ability to continue as a going concern. Management's plans in regard to this
matter are also described in Note 15. The accompanying financial statements do
not include any adjustments that might result from the outcome of these
uncertainties.
/s/ Lopez, Blevins, Bork & associates, LLP
- -------------------------------------------
Lopez, Blevins, Bork & Associates, LLP
Houston, Texas
May 11, 2005
30
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May 11, 2005
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
360 Global Wine Company (Formerly Knightsbridge Fine Wines, Inc.)
We have audited the consolidated statements of operations, comprehensive income,
stockholders' equity, and cash flows of 360 Global Wine Company (Formerly
Knightsbridge Fine Wines, Inc.) for the year ended December 31 2003. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated statements of operations, cash flows and
stockholders' equity for the year ended December 31, 2003 present fairly, in all
material respects, the consolidated results of operations and cash flows for the
year ended December 31, 2003 in conformity with accounting principles generally
accepted in the United States of America. We have not audited the consolidated
financial statements of 360 Global Wine Company for any period subsequent to
December 31, 2003.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 15 to the
financial statements, the Company has suffered significant losses and negative
cash flows from operations which raises substantial doubt about its ability to
continue as a going concern. Management's plans regarding those matters are also
described in Note 15. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
/s/ Marks Paneth & Shron LLP
- -----------------------------
Marks Paneth & Shron LLP
New York, NY
April 14, 2004, except for note 9, as to which the date is April 21, 2004
(Kirkland Knightsbridge Acquisition) and 16 as to which the date is October 28,
2004.
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<TABLE>
<CAPTION>
ITEM 7. FINANCIAL STATEMENTS
360 GLOBAL WINE COMPANY
CONSOLIDATED BALANCE SHEET
December 31, 2004
ASSETS
<S> <C>
Current assets:
Cash $ 79,892
Accounts receivable, net of allowance of $46,000 155,024
Inventory 5,606,870
Prepaid interest 1,093,497
Other Prepaid expenses 127,677
------------
7,062,960
Property and equipment, net of accumulated depreciation 38,474,443
Goodwill 28,588
Other assets 326,473
Deferred financing costs 1,238,639
------------
Total assets $ 47,131,104
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable - Trade $ 2,064,209
Accounts payable - Affiliated Entity $ 390,490
Accrued interest expenses 140,237
Other Accrued expenses 197,234
Notes payable 2,174,467
Notes payable - Affiliated Entity 2,250,000
------------
Total current liabilities 7,216,637
Long-term debt, net of unamortized discount of $3,454,042
face amount $25,500,000 22,045,958
------------
Total liabilities 29,262,595
------------
Minority interest 15,917,192
------------
Stockholders' Equity
Common stock, $0.001 par value, 100,000,000 shares authorized
41,073,297 outstanding as of December 31, 2004 41,073
32
<PAGE>
Subscription receivable (18,972)
Additional paid in capital 20,216,184
Accumulated other comprehensive income - foreign exchange adjustment (5,988)
Deficit accumulated (18,280,981)
------------
Total stockholders' Equity 1,951,318
------------
Total Liabilities and Stockholders' Equity $ 47,131,104
============
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
360 GLOBAL WINE COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
2004 2003
------------------------------------------
<S> <C>
Revenues:
Commissions $ 20,780 $ 399,826
Sales 2,576,888 289,682
Custom services and events 270,359 -
----------------------------------------
Total 2,868,027 689,508
------------------------------------------
Operating expenses:
Cost of goods sold 2,558,156 187,297
Sales and marketing 1,890,278 1,130,269
General and administrative 4,207,374 1,020,389
Stock compensation expense 1,938,846 2,973,662
Loss on divestment in Subsidiary 2,620,914
----------------------------------------
Total 13,215,568 5,311,617
------------------------------------------
Loss from operations (10,347,541) (4,622,109)
------------------------------------------
Other income (expense):
Interest income 30,400 13,337
Interest expense (3,522,253) (447,763)
Other Expense (245,574)
Gain (loss) on currency transactions 4,110 -
------------------------------------------
Other income (expense), net (3,733,317) (434,426)
------------------------------------------
Loss before minority interest (14,080,858) (5,056,535)
Minority interest in consolidated loss 879,682 13,750
------------------------------------------
Net loss $ (13,201,175) $ (5,042,785)
==========================================
Net loss per share:
Basic and diluted $ (0.36) $ (0.16)
Weighted average shares outstanding:
Basic and diluted 37,181,011 31,562,000
</TABLE>
34
<PAGE>
360 GLOBAL WINE COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
YEARS ENDED DECEMBER 31,
2004 2003
-------------------------------------
Net loss $ (13,201,175) $ (5,042,785)
Foreign currency translation adjustment 96,533 -
-------------------------------------
Comprehensive loss $ (13,104,462) $ (5,042,785)
=====================================
35
<PAGE>
<TABLE>
<CAPTION>
360 GLOBAL WINE COMPANY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Warrant Common Stock Prepaid Add'l
------------------------------------------------ Subscriptions Stock Paid in
ACTIVITY Number Value Number Value Receivable Compensation Capital
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance 12-31-02 100,000 10,000 17,705,050 17,705 (17,705) $ -- 10,000
February 17, 2003
Acquisition of Dominion Wines Int'l 1,000,000 1,000 16,501
February 20, 2003
Common stock issued as compensation 986,700 987 21,813
May 15, 2003
100,000 warrants issued for
note of $100,000 100,000 41,217
May 15, 2003
25,000 warrants issued for
note of $25,000 10,603
May 27, 2003
25,000 warrants issued for note 25,000 10,576
July 1, 2003
3,313,250 shares issued as
compensation 3,313,250 3,313 (3,313) (299,625) 2,647,287
July 7, 2003
25,000 warrants issued for
note of $25,000 25,000 10,304
July 22, 2003
Payment of subscription receivable 1,252
July 28, 2003
Common stock issued for cash 6,250 6 24,994
July 28, 2003
75,000 warrants issued for
note of $250,000 75,000 46,744
August 1, 2003
Tech-Net Merger 5,122,000 5,122 (5,122)
36
<PAGE>
Accumulated
Foreign Exchange
Translation
ACTIVITY Deficit Adjustments Total
- --------------------------------------------------------------------------------------------------
Balance 12-31-02 (37,020) $ -- (17,020)
February 17, 2003
Acquisition of Dominion Wines Int'l 17,501
February 20, 2003
Common stock issued as compensation 22,800
May 15, 2003
100,000 warrants issued for note
of $100,000 41,217
May 15, 2003
25,000 warrants issued for note
of $25,000 10,603
May 27, 2003
25,000 warrants issued for note 10,576
July 1, 2003
3,313,250 shares issued as compensation 2,347,662
July 7, 2003
25,000 warrants issued for note
of $25,000 10,304
July 22, 2003
Payment of Subscription Receivable 1,252
July 28, 2003
Common stock issued for cash 25,000
July 28, 2003
75,000 warrants issued for note of
$250,000 46,744
August 1, 2003
Tech-Net Merger --
37
<PAGE>
360 GLOBAL WINE COMPANY
AUDITED
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Warrant Common Stock Prepaid Add'l
------------------------------------------------ Subscriptions Stock Paid in
ACTIVITY Number Value Number Value Receivable Compensation Capital
- ------------------------------------------------------------------------------------------------------------------------------------
August 6, 2003
900,000 shares of stock issued to
company founder 900,000 900 (900)
August 6, 2003
Common stock issued as compensation 130,000 130 (14,400) 14,270
August 8, 2003
900,000 shares of stock issued to
company founder 900,000 900 (900)
August 28, 2003 50,000
50,000 warrants issued for note
of $50,000 Beneficial conversion
feature on note 30,281
19,719
September 9, 2003 25,000
25,000 warrants issued for note
of $25,000 Beneficial conversion 15,964
feature on note 9,036
September 23, 2003 25,000
25,000 warrants issued for note
of $25,000 Beneficial conversion 16,130
feature on note 9,251
October 16, 2003 416,667 374,443
416,667 warrants issued for note
of $1,500,000 Beneficial conversion 1,125,557
feature on note 25,000 warrants
issued as financing cost 84,000
November 4, 2003
Common stock issued as compensation 325,000 325 (617,500) 617,175
November 6, 2003 1,000,000 1,000 - 2,499,000
1,000,000 Shares Common stock
issued-subsidiary
November 24, 2003
100,000 warrants issued as
consultants compensation 175,000
December 11, 2003
Common stock issued as compensation 250,000 250 (425,000) 424,750
December 22, 2003 1,111,111 711,927
1,111,111 warrants issued for note 867,482
of $2,000,000 Beneficial conversion 122,400
feature on note 60,000 warrants
issued as financing costs
Amortization of prepaid stock
compensation 428,200
Net loss
Foreign currency translation
adjustment
----------------------------------------------------------------------------------
Balance 12-31-03 31,638,250 31,638 $ (21,566) $ (928,325) $ 9,951,302
==================================================================================
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
Accumulated
Foreign Exchange
Translation
ACTIVITY Deficit Adjustments Total
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
August 6, 2003
Common stock issued to company founder --
August 6, 2003
Common stock issued as compensation --
August 8, 2003
900,000 shares of stock issued to company founder --
August 28, 2003
50,000 warrants issued in connection with
note payable of $50,000 30,281
Beneficial conversion feature on notes payable 19,719
September 9, 2003
25,000 warrants issued in connection with note
payable of $25,000 15,964
Beneficial conversion feature on notes payable 9,036
September 23, 2003
25,000 warrants issued in connection with
note payable of $25,000 16,130
Beneficial conversion feature on notes payable 9,251
October 16, 2003
416,667 warrants issued in connection with
notes payable of $1,500,000 374,443
Beneficial conversion feature on notes payable 1,125,557
25,000 warrants issued as financing cost 84,000
November 4, 2003
Common stock issued as compensation --
November 6, 2003
Common stock issued to acquire subsidiary 2,500,000
November 24, 2003
100,000 warrants issued as consultant
compensation 175,000
December 11, 2003
Common stock issued as compensation --
December 22, 2003
1,111,111 warrants issued in connection with
notes payable of $2,000,000 711,927
Beneficial conversion feature on notes payable 867,482
60,000 warrants issued as financing cost 122,400
Amortization of prepaid stock compensation 428,200
Net income (5,042,785) (5,042,785)
Foreign currency translation adjustment (102,838) (102,838)
-----------------------------------------------
Balance 12-31-03 $ (5,079,805) $ (102,838) $ 3,860,406
===============================================
</TABLE>
See notes to the financial statements
39
<PAGE>
<TABLE>
<CAPTION>
360 GLOBAL WINE COMPANY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Prepaid Add'l Paid
Common Stock Subscriptions Stock in
-----------------------------
ACTIVITY Number Value Receivable Compensation Capital
- -------------------------------------------- ---------- -------------------- ---------------- ----------------- -----------
<S> <C> <C> <C>
Common stock in connection with
investment in Joint Venture 4,255,320 4,255 4,746,745
Common stock and warrants issued as
compensation 1,181,000 1,181 (126,000) 1,009,340
Amortization of prepaid stock 1,054,325
Common stock for cash, net 7,272,727 7,273 2,021,050
Common stock cancelled in connnection with
non payment of subscription recievable (2,594,000) (2,594) 2,594
Common stock issued in connection with
note payable of $500,000 320,000 320 316,280
Divestment in subsidiary (1,000,000) (1,000)
Discount on allocation of warrants on debt 1,769,702
Beneficial converson feature of notes 401,765
Net Loss
Foreign currency translation adjustment
------------------ ---------- ---------------- --------------------- ----------------
Balance 12-31-04 41,073,297 $ 41,073 (18,972) -- $ 20,216,184
================== ========== ================ ===================== ================
40
<PAGE>
360 GLOBAL WINE COMPANY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Accumulated
Foreign Exchange
Translation
ACTIVITY Deficit Adjustments Total
- ------------------------------------------------------------------------------------------------------
Common stock in connection with
investment in Joint Venture 4,751,000
Common stock and warrants issued as compensation 884,521
Amortization of prepaid stock 1,054,325
Common stock for cash, net 2,028,323
Common stock cancelled in connection with
divestiture of former subsidiary -
Common stock issued in connection with
note payable of $500,000 316,000
Divestment in subsidiary (1,000)
Discount allocation of warrrants on debt 1,769,702
Beneficial conversion feature of notes 401,765
Net Loss (13,201,175) (13,201,175)
Foreign currency translation adjustment -- 96,850 96,850
---------------------------------------------------
Balance 12-31-04 $18,280,980) (5,988) $ 1,961,317
===================================================
</TABLE>
41
<PAGE>
360 GLOBAL WINE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
2004 2003
----------------------------
Cash flows from operating activities:
Net loss $ (13,201,175) $ (5,042,785)
Adjustment to reconcile net
loss to cash used in operating activities:
Depreciation and amortization
- property and equipment 1,243,132 23,999
Bad Debt expense 46,000 -
Non-cash interest expense 1,650,117 376,218
Loss on divestiture in subsidiary 2,620,914
Repayment of notes payable representing
amortized discount - (119,696)
Stock compensation 1,938,846 2,973,662
Minority interest in loss (879,682) (13,750)
Other -
Changes in current assets and liabilities:
Accounts receivable (15,906) (10,789)
Inventories (850,610) (440,367)
Prepaid expenses (252,109) 14,843
Other current assets (904,900) -
Accounts payable 1,102,755 579,736
Accrued expenses (116,065) 347,989
Customer prepaid liability -
Other - 153
----------------------------
Net cash used in operating activities (7,618,684) (1,310,787)
----------------------------
Cash flows from investing activities:
Acquisition of KKLLC 316,503
Acquisition of property and equipment (4,745) (441,974)
Notes receivable - (226,706)
Deposits - (217,500)
Other assets - (90,800)
----------------------------
Cash used in investing activities 311,758 (976,980)
----------------------------
Cash flows from Financing activities:
Issuance of common stock 2,028,323 37,343
Proceeds from notes payable 1,795,000 2,781,810
Proceeds from issuance of warrants - 1,268,190
Repayment of note payable not representing
unamortized discount (108,728) (269,116)
Deferred Financing costs - (320,000)
Proceeds from affiliated entity 2,250,000
Cash Overdraft - -
----------------------------
Cash provided by financing activities 5,964,5956 3,498,227
----------------------------
Foreign Currency Translation effect 96,850 (87)
----------------------------
Net decrease in cash (1,245,481) 1,210,373
Cash, beginning of period 1,325,373 115,000
----------------------------
Cash, end of period $ 79,892 $ 1,325,373
============================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Income taxes paid $ 1,287 $ -
Interest paid $ 19,737 $ -
42
<PAGE>
360 GLOBAL WINE, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION, ORGANIZATION AND NATURE OF OPERATIONS
360 Global Wine Company ("360 Global Wine") was incorporated in the
State of Nevada, on October 8, 2002 with a vision and objective to establish and
build a diversified international wine company. 360 Global Wine believed that an
oversupply of small and mid-sized wineries lacking effective sales, marketing,
and branding strength currently exists, which has created an opportunity to
consolidate and build an efficient operation that can maximize economies of
scale, increase utilization of production assets, and provide a more streamlined
and effective sales, marketing, and distribution group. 360 Global Wine further
believed that by adopting and applying consumer beverage marketing principals
within the wine industry we can further enhance operating results beyond what is
currently achieved by many small and mid-sized wineries creating a comparative
advantage for the company.
On August 1, 2003, 360 Global Wine completed a reverse acquisition of
Tech-net Communications, Inc., a Nevada corporation, incorporated on May 15,
2000. Following the reverse acquisition, we changed the name of Tech-net
Communications, Inc. to "Knightsbridge Fine Wines, Inc." Effective February 15,
2005, we changed our name from Knightsbridge Fine Wines, Inc. to 360 Global Wine
Company, Inc. 360 Global Wine Company is now the parent company to our operating
subsidiaries and is referred to herein as 360 Global Wine. Although the Company
is the legal parent company, the share exchange was treated as a
recapitalization of 360 Global Wine. 360 Global Wine is the continuing entity
for financial reporting purposes. The Financial Statements have been prepared as
if 360 Global Wine had always been the reporting company and then on the share
exchange date, had changed its name and reorganized its capital stock. In
addition, the transaction results in severe limitations being in place on the
use of the Company's net operating loss carryovers.
On April 21, 2004 360 Global Wine acquired 50% of Kirkland
Knightsbridge, LLC, a California limited liability company, pursuant to a
Capital Stock Contribution Agreement, dated as of April 21, 2004, by and among
Kirkland Ranch, LLC, a California limited liability company, Kirkland
Knightsbridge, 360 Global Wine and Mr. Larry Kirkland.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the accounts
of the acquired entities since their respective dates of acquisition. All
significant inter-company amounts have been eliminated. This includes Kirkland
Knightsbridge LLC. The Company does not have voting control, it is shared with
its joint venture partner, but management has concluded that it must be
consolidated under the principles set-forth in FASB Interpretation No. 46
(Revised) - Consolidation of Variable Interest Entities ("FIN 46(R)").
Voting control of Kirkland Knightsbridge, LLC is split between the Company
and Kirkland Ranch. Pursuant to the Operating Agreement of Kirkland
Knightsbridge, LLC, the Company has disproportionate control over certain
42
<PAGE>
budgetary and expenditure matters while Kirkland Ranch has disproportionate
control over certain operating matters. Although the Company does not have
voting control, management has concluded that it must be consolidated under the
principles set forth in FIN 46(R) The reasons for consolidation, which are
explained further below, however are the fact that the Company is responsible
for maintaining the value of its initial capital contribution to Kirkland
Knightsbridge, LLC, which was made in the form of common stock, and the fact
that substantially all of Kirkland Knightsbridge, LLC's activities involve or
are conducted on behalf of 360 Global Wine whose obligations to absorb the
expected losses of Kirkland Knightsbridge, LLC exceed that of Kirkland Ranch.
Ownership interests in Kirkland Knightsbridge, LLC are based on the
maintenance of capital accounts, rather than shares as would be the case with a
corporation. The minority interest in Kirkland Knightsbridge, LLC as shown on
the balance sheet represents the joint venture partner's share of Kirkland
Knightsbridge, LLC net assets based on the partner's capital account. As
described in EITF Issue No. 98-2 - Accounting by a Subsidiary or Joint Venture
for an Investment in the Stock of Its Parent Company of Joint Venture Partner,
there is no consensus as to the methodology under generally accepted accounting
principles for eliminating parent company stock owned by a consolidated, partly
owned subsidiary. Because Kirkland Knightsbridge, LLC owns a material amount of
Company stock, any policy adopted by the Company in this unsettled area is a
particularly significant accounting policy.
As of the date of this filing, almost the entirety of Kirkland
Knightsbridge, LLC activities involve and are conducted on behalf of 360 Global
Wine. Kirkland Knightsbridge, LLC maintains the right to conduct independent
bottling and storage of third party wines, but it has been conducting minimal
third party work since the creation of the joint venture. In addition, Kirkland
Knightsbridge, LLC is the production facility which produces Napa Valley,
Central Coast and California Appellation products which are sold solely be the
Company. The brands owned by Kirkland Knightsbridge, LLC are sold through
channels which are developed by the Company. Kirkland Knightsbridge, LLC exists
to fill the needs of the distribution channels opened by the Company.
Under the terms of the Kirkland Knightsbridge, LLC governing document,
the Company and the joint venture partner share equally in all gains and losses
of Kirkland Knightsbridge, LLC's Company stock. The Company has guaranteed a
minimum value to the stock, which will eventually be distributed to the joint
venture partner. Because the Company will receive full credit in its capital
account for any payment of the guarantee, and the joint venture partner will be
charged with the full fair value of the stock withdrawn, the Company has
effectively extended half the guarantee to itself. Considering these facts, the
Company's policy is to eliminate half of the Company's stock owned by Kirkland
Knightsbridge, LLC as treasury stock, valued at the quoted market price on the
date of the acquisition.
In connection with the operations of the joint venture and subject to
the occurrence of certain events, the Company is required to make additional
cash capital contributions in order to fund the budget of the joint venture for
certain business purposes. Such cash contributions include but are not limited
to certain principal and interest payments owned under the Travelers Note
through April 21, 2007, to the extent not previously paid from cash at closing.
The Company also agreed, solely upon occurrence of non-payment of principal and
interest payments owed under the Travelers Note to risk forfeiture of its
membership interest.
43
<PAGE>
Because of the requirement for 360 Global Wine Company to make
additional capital contributions to fund certain operating expenses and debt
payments, and the requirement to make additional capital contributions should
the Company stock owned by Kirkland Knightsbridge, LLC be worth less than
$10,000,000 on April 27, 2007, 360 Global Wine would incur the majority of
Kirkland Knightsbridge, LLC's "expected losses" as defined by FIN 46(R). The
Company believes this is true despite sharing of income and losses between the
Company and Kirkland Ranch on an equal basis. This basic equal sharing of income
and loss results in "expected losses" and any relatively small overall losses
being shared equally. The equal allocation of losses is, however, limited by
each partner's capital account which means that in all reasonable scenarios
involving relatively large losses 360 Global Wine would incur more than 50% of
the loss.
Since substantially all of Kirkland Knightsbridge, LLC's activities
involve or are conducted on behalf of 360 Global Wine whose obligations to
absorb the expected losses of Kirkland Knightsbridge, LLC exceed that of
Kirkland Ranch, the Company has concluded that Kirkland Knightsbridge, LLC is a
Variable Interest Entity under FIN 46R and must be consolidated.
Use of Estimates
The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents include cash and all highly liquid financial
instruments with purchased maturities of three months or less. Cash as of
December 31, 2004 was $79,892.
Accounts Receivable
Credit is extended based on evaluation of a customers' financial
condition and, generally, collateral is not required. Accounts receivable are
due within 30 to 45 days and are stated at amounts due from customers net of an
allowance for doubtful accounts. Accounts outstanding longer than the
contractual payment terms are considered past due. The Company determines its
allowance by considering a number of factors, including the length of time trade
accounts receivable are past due, the Company's previous loss history, the
customer's current ability to pay its obligation to the Company and the
condition of the general economy and the industry as a whole. The Company
writes-off accounts receivables when they become uncollectible and payments
subsequently received on such receivables are credited to the allowance for
doubtful accounts. The allowance for doubtful accounts and sales discounts are
$46,000 at December 31, 2004.
Inventory
Bulk wine and case goods are stated at the lower of average cost or net
realizable value. Inventories of supplies are stated at the lower of first-in,
44
<PAGE>
first-out (FIFO) cost or replacement cost. Costs associated with the current
year's unharvested grape crop are deferred and recognized in the subsequent year
when the grapes are harvested. Wine inventories are classified as current assets
in accordance with recognized trade practice although some products will not be
sold in the following year.
The Company has initiated production of an Artist Series brand in which
the Company is building inventory through contract producers and the procurement
of goods. The Company has adopted the FIFO ("first in first out") method of
accounting for this inventory.
At December 31, 2004, Inventory consisted of the following
Wine making, packaging materials $ 161,463
Grapes in process 17,650
Retail Merchandise 37,551
Finished goods 3,120,320
Bulk Wines 2,269,886
-----------
Total $ 5,606,870
===========
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation and
amortization are computed using the straight-line method over the estimated
lives of the related assets, as follows:
Years
Land Improvements 25
Vineyards 25
Buildings 40
Cooperage 40
Equipment 3-7
Costs incurred in developing vineyards, including related interest
costs, are capitalized until the vineyards become commercially productive.
Maintenance and repairs are charged to operating costs as incurred. The cost of
improvements is capitalized. Gains or losses on the disposition of assets are
included in income.
Deferred Financing Costs
Costs incurred in connection with the issuance of debt are deferred and
amortized on the interest rate method over the term of the related debt.
Amortization is included in interest expense.
Fair Value of Financial Instruments
The Company's financial instruments consist of cash, accounts
receivable, loans receivable, accounts payable, notes payable, long-term debt
and accrued expenses. Except for notes payable and long-term debt, the fair
value of these financial instruments approximates their carrying value as of
December 31 2004 due to their short-term nature or their recent creation.
45
<PAGE>
Long-term debt is carried on the balance sheet as $25,450,000. The fair value of
the debt payable to Travelers' Life Insurance Company ("Travelers") approximates
its $21,891,641 carrying value because of its recent issuance. The fair value of
the remaining debt, if all convertible debt were valued based on the number of
shares that would be received on conversion at December 31, 2004 multiplied by
$0.35 closing price on the Over-the-Counter Bulletin Board would be
approximately $2,749,500. When added to the Travelers debt fair value the total
fair value is $21,641,141.
Foreign Currency Translation
The functional currency of the Company's foreign subsidiaries is the
local foreign currency. All assets and liabilities denominated in foreign
currencies are translated into U.S. dollars at the exchange rate prevailing on
the balance sheet date. Revenues, costs and expenses are translated at average
rates of exchange prevailing during the period. Translation adjustments
resulting from translation of the subsidiaries' accounts are accumulated as a
separate component of shareholders' equity. Gains and losses resulting from
foreign currency transactions are included in the consolidated statements of
operations and have not been significant.
Revenue Recognition
Revenue is recognized when product is shipped FOB winery. The cost of
price promotions, rebates and coupon programs are treated as reductions of
revenues. Revenue from items sold through the Company's retail locations is
recognized at the time of sale. No products are sold on consignment.
Long-Lived Asset Impairment
Long-lived assets and certain identifiable intangible assets to be held
and used are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of such assets may not be recoverable.
Determination of recoverability is based on an estimate of undiscounted future
cash flows resulting from the use of the asset and its eventual disposition.
Measurement of any impairment loss for long-lived assets and certain
identifiable intangible assets that management expects to hold and use is based
on the amount the carrying value exceeds the fair value of the asset.
Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes."
Under SFAS No.109, deferred tax assets and liabilities are computed based on the
difference between the financial statement and income tax bases of assets and
liabilities using the enacted marginal tax rate. SFAS No. 109 requires that the
net deferred tax asset be reduced by a valuation allowance if, based on the
weight of available evidence, it is more likely than not that some portion or
all of the net deferred tax asset will not be realized. The Company continues to
reduce its net deferred tax assets by a 100% valuation allowance.
Stock-based Compensation
The Company accounts for stock-based employee compensation arrangements
using the intrinsic value method in accordance with the provisions of Accounting
Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to
Employees," and complies with the disclosure provisions of SFAS No. 123
46
<PAGE>
"Accounting for Stock-Based Compensation," as amended by SFAS No. 148. Under APB
Opinion No. 25, compensation cost is generally recognized based on the
difference, if any, on the date of grant between the fair value of the Company's
common stock and the amount an employee must pay to acquire the stock.
The Company periodically issues common stock for acquisitions and
services rendered. Common stock issued is valued at the estimated fair market
value, as determined by management and the board of directors of the Company.
Management and the board of directors consider market price quotations, recent
stock offering prices and other factors in determining fair market value for
purposes of valuing the common stock .
Basic and Diluted Net Loss per Share
Basic income or loss per share includes no dilution and is computed by
dividing net income or loss by the weighted-average number of common shares
outstanding for the period. Diluted income or loss per share includes the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock. For all periods
presented, diluted loss per share equaled the basic loss per share as all
convertible instruments were anti-dilutive.
New accounting pronouncements
In 2002, the FASB issued SFAS 146, "Accounting for Costs Associated
with Exit or Disposal Activities." SFAS 146 requires that a liability for a cost
associated with an exit or disposal activity be recognized when the liability is
incurred. Severance pay under SFAS 146, in many cases, would be recognized over
the remaining service period rather than at the time the plan is communicated.
The provisions of SFAS 146 are effective for exit or disposal activities that
are initiated after December 31, 2002. The Company will adopt SEAS 146 for any
actions initiated after January 1, 2003, and any future exit costs or disposal
activities will be subject to this statement.
In 2003, the FASB issued FIN 46, "Consolidation of Variable Interest
Entities." FIN 46 defines a variable interest entity (VIE) as a corporation,
partnership, trust, or any other legal structure that does not have equity
investors with a controlling financial interest or has equity investors that do
not provide sufficient financial resources for the entity to support its
activities. FIN 46 requires consolidation of a VIE by the primary beneficiary of
the assets, liabilities and results of activities effective in 2003. FIN 46 also
requires certain disclosures by all holders of a significant variable interest
in a VIE that are not the primary beneficiary. The Company will adopt FIN 46 for
any actions initiated after January 1, 2003, and any future investment in
variable interest entities will be subject to this statement.
In 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure", which amends SFAS No. 123, to provide
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. In addition, SFAS
No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent
disclosures in both annual and interim financial statements about the method
used on reported results. The disclosure provisions of SFAS No. 148 are
effective for fiscal years ending after December 15, 2002.
47
<PAGE>
Pursuant to SFAS No. 148, the Company has elected to account for
employee stock-based compensation under APB Opinion No. 25, "Accounting for
Stock Issued to Employees," using an intrinsic value approach to measure
compensation expense. Accordingly, no compensation expense has been recognized
for options granted to employees under such a plan since the Company at this
time does not have an option plan in place.
In 2003, the FASB issued SFAS 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities", which amends SFAS 133 for
certain decisions made by the FASB Derivatives Implementation Group. In
particular, SFAS 149: (1) clarifies under what circumstances a contract with an
initial net investment meets the characteristic of a derivative; (2) clarifies
when a derivative contains a financing component; (3) amends the definition of
an underlying to conform it to language used in FASB Interpretation No. 45
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others"; and (4) amends certain other
existing pronouncements. This Statement is effective for contracts entered into
or modified after June 30, 2003, and for hedging relationships designated after
June 30, 2003. In addition, most provisions of SFAS 149 are to be applied
prospectively.
The Company does not expect the adoption of SFAS 149 to have a material impact
on its financial position, cash flows or results of operations.
In December 2004, the Financial Accounting Standards Board issued
Statement 123 (revised 2004), Share-Based Payment (Statement 123(R)). This
Statement requires that the costs of employee share-based payments be measured
at fair value on the awards' grant date using an option-pricing model and
recognized in the financial statements over the requisite service period. This
Statement does not change the accounting for stock ownership plans, which are
subject to American Institute of Certified Public Accountants SOP 93-6,
"Employer's Accounting for Employee Stock Ownership Plans." Statement 123(R)
supersedes Opinion 25, Accounting for Stock Issued to Employees and its related
interpretations, and eliminates the alternative to use Opinion 25's intrinsic
value method of accounting, which the Company is currently using.
Statement 123(R) allows for two alternative transition methods. The
first method is the modified prospective application whereby compensation cost
for the portion of awards for which the requisite service has not yet been
rendered that are outstanding as of the adoption date will be recognized over
the remaining service period. The compensation cost for that portion of awards
will be based on the grant-date fair value of those awards as calculated for pro
forma disclosures under Statement 123, as originally issued. All new awards and
awards that are modified, repurchased, or cancelled after the adoption date will
be accounted for under the provisions of Statement 123(R). The second method is
the modified retrospective application, which requires that the Company restates
prior period financial statements. The modified retrospective application may be
applied either to all prior periods or only to prior interim periods in the year
of adoption of this statement. The Company is currently determining which
transition method it will adopt and is evaluating the impact Statement 123(R)
will have on its financial position, results of operations, EPS and cash flows
when the Statement is adopted. Upon making its determination of the transition
method the Company will adopt Statement 123(R).
NOTE 3: PROPERTY AND EQUIPMENT
Property and equipment at December 31, 2004 consisted of the following:
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<PAGE>
Land $ 3,237,583
Cultivated land 11,451,275
Buildings, improvements and equipment 24,815,073
----------
39,503,931
Less: accumulated depreciation and amortization 860,374
-----------
$38,643,557
===========
Depreciation expense was $1,243,132 and $23,999 for the year ended December 31,
2004 and 2003 respectively..
NOTE 4. SHORT-TERM NOTES PAYABLE
Short-term notes payable consist of nine notes issued from December
2002 to April 2004 at a total face-value amount of $1,220,000 and three notes
issued on May 28, 2004 at a total face-value of $500,000, and two notes issued
on September 24 and December 27, 2004 at a face-value of $800,000 for a total of
$2,520,000.
The original terms for the nine notes issued between December 2002 and
April 2004 ranged from 90 days to one year. Interest ranged from 8% to 12% if
not in default and rose to 19% if in default for the 2002 and 2003 notes. The
April 2004 note is at 10% interest. At September 2004, the interest and
penalties due on the April 2004 long term note from Gryphon Master Fund were
combined into a new note which is due on August 2005. The September 2004 note is
at 10% interest. The September 2005 note is secured with 3,000,000 common shares
of stock owned by Joel Shapiro. During 2003, $350,000 of principal (representing
five of the notes) was repaid. For the twelve months ended December 31, 2004, an
additional $50,000 of principal (representing two notes) was repaid. Of the
remaining notes shown on the December 31, 2004, $325,000 of principal plus
interest are convertible into approximately 194,445 shares at prices ranging
from $1.50 to $2.00 per share. Some of the notes payable are currently in
default and the note holders have at this time extended the notes pending a
refinancing of the liabilities.
In conjunction with the issuance of the May 28 notes, the lenders were
given 75,000 shares of the Company's common stock. An additional 25,000 shares
were issued to the note holders effective July 28, 2004 because the principal
had not been repaid at that time. $58,766 of the $500,000 proceeds were
allocated to the 75,000 shares issued, based on the relative estimated fair
values of the stock and the convertible debt, resulting in a discount on the
debt. A further $103,766 was allocated to the beneficial conversion feature
inherent in the convertible notes resulting in a further discount. $72,236 of
the discounts were amortized as interest expense during the quarter ended June
30, 2004, the remaining $90,298 has been amortized during the quarter ending
September 30, 2004.
The notes issued on May 28, 2004 have a Maturity Date of August 26,
2004 with interest accruing at a rate of six percent (6%) per annum for the
first 60 days and twelve percent (12%) per annum from the 61st day until the
Maturity Date. The Company and lender have negotiated a first extension of this
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<PAGE>
maturity date to November 9, 2004 with interest from August 26, 2004 accruing at
eighteen (18%) per annum. Subsequently, the Company and the lender verbally
agreed to a second extension until January 1, 2006 under the same terms. The
$470,000 principal and accrued but unpaid interest is convertible into the
Company's common stock at $1.00 per share.
As part of the joint venture transaction, the Kirkland Cattle Co.
provided inventory loans to Kirkland Knightsbridge, LLC in the aggregate amount
of $2.25 million to be paid with other debt from any initial profits of Kirkland
Knightsbridge, LLC. The loans bear no interest and have no call option.
Other miscellaneous debts carry a balance of $84,467 of short term
debt.
As a result, at December 31, 2004, that Company had $4,424,467 of short
term notes.
NOTE 5: LONG TERM DEBT
On April 21, 2004, as part of the financing of the Company's
purchase of its 50% membership interest in Kirkland Knightsbridge, LLC, the
Company completed a senior secured convertible note financing with gross
proceeds to the Company of $2 million. Net proceeds from the note offering,
after estimated costs and expenses, were approximately $1,950,000 and were
utilized to pay off certain debts and for working capital to Kirkland
Knightsbridge, LLC. In connection with the offering, the Company entered into a
Securities Exchange Agreement with Gryphon Master Fund, L.P. ("Gryphon")
pursuant to which, among other things, the Company issued a 7.5% senior secured
convertible note due April 21, 2006 in the principal amount of $5,500,000 (the
"Note"), $3,500,000 of which principal amount was previously outstanding and
payable to Gryphon. The Company also issued to Gryphon: (i) a warrant to
purchase 3,055,556 shares of the Company's common stock exercisable for a period
of five (5) years from the date of issuance at a purchase price of $0.70 cents
per share, 1,527,778 of which warrant shares were previously issued to Gryphon
and outstanding with exercise prices of $0.70 and $2.40, and (ii) a warrant to
purchase 5,000,000 shares of the Company's common stock exercisable for a period
of five (5) years from the date of issuance at a purchase price of $0.01 per
share. The holder of the Note has the option, during the term of the Note, to
convert the outstanding principal amount under the Note into the Company's
common stock at a conversion price of $1.80 per share, subject to certain
anti-dilution adjustments. Pursuant to the Amended and Restated Security
Agreement, dated as of April 21, 2004, by and between the Company and Gryphon,
the Note is secured by a lien and pledge of all of the assets of the Company.
The incorporation of the previously outstanding $3,500,000 has been accounted
for as a modification of the terms of the note under EITF 96-19 Debtor's
Accounting for a Modification or Exchange of Debt Instruments.
Using the Black-Scholes model the Company estimated the fair value of
the additional warrants and the modification of the terms of the previously
issued warrants and allocated $1,702,001 of the proceeds from the April 21, 2004
financing to the warrants which was recorded as deferred interest and presented
as a discount on the convertible debenture, net of amortization which is being
recorded as interest expense over the three-year term of the note on the
interest rate method. On the date of the issuance of the note, the Company's
common stock had an average price between the high and low price per share on
the Over-the Counter Bulletin Board of $1.80. Based on the terms of the
conversion associated with the note, there was an intrinsic value associated
with the beneficial conversion feature estimated at $297,299, the entire
additional proceeds of the note after allocation to the warrants issued, which
was recorded as deferred interest and presented as a discount on the convertible
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<PAGE>
debenture, net of amortization, which is being recorded as interest expense over
the three-year term of the note. At December 31, 2004, the $5,500,000 face value
note was shown as $1,891,641 on the balance sheet which was net of unamortized
discounts. Based on the $1,891,641 carrying value at December 31, 2004 and the
future contractual cash payments under the debt, if not converted, the
prospective effective interest rate on the note is approximately 77.7% per
annum. Total interest expense for this note, not including any liquidated
damages, as discussed two paragraphs below, is expected to be $284,000 for the
three months ended December 31, 2004.
The terms of the Note required that the shares underlying the
warrants and conversion rights be subject to a registration statement filed by
April 30, 2004 that is declared effective by June 15, 2004. Failure to meet
these requirements puts the Note in default and gives the lender the right to
demand immediate payment of the $5,500,000 principal, any accrued interest and
liquidated damages equal to 25% of outstanding principal ($1,375,000). The
lender has agreed for the present time to waive this default so neither
acceleration of the discount amortization, nor liquidated damages have been
recorded and the liability on the balance sheet continues to be shown as a
non-current liability.
On September 24, 2004, Knightsbridge Fine Wines, Inc. and Gryphon
Master Fund, L.P. entered a Debt Restructuring Agreement. Pursuant to the
Agreement, Gryphon agreed to cancel certain penalties due to it under the Senior
Secured Convertible Note dated April 21, 2004, and to freeze remaining penalties
that may come due pursuant to the terms of the Registration Rights agreement
dated April 21, 2004. Gryphon also agreed to cancel certain interest payments
currently due and which will become due pursuant to the terms of the $5,500,000
note dated April 21, 2004. In consideration for the foregoing agreements by
Gryphon, a new promissory note was issued in the amount of seven hundred
thousand dollars ($700,000), which will bear interest at 6% per annum and is due
and payable on August 31, 2005.
These consolidated financial statements include Kirkland
Knightsbridge, LLC's mortgage note to Travellers which is guaranteed by 360
Global Wine itself (see Note 9). The principal amount of the debt is $20,000,000
but $1,950,000 was withheld at closing for prepaid interest through October 31,
2005. The $1,950,000 was recorded as a discount on the debt which is being
amortized as interest expense on the interest rate method over the term of the
debt. The debt requires payments, including principal and interest at 6.5% p.a.,
of $149,115 monthly, beginning December 1, 2005 with a balloon payment due March
1, 2009. The effective rate, considering the discount, is 6.724% p.a. The
Company's joint venture partner in Kirkland Knightsbridge, LLC and parties
related to the joint venture partner are listed as co-borrowers and have pledged
certain land as collateral for the debt. The agreement among the Company,
Kirkland Knightsbridge, LLC and the joint venture partner is that Kirkland
Knightsbridge, LLCis the borrower and that the legal co-borrowers are
effectively guarantors, consequently the full amount of the debt has been
recorded as that of Kirkland Knightsbridge, LLC and, in consolidation, the
Company's. The debt is also collateralized by the real property and other
certain assets of Kirkland Knightsbridge, LLC.
As a result, at December 31, 2004, that Company had $25,5000,000 of
long term debt less unamortized discount and prepaid interest of $3,454,042 for
a balance of $22,045,958.
NOTE 7. INCOME TAXES
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<TABLE>
<CAPTION>
The provision for taxes consisted of the following:
2004 2003
------------- -------------
<S> <C> <C>
Loss before income taxes $ (14,081,000) $ (5,050,000)
============= =============
Current - -
Deferred - -
------------- -------------
Total provision - -
============= =============
2004 2003
------------- -------------
Federal income taxes at statutory rate $ (14,788,000) $ (1,763,000)
State income taxes (718,000) (253,000)
Increase in taxes resulting from:
Benefit of U.S. tax loss not recognized 3,868,000 1,781,000
Benefit of temporary difference from stock
compensation not recognized 961,000 121,000
Interest expense arising from beneficial conversion
features not deductible 680,000 79,000
Other, net - 35,000
------------- -------------
Provision for income taxes - -
============= =============
The primary components of deferred income tax assets and liabilities are as follows:
2004 2003
---- ----
Deferred income tax assets:
Loss and credit carryforwards $ 3,200,000 $ 1,781,000
Benefit of temporary difference from stock compensation not
recognized
961,000 121,000
------------- -------------
4,161,000 1,917,000
Less Valuation allowance 4,161,000 1,917,000
------------- -------------
- -
============= =============
</TABLE>
The valuation allowance increased by $2,244,000 in the year ended December 31,
2004
Realization of the Company's deferred tax assets is dependent on
generating sufficient taxable income prior to the expiration of loss
carryforwards. Management believes that, more likely than not, deferred tax
assets will not be fully realized in the future and have therefore provided a
valuation allowance to reserve for those deferred tax assets not considered
realizable. Despite the current estimate, it is possible that some of the
deferred tax assets will be realized in the future. Should this happen, the
valuation allowance will be reduced.
At December 31, 2004, the Company had tax operating loss carryforwards
for U.S. federal tax purposes approximating $9,000,000 expiring in years 2022
and 2023. These do not include Tech-Net's carryovers as of the August 1, 2003
merger/recapitalization which are subject to severe limitations. These Tech-Net
52
<PAGE>
carryovers were also not taken into consideration in calculating the deferred
tax assets disclosed above.
NOTE 7. INTEREST INCOME (EXPENSE), NET
In conjunction with a loan receivable the Company had interest income
for the year ended December 31, 2004, of 30,400.
The table below outlines the interest expense for the year ended
December 31, 2004
Notes Payable - $4,424,467
Amortization of discount on notes payable $ 0
Contractual interest 143,525
Beneficial conversion features 0
Notes Payable - $21,891,641
Contractual interest and discount on notes payable 1,342,010
Beneficial conversion features 718,714
Other 255,151
----------
Total $2,459,400
==========
In conjunction with a loan receivable the Company had interest income
for the year ended December 31, 2003, of 12,378.
The table below outlines the interest expense for the year ended
December 31, 2003
<PAGE>
Notes Payable - $725,000
Amortization of discount on notes payable $ 190,987
Contractual interest 76,156
Beneficial conversion features 38,006
Notes Payable - $3,500,000
Contractual interest and discount on notes payable 50,646
Beneficial conversion features 85,294
Other 6,674
---------
Total $ 447,763
=========
NOTE 8. Stock-compensation expense
During 2004, the company issued 1,181,000 shares of stock to various parties who
had or would provide services to 360 Global Wine Group. These shares were valued
based on the market price for shares of our common stock at the time of
issuance. In August 2004, the Company terminated the contract of a consultant
and canceled the 250,000 shares that were originally granted on June 18, 2004.
As a result, these transactions resulted in the Company recording stock
compensation expense of $1,938,846 as of December 31, 2004.
In July 2003, Knightsbridge issued 3,313,250 shares of stock to various
parties, who had or would provide services to Knightsbridge, through a stock
subscription agreement for $0.001 per share. Subsequently in August 2003,
Knightsbridge was acquired by the Company pursuant to a share exchange. As a
result of the share exchange between the parties, Knightsbridge used the
difference between the average first day trading price split adjusted and the
issuance price of the stock issued by Knightsbridge in the stock subscription
agreement as the estimate of the value given. Knightsbridge believes that use of
an amount based on the initial public trading value of the stock, immediately
following announcement of the reverse merger, was reasonably indicative of the
value of the shares as a private Company shortly before the finalization of its
plans to effectuate a recapitalization as a public company. In addition, Paul
Gardner received 986,700 shares. Also, in the fourth quarter of 2003 Company
directors received 575,000 unvested shares and in the third quarter, consultants
received 130,000 shares and 100,000 warrants. These shares and warrants were
valued were based on the quoted marketprice of the shares on the grant dates.
The consultant shares are earned on a monthly basis. These transactions resulted
in the recording of additional stock compensation expense of $2,973,662 on the
statement of operations and prepaid stock compensation expense in stockholders'
equity at December 31, 2003 totaling $928,325.
NOTE 9. ACQUISITION OF INTEREST IN KIRKLAND KNIGHTSBRIDGE LLC
On April 21, 2004 the Company acquired a 50% membership interest in
Kirkland Knightsbridge, LLC, a California limited liability company pursuant to
that certain Capital Stock Contribution Agreement, dated as of April 21, 2004
(the "Contribution Agreement"), by and among Kirkland Ranch, LLC, a California
limited liability company ("Kirkland Ranch"), Kirkland Knightsbridge, LLC, the
Company and Mr. Larry Kirkland. In exchange for its 50% membership interest, the
Company made an initial capital contribution equal in value of $10 million
through the initial issuance of 4,255,320 shares ("Initial Shares") of its
common stock, par value $.001 per share, at an initial valuation of $2.35 per
share. On April 21, 2007 (the "Valuation Date"), if the Initial Shares have a
Market Value less than the amount of ten million dollars ($10,000,000), 360
Global Wine shall, as an additional capital contribution, contribute to Kirkland
Knightsbridge, LLC(to be immediately withdrawn by Kirkland Ranch), in cash or
such additional number of shares of Common Stock, which can be immediately
converted to cash on the Valuation Date, when added to the Market Value of the
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<PAGE>
Initial Shares, equals the sum of ten million dollars ($10,000,000). As of
September 30, 2004, if the price of the Company's Stock remains unchanged from
the $0.90 closing price on the Over-the-Counter Bulletin Board, the Company
would have to issue an additional 6,855,791 shares of common stock on the
Valuation Date. Because the governing document of Kirkland Knightsbridge, LLC
specifies that gains or losses on the value of Kirkland Knightsbridge, LLC's
assets, which would include the 4,255,320 shares of Company stock, are allocated
50% each to the Company and Kirkland Ranch, one half of the shares issued were
recorded at $5,000,000, representing their $2.35 per share guaranteed value
pursuant to the Contribution Agreement and one-half of the shares were recorded
at $3,829,788, representing the average price between the high and low price per
share on the Over-the Counter Bulletin Board of $1.80.
As part of the financing for the joint venture transaction, the Company
provided loans to Kirkland Knightsbridge, LLC in the aggregate amount of $2.4
million to be paid with other debt from any initial profits of Kirkland
Knightsbridge, LLC. The loans have been eliminated in consolidation and included
in the acquisition cost of the Company's controlling financial interest in
Kirkland Knightsbridge, LLC.
In connection with the closing under the Contribution Agreement and to
finance the joint venture transaction, the Company entered into a guaranty,
dated as of April 21, 2004, in favor of The Travelers Insurance Company
("Travelers"), pursuant to which the Company guaranteed the obligations under
that certain promissory note in the amount of $20 million (the "Travelers Note")
issued by Travelers to Kirkland Cattle Co., a California general partnership,
Kirkland Ranch, and Mr. Larry Kirkland, as co-borrowers. The obligations under
the Travelers Note is collateralized by, among other things, a mortgage on
certain land and a lien on certain assets, excluding inventory, owned by
Kirkland Knightsbridge, LLC.
Pursuant to the Contribution Agreement, Kirkland Ranch contributed all
of its assets and certain of its liabilities to the Joint Venture , including
all of the assets of the Kirkland Ranch Winery located in Napa Valley,
California. Kirkland Knightsbridge, LLC has title and ownership to all of the
Kirkland Ranch assets including, without limitation, sixty-nine (69) acres of
vineyard land, a 57,000 square foot winemaking facility, wine labels including
Kirkland Ranch Winery and Jamieson Canyon, inventory, accounts receivable,
intellectual property and general intangibles. In connection with the
transaction, the Company entered into an exclusive distribution and marketing
agreement with Kirkland Knightsbridge, LLC to sell wine and wine related
products under its labels with an initial annual minimum purchase requirement
equal to $3 million. Under a separate bottling agreement, the Joint Venture will
serve as the exclusive bottler of the Company's products in California.
In connection with the operations of the Joint Venture and subject to
the occurrence of certain events, the Company is required to make additional
cash capital contributions in accordance with the budget to Kirkland
Knightsbridge, LLC for certain business purposes. Such cash contributions
include, solely to the extent not previously paid from cash provided at closing,
certain principal and interest payments owed under the Travelers Note through
April 21, 2007. The Company agreed, solely upon the occurrence of non-payment of
principal and interest payments owed under the Travelers Note, to risk of
forfeiture of its membership interest.
Voting control of Kirkland Knightsbridge, LLC is formally split between
the Company and Kirkland Ranch. Pursuant to the Operating Agreement, however,
the Company has disproportionate control over certain budgetary and expenditure
matters while Kirkland Ranch has disproportionate control over certain operating
54
<PAGE>
matters. The Company has concluded that Kirkland Knightsbridge, LLC is a
Variable Interest Entity under Financial Interpretation No. 46 (Revised) -
Consolidation of Variable Interest Entities ("FIN 46(R)"). Because of the
requirement for 360 Global Wine to make additional capital contributions to fund
certain operating expenses and debt payments, and the requirement to make
additional capital contributions should the Company stock owned by Kirkland
Knightsbridge, LLC be worth less than $10,000,000 on April 21, 2007, 360 Global
Wine would incur the majority of Kirkland Knightsbridge, LLC's "expected losses"
as defined by FIN 46(R). The Company believes this is true despite the basic
sharing of income and losses between the Company and Kirkland Ranch on an equal
basis. This basic equal sharing of income and loss results in "expected income"
and any relatively small overall losses being shared equally. The equal
allocation of losses is, however, limited by each partner's capital account
which means that in all reasonable scenarios involving relatively large losses
Knightsbridge would incur more than 50% of the loss.
The Company recorded the assets and liabilities of Kirkland
Knightsbridge, LLC, including the "minority interest" (joint venture partner's)
share based on their preliminary estimated fair values. Pursuant to the capital
account maintenance provisions of the Limited Liability Company Agreement the
minority interest was credited with the full net value of assets and liabilities
less the $5,000,000 agreed-upon value of one-half of the Company shares
contributed to Kirkland Knightsbridge, LLC which are eliminated in
consolidation. This resulted in an increase in the Company's net assets of
$5,000,000. The preliminary estimate of the fair values of Kirkland
Knightsbridge, LLC's assets and liabilities was based on a June 3, 2002
independent appraisal of the land, buildings and fixtures and on management
estimates of other assets and liabilities. Management is arranging for current
independent appraisals of values as of April 21, 2004. Kirkland Knightsbridge,
LLC's asset and liability values will be adjusted when the current appraisals
are obtained.
The Company also incurred $28,588 of transaction costs in acquiring its
joint venture interest. Because the fair value of Kirkland Knightsbridge, LLC's
identified assets and liabilities above the $5,000,000 of stock credited to the
minority interest was allocated to the minority interest, an amount equal to the
transaction cost was recorded as goodwill. The Company believes that paying this
relatively small amount in excess of the identified assets and liabilities was
worthwhile to acquire Kirkland Knightsbridge, LLC to use as an initial United
States base for its plan to establish a diversified international wine company.
The allocation of the acquisition costs follow:
Cash $ 316,503
Accounts Receivable 130,483
Inventory 4,424,373
Other current assets 693,119
------------
Total current assets 5,564,478
------------
Property, Plant and Equipment 39,402,080
Goodwill 28,588
------------
Total Assets 44,995,146
55
<PAGE>
Liabilities assumed (23,447,273)
Minority Interest (16,796,874)
------------
Total Allocation of Acquisition Cost $ 5,028,588
============
The following unaudited pro forma financial information reflects the
consolidated results of operations of the Company as if the acquisitions had
taken place on January 1, 2002. The pro forma information includes primarily
adjustments for the depreciation of the tangible property acquired. The pro
forma information is not necessarily indicative of the results of the operations
as it would have been had the transactions been effected on the assumed date.
- ----------------------------------------- ------------------ ------------------
2003 Pro Forma 2002 Pro Forma
-------------- --------------
- ----------------------------------------- ------------------ ------------------
Revenue $ 3,032,103 $3,211,608
- ----------------------------------------- ------------------ ------------------
Net loss $ (6,496,181) $ (2,055,339)
- ----------------------------------------- ------------------ ------------------
Basic and diluted loss per common share
$(0.21) $(0.12)
- ----------------------------------------- ------------------ ------------------
- ----------------------------------------- ------------------ ------------------
NOTE 10. COMMITMENTS AND CONTINGENCIES
Corporate Offices
For the fiscal year ended December 31, 2003, the U.S. corporate office
was located at 65 Shrewsbury Road, Livingston, NJ 07039. This space was provided
on a rent free basis by our majority shareholder. As a result, the Company did
not recognize rental expense in the previous fiscal year.
Commencing April 2004, the principal corporate office is located at One
Kirkland Ranch Road, Napa, California 94558. The property is owned by Kirkland
Knightsbridge, LLC. Since relocation, our office in Livingston, NJ has been
closed. The company now has a satellite U.S. office in New Canaan, CT.
Employment Agreements
On September 24, 2004 360 Global Wine amended the employment agreement
entered on June 1, 2003 with Mr. Joe Carr. Mr. Carr was promoted to the position
of Executive President of 360 Global Wine effective September 24, 2004,. Mr.
Carr will serve at the pleasure of the Board of Director's. Mr. Carr's
compensation will be $155,000 per annum along with other similar employee
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benefits as offered to employees of the Company. Mr. Carr also received 100,000
shares of common stock of the Company.
On August 3, 2004 360 Global Wine entered into an employment agreement
with Mr. Jay Essa as an Executive Vice President effective September 24, 2004.
Mr. Essa will serve at the pleasure of the Board of Director's. Mr. Essa's
Compensation with be $130,000 per annum along with other similar employee
benefits as offered to employees of the Company. Mr. Essa also received 100,000
shares of common stock of the Company.
On October 8, 2004 360 Global Wine entered into an employment agreement
with Mr. Charles Marin as an Executive Vice President effective November 1,
2004. Mr. Marin will serve at the pleasure of the Board of Director's. Mr.
Marin's Compensation with be $100,000 per annum along with other similar
employee benefits as offered to employees of the Company. Mr. Marin also also
received 75,000 shares of common stock of the Company.
Sales and Marketing Agreements
There were no new Sales and Marketing Agreements entered into during
Fiscal 2004.
Licensing Agreements
During the third quarter of 2003, the Company entered into two
licensing agreements with noted artists in its effort to launch an Artist series
brand to be built around leading artists around the world.
On October 6, 2004, the Company entered into a licensing agreement with
Consuelo Vanderbilt Costin in an effort to launch a brand built around the image
of American aristocracy.
Litigation
On April 14, 2004, a complaint was filed by California Wine Company, as
plaintiff, against the Company in Napa County Superior Court of the State of
California. The complaint alleges breach of contract, anticipatory breach of
contract, breach of an interim sales agent agreement and breach of the implied
covenant of good faith and fair dealing. Plaintiff seeks damage in excess of
$2.5 million. The plaintiff alleges, among other things, the failure of the
Company to perform its obligations to purchase grapes under a certain grape
purchase agreement, and costs incurred for moving and storing bulk wines.
Although a trial date of January 30, 2006 has been set on this matter, the
plaintiff and the Company are currently in settlement negotiations.
In September 2004, we received correspondence from counsel to an entity
purportedly known as Knightsbridge Wine Shoppe, which alleged that we were
infringing upon its use of the trademark "Knightsbridge Wine." Due to the high
cost of litigating this type of claim and the Company's pre-existing plan to
re-brand its products, management believed that it was in the best interest of
the Company to settle the case. We signed a settlement agreement with
Knightsbridge Wine Shoppe in November 2004. Pursuant to the settlement
agreement, we agreed to change our name on or before February 15, 2005.
Effective as of February 15, 2005, our name was changed from Knightsbridge Fine
Wines, Inc. to 360 Global Wine Company.
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Management has been informed that five former shareholders of the
Company filed a suit against the Company. Management has not yet reviewed the
claim, but believes that the suit was filed because the Company cancelled stock
owned by the plaintiff shareholders for non-payment. Management does not believe
that this will have a material adverse impact on the Company and intends to
defend the claim vigorously.
On March 11, 2005 the Company received correspondence from counsel to
seven former employees of the Company, which alleges that the Company has
outstanding debts due to the former employees. The Company is currently in
negotiations to settle this dispute.
On February 10, 2005, Larry Kirkland, purportedly on behalf of Kirkland
Knightsbridge, LLC, filed a corrective statement with the California Secretary
of State alleging that the financing statement filed by Gryphon Master Fund in
connection with its April 2004 financing of 360 Global Wine Company was
wrongfully filed and that no financing statement was agreed to by Kirkland
Knightsbridge. 360 Global Wine Company has taken the position that the financing
statement was properly authorized by Kirkland Knightsbridge, LLC, and believes
further that Mr. Kirkland had no authority pursuant to the operating agreement
of Kirkland Knightsbridge to file the corrective statement. Accordingly, we are
cooperating with Gryphon in a lawsuit filed in the U.S. District Court for the
Northern District of Texas, Dallas Division, by Gryphon seeking a declaration
that a valid and enforceable security agreement exists between Gryphon and
Kirkland Knightsbridge and that Kirkland Knightsbridge had no authority to file
the corrective statement with the California Secretary of State.
The Company is involved in lawsuits, claims, and proceedings, including
those identified above, which arise in the ordinary course of business. In
accordance with SFAS No. 5, "Accounting for Contingencies," The Company makes a
provision for a liability when it is both probable that a liability has been
incurred and the amount of the loss can be reasonably estimated. The Company
believes it has adequate provisions for any such matters. The Company reviews
these provisions at least quarterly and adjusts these provisions to reflect the
impacts of negotiations, settlements, rulings, advice of legal counsel, and
other information and events pertaining to a particular case. Litigation is
inherently unpredictable. However, The Company believes that it has valid
defenses with respect to legal matters pending against it. Nevertheless, it is
possible that cash flows or results of operations could be materially affected
in any particular period by the unfavorable resolution of one or more of these
contingencies.
NOTE 11. WARRANTS
Warrants outstanding consist of the following:
Transaction No. of Warrants Exercise Price Term
Consultants and Issuance of
short-term debt 550,000 $1.50-$2.70 5 Years
Issuance of long-term debt 1,612,778 $0.70-$1.80 3 Years
NOTE 12. DIVESTITURE IN SUBSIDIARY
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360 Global Wine Company has entered into an agreement to divest itself of its
ownership interest in Bodegas Y Vinedos Anguinan S.A, an Argentine wine company
in which it acquired an interest in November 2003. Pursuant to the Termination,
Settlement & Release of Claims Agreement signed between the Company, its wholly
owned subsidiary, KFWBA Acquisition Corp., and Bodegas and its former
principals, both parties agreed to return any equity in the other party and to
terminate any further obligations between them, including, but not limited to
the put options granted by the Company as part of the acquisition and any
employment agreements between the Company and the principals of Bodegas.
NOTE 13. CANCELLATION OF SHARES
In July 2004, 360 Global Wine Company cancelled 2,594,000 shares of common stock
which were offered with the companies initial stock subscription for failure to
pay the purchase price for the shares and/or provide other services for
consideration. These shares were originally issued to ten individuals. The
Shares are null and void and may not be sold or otherwise transferred to any
third party. Management has been informed that four of former shareholders
intend to file a suit against the Company.
One of the former shareholders has filed suit against the company for
cancellation of his shares. Management has not yet reviewed the claim, but
believes that the suit was filed because the Company cancelled stock owned by
the plaintiff shareholders for non-payment. Management does not believe that
this will have a material adverse impact on the Company and intends to defend
the claim vigorously.
NOTE 14. STOCKHOLDER EQUITY
Common Stock
We periodically issue common stock for services rendered. Common stock issued is
valued at fair market value, which is the quoted market price. During the years
ended December 31, 2004 and 2003, 360 Global Wine Company issued 1,181,000 and
5,011,200 shares of common stock and warrants for services valued at $2,021,050
and $2,393,764, respectively.
On June 16, 2004, the Board authorized 60,000 shares of restricted common shares
to Michael McIntyre. pursuant to an investor relations agreement dated August
2003. The shares were release in full per the terms of the agreement. Pursuant
to the agreement, Michael McIntyre supplied investor relations related services
and assisted the Company with broker relations for our stock. The shares were
valued at $1.01 per share, the market price per share at the time of issuance.
The total value of the consideration paid to Michael McIntyre was $60,600.
On June 18, 2004, the Board authorized the issue of 30,000 shares of restricted
common to Raul Marozof pursuant to a consulting agreement. The shares were
valued using the closing stock price on the date of issue, pursuant to which the
shares were valued at $1.20 at the time of issuance. Therefore, the total
aggregate value of the consideration paid to Mr. Marozof was valued at $36,000.
On June 18, 2004, the Board authorized the issue of 12,000 shares of restricted
common to Nan Miller pursuant to a consulting agreement. The shares were valued
using the closing stock price on the date of issue, pursuant to which the shares
were valued at $1.20 at the time of issuance. Therefore, the total aggregate
value of the consideration paid to Ms. Miller was valued at $14,400.
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On June 18, 2004, the Board authorized the issue of 12,000 shares of restricted
common to Romero Britto pursuant to a licensing agreement. The shares were
valued using the closing stock price on the date of issue, pursuant to which the
shares were valued at $1.20 at the time of issuance. Therefore, the total
aggregate value of the consideration paid to Mr. Britto was valued at $36,000.
On June 18, 2004, the Board authorized the issue of 15,000 shares of restricted
common to Guy Buffet pursuant to a licensing agreement. The shares were valued
using the closing stock price on the date of issue, pursuant to which the shares
were valued at $1.20 at the time of issuance. Therefore, the total aggregate
value of the consideration paid to Mr. Buffet was valued at $186,000.
On June 18, 2004, the Board authorized the issue of 7,500 shares of restricted
common to Lydia Carriera pursuant to a consulting agreement. The shares were
valued using the closing stock price on the date of issue, pursuant to which the
shares were valued at $1.20 at the time of issuance. Therefore, the total
aggregate value of the consideration paid to Ms. Carriera was valued at $9,000.
On June 18, 2004, the Board authorized the issue of 2,500 shares of restricted
common to Geoff Howes pursuant to a consulting agreement. The shares were valued
using the closing stock price on the date of issue, pursuant to which the shares
were valued at $1.20 at the time of issuance. Therefore, the total aggregate
value of the consideration paid to Mr. Howes was valued at $3,000.
On June 18, 2004, the Board authorized the issue of 1,500 shares of restricted
common to Jerry Burns pursuant to a broker agreement. The shares were valued
using the closing stock price on the date of issue, pursuant to which the shares
were valued at $1.20 at the time of issuance. Therefore, the total aggregate
value of the consideration paid to Mr. Burns was valued at $1,800.
On June 18, 2004, the Board authorized the issue of 20,000 shares of restricted
common to Joseph Carr Executive President of the Company. The shares were valued
using the closing stock price on the date of issue, pursuant to which the shares
were valued at $1.20 at the time of issuance. Therefore, the total aggregate
value of the consideration paid to Mr. Carr was valued at $24,000.
On June 18, 2004, the Board authorized the issue of 20,000 shares of restricted
common to Jay Essa Executive Vice President of the Company. The shares were
valued using the closing stock price on the date of issue, pursuant to which the
shares were valued at $1.20 at the time of issuance. Therefore, the total
aggregate value of the consideration paid to Mr. Essa was valued at $24,000.
On June 18, 2004, the Board authorized the issue of 10,000 shares of restricted
common to Charles Marin, Executive Vice President of the Company. The shares
were valued using the closing stock price on the date of issue, pursuant to
which the shares were valued at $1.20 at the time of issuance. Therefore, the
total aggregate value of the consideration paid to Mr. Marin was valued at
$12,000.
On June 18, 2004, the Board authorized the issue of 5,000 shares of restricted
common to William Callahan Sales Regional Manager of the Company. The shares
were valued using the closing stock price on the date of issue, pursuant to
which the shares were valued at $1.20 at the time of issuance. Therefore, the
total aggregate value of the consideration paid to Mr. Callahan was valued at
$6,000.
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On June 18, 2004, the Board authorized the issue of 5,000 shares of restricted
common to Michael Gallo Regional Sales Manager of the Company. The shares were
valued using the closing stock price on the date of issue, pursuant to which the
shares were valued at $1.20 at the time of issuance. Therefore, the total
aggregate value of the consideration paid to Mr. Gallo was valued at $6,000.
On June 18, 2004, the Board authorized the issue of 5,000 shares of restricted
common to Daniel Nelson Regional Sales Manager of the Company. The shares were
valued using the closing stock price on the date of issue, pursuant to which the
shares were valued at $1.20 at the time of issuance. Therefore, the total
aggregate value of the consideration paid to Mr. Nelson was valued at $6,000.
On June 18, 2004, the Board authorized the issue of 5,000 shares of restricted
common to Casey Squire Regional Sales Manager of the Company. The shares were
valued using the closing stock price on the date of issue, pursuant to which the
shares were valued at $1.20 at the time of issuance. Therefore, the total
aggregate value of the consideration paid to Mr. Squire was valued at $6,000.
On June 18, 2004, the Board authorized the issue of 3,500 shares of restricted
common to Sean Lynch Sales Manager of the Company. The shares were valued using
the closing stock price on the date of issue, pursuant to which the shares were
valued at $1.20 at the time of issuance. Therefore, the total aggregate value of
the consideration paid to Mr. Lynch was valued at $4,200.
On June 18, 2004, the Board authorized the issue of 3,500 shares of restricted
common to Martin Cotton Sales Manager of the Company. The shares were valued
using the closing stock price on the date of issue, pursuant to which the shares
were valued at $1.20 at the time of issuance. Therefore, the total aggregate
value of the consideration paid to Mr. Cotton was valued at $4,200.
On June 18, 2004, the Board authorized the issue of 3,500 shares of restricted
common to Paul Carey Sales Manager of the Company. The shares were valued using
the closing stock price on the date of issue, pursuant to which the shares were
valued at $1.20 at the time of issuance. Therefore, the total aggregate value of
the consideration paid to Mr. Carey was valued at $4,200.
On June 18, 2004, the Board authorized the issue of 3,500 shares of restricted
common to Raymond Abramoski Sales Manager of the Company. The shares were valued
using the closing stock price on the date of issue, pursuant to which the shares
were valued at $1.20 at the time of issuance. Therefore, the total aggregate
value of the consideration paid to Mr. Abramoski was valued at $4,200.
On June 18, 2004, the Board authorized the issue of 1,500 shares of restricted
common to Nicole Shiflet Employee of the Company. The shares were valued using
the closing stock price on the date of issue, pursuant to which the shares were
valued at $1.20 at the time of issuance. Therefore, the total aggregate value of
the consideration paid to Ms. Shiflet was valued at $1,800.
On June 18, 2004, the Board authorized the issue of 100,000 shares of restricted
common to Galatin Consulting, Inc. pursuant to a consulting agreement. The
services to be provided under the consulting agreement were investor and public
relations. The shares were valued using the closing stock price on the date of
issue, pursuant to which the shares were valued at $1.20 at the time of
issuance. Therefore, the total aggregate value of the consideration paid to
Galatin Consulting, Inc. was $120,000.
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On November 22, 2004, the Board authorized the issue of 275,000 shares of
restricted common to Anthony J. Bryan, Chaiman of the Board of the Company. The
shares were valued using the closing stock price on the date of issue, pursuant
to which the shares were valued at $0.48 at the time of issuance. Therefore, the
total aggregate value of the consideration paid to Mr. Bryan was valued at
$132,000.
On November 22, 2004, the Board authorized the issue of 350,000 shares of
restricted common to Phil E. Pearce, Board Member of the Company. The shares
were valued using the closing stock price on the date of issue, pursuant to
which the shares were valued at $0.48 at the time of issuance. Therefore, the
total aggregate value of the consideration paid to Mr. Pearce was valued at
$168,000.
On November 22, 2004, the Board authorized the issue of 33,334 shares of
restricted common to Scott R. Griffith, pursuant to a consulting agreement. The
shares were valued using the closing stock price on the date of issue, pursuant
to which the shares were valued at $0.48 at the time of issuance. Therefore, the
total aggregate value of the consideration paid to Mr. Griffith was valued at
$16,000.
On November 22, 2004, the Board authorized the issue of 33,333 shares of
restricted common to Jesse B. Shelmire IV, pursuant to a consulting agreement.
The shares were valued using the closing stock price on the date of issue,
pursuant to which the shares were valued at $0.48 at the time of issuance.
Therefore, the total aggregate value of the consideration paid to Mr. Shelmire
was valued at $16,000.
On November 22, 2004, the Board authorized the issue of 33,333 shares of
restricted common Robert R. Blakely Jr., pursuant to a consulting agreement. The
shares were valued using the closing stock price on the date of issue, pursuant
to which the shares were valued at $0.48 at the time of issuance. Therefore, the
total aggregate value of the consideration paid to Mr. Blakely was valued at
$16,000.
NOTE 15. GOING CONCERN
As of December 31, 2004, the Company's working capital has been
primarily financed with various forms of debt and convertible debt. The Company
has suffered significant operating losses since its inception in its efforts to
establish and execute its business strategy. The Company anticipates that it
will continue to require additional working capital to fund its ongoing
operations, repay certain debts in default and execute its business strategy. In
the event that the Company does not continue to raise such required capital it
would raise substantial doubt about the Company's ability to continue as a going
concern.
The Financial statements do not include any adjustments relating to the
recoverability and classification of liabilities that might be necessary should
the Company be unable to continue as a going concern. The Company's ability to
continue as a going concern is dependent upon its ability to generate sufficient
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cash flows to meet its obligations on a timely basis and ultimately to attain
profitability. The Company's management intends to obtain working capital
through operations and to seek additional funding through debt and equity
offerings to help fund the Company's operations as it expands. There is no
assurance that the Company will be successful in its efforts to raise additional
working capital or achieve profitable operations. The financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
Note 16 - Restatement of Prior Year Financials
The original financial statements for year ending December 31, 2003
were filed on May 11, 2004. On November 2, 2004, amended financial statements
for the year ending December 31, 2003 were filed. These financial statements
have been prepared using 2003 numbers that were restated from the version
originally filed. The restatement principally involved the accounting for the
acquisition of the Bodegas, particularly the put option granted to the sellers.
On November 6, 2003, the company's wholly-owned subsidiary, KFWBA
Acquisition Corp., a Nevada corporation (KFWBA) acquired 100% of Bodegas y
Venedos Anguinan S.A. (Bodegas). The purchase price consisted of a combination
of $357,407 (USD) (including $157,407 of transaction costs, one million shares
of the company's restricted common stock and a put option (defined below). The
purchase price was paid to the former shareholders' of Bodegas Anguinan Winery.
Originally the Company valued the stock at $1,900,000 (USD) based on
the quoted market price and separately valued the put option as a liability with
an estimated value of $1,461,033 for a total of $3,718,440. This treatment was
based on the conclusion that the put options were "freestanding financial
instruments" as referred to in SFAS 150 - Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity ("SFAS 150") and
consequently should be valued separately. This conclusion resulted from the put
options being set-forth in a separate agreement that was appended to the
agreement for the purchase of the Bodegas stock.
After review of the terms of the agreement, the Company has now
concluded that the put options are not "freestanding financial instruments" but
instead are not separable from the Company's agreement to purchase the stock of
Bodegas, principally because, in the event of default the option holders are
required to offer to take back the Bodegas stock in satisfaction of the amount
owed to them pursuant to the put option.
As a consequence of this reevaluation, the Company considers the put
options to be a security price based contingency as defined in SFAS 141 -
Business Combinations ("SFAS 141"). The Company is hereby restating the
financial statements for the year ended December 31, 2003 to reflect the cost of
the Bodegas acquisition as the cash expended of $357,407 (USD), including
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$157,407 of transaction costs and one million shares of the company's restricted
common stock valued at $2,500,000 ($2.50 per share) pursuant to the agreement.
This results in the following changes to previously reported amounts - removal
of the put option liability shown as $1,534,825 ($167,886 current, $1,366,939
non-current) at December 31, 2003. The initial recorded valuation of property
and equipment acquired in the transaction has been restated at an amount
$861,033 lower than originally reported, additional paid-in-capital has been
increased by $600,000, interest expense and depreciation expense has been
reduced by $73,792 and $6,747 respectively for the year-ended December 31, 2003.
This results in the following changes to shareholders' equity at December 31,
2003 and to net loss for the year then ended:
December 31,
2003
Shareholders'
equity - as originally reported 3,169,867
- increase 680,539
-------
- as restated 3,850,406
Net loss - as originally reported (5,123,324)
- decrease 80,539
----------
- as restated (5,042,785)
Loss per share - as originally reported (0.21)
- increase ---------
- as restated (0.21)
Pursuant to the Agreement, KFWBA entered into Put Options Agreements
with the former shareholders of Bodegas (hereinafter the "Puts"), which provides
that those former shareholders can compel KFWBA to purchase a specific portion
of the Company's shares delivered as a part of the purchase price according to a
schedule attached to each of the Puts. The Company has provided its Guarantee to
each of such former shareholders of the performance of KFWBA under the Puts. The
Company's shares subject to the Puts are required to be purchased by KFWBA, if
exercised, at $2.50 per share. In order to secure the performance of KFWBA under
the Puts (and of the Company, under its guarantee of KFWBA's performance under
the Puts), the shares of Bodegas Anguinan Estate Winery acquired in this
transaction are subject to the terms of a Stock Pledge Agreement.
During the term of the Pledge Agreement Bodegas Anguinan Estate Winery,
among other things, cannot issue additional shares, amend its charter or by-laws
in a way that might affect the security under the Pledge Agreement, is subject
to limits on the sale, financing, liening or mortgaging of assets of Bodegas
Anguinan Estate Winery at the time of the acquisition.
Bodegas Anguinan Estate Winery encompasses approximately 900 acres in
the Andes Mountains of Argentina. An independent appraisal of Bodegas estimates
the value of net assets acquired to exceed the $3,718,440 purchase price. The
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result of operations of Bodegas is included in the consolidated statement of
operations from the date of acquisition. The acquisition of Bodegas Anguinan
Estate Winery is part of Knightsbridge's strategy to build a diversified
international wine company.
The allocation of the acquisition costs of the acquired subsidiaries
follow:
Bodegas y Venedos Dominion Wines
Anguinan International
November 6, 2003 February 17, 2003
Cash $ - $ 7,378
Accounts receivable 37,583 26,688
Inventory 400,999
Other current assets 20,709 7,040
------ -----
Total current assets 459,291 41,106
Property, plant and equipment 2,540,795 -
Other assets 3,570 -
------------ ------------
Total assets 3,003,656 41,106
Liabilities assumed (146,249) (9,855)
Minority Interest - (13,750)
------------ ------------
Total allocation of acquisition
cost $ 2,857,407 $ 17,501
============ ============
The following unaudited pro forma financial information reflects the
consolidated results of operations of the Company as if the acquisitions had
taken place on January 1, 2002. The pro forma information includes primarily
adjustments for the depreciation of the tangible property aquired. The pro forma
information is not necessarily indicative of the results of the operations as it
would have been had the transactions been effected on the assumed date.
2003 Pro Forma 2002 Pro Forma
-------------- --------------
Revenue $ 850,677 $ 358,196
Net loss $ (5,341,365) $ (260,551)
Basic and diluted loss per common share ($0.21) ($0.04)
NOTE 17. SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Purchase of assets in subsidiaries in exchange for:
2004 2003
---------- ----------
Stock (subject to put option) $4,751,000 $2,500,000
==========
Stock Issued for Prepaid Compensation 0 $ 928,325
========== ==========
Warrants issued as deferred financing costs 0 $ 206,400
========== ==========
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ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Marks Paneth & Shron LLP (the "Former Accountant") resigned as our
principal accountants on August 20, 2004. Effective that same day, we engaged
Lopez, Blevins, Bork & Associates, L.L.P. as our principal accountants. Our
Board of Directors and audit committee approved the engagement of the new
accountants.
The Former Accountant's report dated April 14, 2004 on the Company's
consolidated balance sheet of 360 Global Wine Company (formerly Knightsbridge
Fine Wines, Inc.) and Subsidiaries as of December 31, 2003, and the related
consolidated statements of operations, comprehensive income, stockholders'
equity, and cash flows for the year then ended, for the period October 8, 2002
(Inception) to December 31, 2002 and for the period October 8, 2002 (Inception)
to December 31, 2003 did not contain an adverse opinion or disclaimer of
opinion, nor was it qualified or modified as to uncertainty, audit scope, or
accounting principles, except to the extent that, as discussed in the former
accountants report, we have suffered significant losses and negative cash flows
from operations which raise substantial doubt about its ability to continue as a
going concern. Our financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
In connection with the audit of 360 Global Wine Company for the fiscal
year ended December 31, 2003, the Former Accountant did not advise us with
respect to any of the matters described in paragraphs (a)(1)(v)(A) through (D)
of Item 304 of Regulation S-K.
We have had no disagreements with Lopez, Blevins, Bork & Associates,
L.L.P. on any matter of accounting practices or principles, financial statement
disclosure, or auditing scope or procedure.
We furnished the resigning firm with the Form 8-K disclosing the change
of accountants and such firm confirmed that they agreed with the above
statements. The letter indicating their agreement was filed as an exhibit to the
Form 8-K filed with the Securities and Exchange Commission on August 26, 2004.
ITEM 8A. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures
------------------------------------------------
We maintain controls and procedures designed to ensure that information
required to be disclosed in the reports that we file or submit under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported
within the time periods specified in the rules and forms of the Securities and
Exchange Commission. As of December 31, 2004, our chief executive officer and
former chief financial officer, based on their evaluation of our disclosure
controls and procedures, concluded that such controls and procedures were
sufficient to ensure that information required to be disclosed in the Form
10-KSB and future Form 10-QSBs would be disclosed on a timely basis.
Notwithstanding this conclusion, we have in the past twelve months experienced
significant issues regarding the integration of our management with the
management of the Kirkland Ranch, which shares management of our joint venture,
Kirkland Knightsbridge, LLC. Such difficulties resulted in delays in our filing
the financial information required by Form 8-K with regard to the joint venture.
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We have taken and continue to take steps to eliminate these issues, such as the
appointment of new controller for the joint venture and the implementation of
uniform accounting systems. Notwithstanding these changes, it is possible that
continuing integration issues could result in our controls and procedures being
rendered inadequate in order for our continued compliance with the Securities
and Exchange Act of 1934.
(b) Changes in internal controls
----------------------------
During the last fiscal quarter for the fiscal year ended December 31,
2004, the ongoing search to find a new chief financial officer and the
developmental nature of our business and operations rendered our controls and
procedures not sufficient to enable timely disclosure. As a result, we have
begun to implement some additional procedures and controls, we have added new
financial personnel and begun implementing uniform accounting systems, controls
and procedures at certain of our subsidiaries, including our joint venture with
the Kirkland Ranch, Kirkland Knightsbridge, LLC to ensure continued compliance
with the Securities and Exchange Act of 1934.
PART III.
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table and text set forth the names and ages of all
directors and executive officers of the Company as of December 31, 2004. The
Board of Directors is comprised of only one class. All of the directors will
serve until the next annual meeting of shareholders and until their successors
are elected and qualified, or until their earlier death, retirement, resignation
or removal. We did not hold an annual meeting in 2004. There are no family
relationships among directors and executive officers. Also provided herein are
brief descriptions of the business experience of each director and executive
officer during the past five years and an indication of directorships held by
each director in other companies subject to the reporting requirements under the
Federal securities laws.
NAME AGE POSITION
- ---- --- --------
Joel Shapiro 34 Director, CEO
Joseph Carr 45 President
Anthony J. A. Bryan 80 Director, Non-executive Chairman
Phillip E. Pearce 74 Director
Charles D. Marin 40 Executive Vice President/Director of Finance
Jay Essa 62 Executive Vice President of Sales
Michael Jeub 61 Director
JOEL SHAPIRO, CHAIRMAN OF THE BOARD, CEO. Joel ("Jake") Shapiro is CEO
and a Director of 360 Global Wine Company, and has served on the Board since
August 1, 2003. He has reviewed or visited almost 100 wineries in 4 continents
in his quest to build the world's best wine company. He is charged with
developing, sourcing and negotiating our acquisitions and strategic
partnerships. He also guides corporate strategy, ensuring that we stay on-track
to meet our long-term goals. Prior to joining 360 Global Wine Company, Mr.
Shapiro was President of JS Capital LLC, an east coast based finance boutique
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that specialized in mergers & acquisitions, and public corporate finance. JS
Capital financed a variety of industry non-specific companies including software
production firms in Pakistan, fiber optic systems in Mexico, and five star
European hotel owners and operators. JS Capital had a strong presence in both
apparel and mass media sectors, and maintained a number of Hollywood celebrity
clients. JS Capital is no longer an active company as Mr. Shapiro now dedicates
his full time to Knightsbridge. Mr. Shapiro began his finance career in 1992
working in the back offices of the investment-banking firm of M.H. Meyerson &
Company. While attending night school at the Rutgers University Graduate School
of Business for his MBA, Mr. Shapiro quickly rose up the ranks from working in
the operations division of M.H. Meyerson to becoming one of the youngest Senior
Traders, where he executed institutional orders on behalf of Wall Street's
biggest firms, including Goldman Sachs, Merrill Lynch, and Credit Suisse First
Boston. Mr. Shapiro attended Rutgers University, where he completed his studies
in three years and received departmental and collegiate honors. As an
undergraduate, Mr. Shapiro also attended the National University of Singapore,
and through a joint venture program with Columbia University, the Shanghai
Teachers College in China.
JOSEPH CARR, PRESIDENT. Joe Carr is the President of 360 Global Wine
Company. Mr. Carr was previously our Executive Vice President of Sales. Mr. Carr
has over twenty years experience in the wine industry overseeing team building
within the international wine industry. Prior to joining 360 Global Wine
Company, Mr. Carr was the Vice President/Eastern Division Import Manager for
Beringer Blass Wines. In this position, Joe surpassed all shipment and depletion
goals while outperforming national Australian category trends over 38%. Mr. Carr
also launched the brand Rothbury Estates, which surpassed all national goals and
marketing plans. Prior to that, Mr. Carr was President of Mildara Blass Wines
for North America. He lead the integration team of Beringer and Mildara Blass
Wines and was responsible for international operations budgets, including Sales
and Marketing Operations, and International Finance in excess of 11 million US$.
He managed the executive staff including VP Marketing, VP Finance, and National
Sales Manager. Joe built a team that consisted of 23 Regional Division Managers
and 18 Regional Brokers. Previously he was Eastern Regional Manager for Paterno
Imports, whose international portfolio of products comes from all major wine
producing countries. Mr. Carr graduated from the State University of New York at
Geneseo in 1982 with a degree in Business Communications/Fine Arts.
JAY ESSA, EXECUTIVE VICE PRESIDENT OF SALES. Jay Essa is the Executive
Vice President of Sales for 360 Global Wine Company. Mr. Essa was previously our
Vice President of National Accounts, where he was instrumental in the
development and expansion of sales and marketing team. In this position, he
helped craft the 360 Global Wine Company Sales team and helped locate and
develop our initial customer base. Prior to joining 360 Global Wine Company, Mr.
Essa was Vice President of Sales and Marketing for Golden State Vintners. In
this position, he managed 4 regional sales mangers to develop national brands
and private labels for major clients, including Safeway, Kroger and Albertson.
Prior to that, Mr. Essa was Vice President International Marketing and Western
Division Manager for Palm Bay Imports. He led the development of an
international sales and marketing program for both Italian and California wines.
Before joint Palm Bay, Mr. Essa was President and CEO of Geerlings & Wade, Inc.
(NASDAQ: GEER). He led the company's return to profitability in only 6 months
and grew the top line revenues and profits for 3 consecutive years. He also
helped position the company as the largest direct marketer and e-tailer of wine
in North America. In addition, he personally developed numerous strategic
alliances, including Starbucks, Greg Manning Auctions and Starchefs. Previously
he was Managing Director in Europe for E&J Gallo Winery where he was responsible
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for development and management of operations in 18 countries. He has also served
as E&J' Gallo Winery's Managing Director in UK & Ireland, General Manager of
Gallo Sales Company, Regional Manager of Vintage Wine Division in California and
a General Sales Manager for both Mountain Wine and Valley Winners. Jay graduated
from the Pasadena City College in Pasadena, California where he majored in
English Literature.
ANTHONY J.A. BRYAN, NON-EXECUTIVE CHAIRMAN, DIRECTOR. Anthony J. A.
Bryan is a Director of 360 Global Wine Company and has served in this capacity
since November 4, 2003. Mr. Bryan is the former Chairman and CEO of Copperweld
Corporation, a bimetallic wire and steel tubing company, and the former CEO of
Cameron Iron Works, a company in the oil service business. Mr. Bryan has served
on the Board of Directors of Federal Express (1987-96), Chrysler Corporation
(1975-91), PNC Financial Corp (1978-89), ITT Corporation, Koppers Corporation,
Hamilton Oil Corporation, First City National Bank of Houston, Imetal, and
Hospital Corporation International. Mr. Bryan received his Master Degree in
Business Administration from the Harvard Business School.
PHILLIP E. PEARCE, DIRECTOR. Phillip E. Pearce is a Director of 360
Global Wine Company and has served in this capacity since December 11, 2003. Mr.
Pearce is an independent business consultant with Phil E. Pearce & Associates,
and a member of the Board of Directors for a number of domestic and
internationally headquartered companies. Mr. Pearce was Senior Vice President
and a director of E.F. Hutton, Chairman of the Board of Governors of the
National Association of Securities Dealers, a Governor of the New York Stock
Exchange and a member of the Advisory Council to the United States Securities
and Exchange Commission on the Institutional Study of the Stock Markets. Mr.
Pearce has been a featured speaker to the European Economic Committee in Belgium
representing the United States on a symposium on public disclosures. Mr. Pearce
is a graduate of the University of South Carolina and the Wharton School of
Investment Banking at the University of Pennsylvania.
CHARLES D. MARIN, VICE PRESIDENT/DIRECTOR OF FINANCE. Charles Marin
is the Vice President and Director of Finance for 360 Global Wine Company. Mr.
Marin is responsible for our consolidated financial operations. He has over 14
years of accounting experience including eight years of financial management
experience in the wine industry specializing in Napa Valley vineyards. Prior to
joining 360 Global Wine Company, he held management positions with Domaine
Chandon, an international sparkling wine house and Roundhill Cellars, a
nationally distributed wine producing company. With these companies he managed
the day-to-day finance functions, international consolidations, budgeting &
forecasting, contract review, and procedural development. Prior to his
experience in the wine industry, Mr. Marin held positions in public accounting,
construction and the service industries. Mr. Marin's financial background is
enhanced by his in-depth knowledge of human resources management practices. Mr.
Marin is a graduate of the University of California at Davis with an accounting
accreditation from the University of Washington in Seattle.
MICHAEL JEUB, DIRECTOR AND CHAIRMAN OF THE AUDIT COMMITTEE. Michael
Jeub is a Director of 360 Global Wine Company and has served in this capacity
since July 2004. Mr. Jeub is a Partner with the San Diego office of Tatum
Partners. He is a financial management executive with a 30-year background in
finance and operations. He is fully familiar with SEC requirements and
compliance issues, and auditor and shareholder relations. From June 2002 to
October 2003, Mr. Jeub served as Chief Financial Officer and Vice President of
Finance for The Immune Response Corporation, a biotech company co-founded by
Jonas Salk, which is developing a therapeutic AIDS vaccine. While in this
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position, Mr. Jeub was responsible for all accounting, SEC reporting, property
and human resources. Prior to joining Tatum Partners, Mr. Jeub was Senior
Vice-President and CFO of Jenny Craig International, a $350,000,000 NYSE company
for five years. Previously, Mr. Jeub was Senior Vice-President and Chief
Financial Officer of National Health Laboratories, a $800,000,000 NYSE company,
at which he was the financial liaison with the controlling investor. Mr. Jeub
also served first as Chief Financial Officer and then as President of Medical
Imaging Centers of America, a publicly held chain of freestanding imaging
centers and hospital leased imaging centers. Mr. Jeub spent 18 years with
International Clinical Laboratories, a publicly held national chain of medical
testing facilities. Mr. Jeub began his career at ICL as regional controller, was
promoted to Chief Financial Officer during the bulk of his tenure and was
President-ICL East for the last two years. Mr. Jeub was responsible for SEC
filings and analyst presentations at ICL. Mr. Jeub holds a B.S. in Accounting
from California State Polytechnic University-Pomona. Upon graduation Mr. Jeub
joined Ernst& Young where he earned his CPA Certificate.
AUDIT COMMITTEE AND FINANCIAL EXPERT
The Company has an Audit Committee as specified in Section 3(a)(58)(A)
of the Securities Exchange Act of 1934, as amended, composed of Mr. Michael Jeub
and Mr. Tony Bryan. The Audit Committee focuses its efforts on assisting our
Board of Directors to fulfill its oversight responsibilities with respect to the
Company's:
o Quarterly and annual consolidated financial statements and
financial information filed with the Securities and Exchange
Commission;
o System of internal controls;
o Financial accounting principles and policies;
o Internal and external audit processes; and
o Regulatory compliance programs.
The committee meets periodically with management to consider the
adequacy of the Company's internal controls and financial reporting process. It
also discusses these matters with the Company's independent auditors and with
appropriate financial personnel employed by the Company. The committee reviews
our financial statements and discusses them with management and our independent
auditors before those financial statements are filed with the Securities and
Exchange Commission.
The committee has the sole authority to retain and dismiss our
independent auditors and periodically reviews their performance and independence
from management. The independent auditors have unrestricted access and report
directly to the committee.
AUDIT COMMITTEE FINANCIAL EXPERT.
Michael Jeub is the Company's Audit Committee Financial Expert, as that
term is defined in Item 401 of Regulation S-B and the Board has determined that
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<TABLE>
Mr. Jeub is independent, as that term is used in Item 7(d)(3)(iv) of Schedule
14A under the Exchange Act. Mr. Jeub's qualifications as an audit committee
financial expert are described above.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires our officers, directors and
persons who own more than 10% of any class of our securities registered under
Section 12(g) of the Exchange Act to file reports of ownership and changes in
ownership with the SEC. Officers, directors and greater than 10% stockholders
are required by SEC regulation to furnish us with copies of all Section 16(a)
forms they file.
Based solely on our review of copies of such reports, we believe that
there was compliance with all filing requirements of Section 16(a) applicable to
our officers, directors and 10% stockholders during fiscal 2004.
CODE OF ETHICS
On May 2, 2004, we adopted a code of ethics that applies to its Chief
Executive Officer, Principal Financial and Accounting Officer and Controller. A
copy of the Company's code of ethics is filed as Exhibit 14.1 to this Annual
Report on Form 10-KSB.
ITEM 10. EXECUTIVE COMPENSATION
The following sets forth the annual and long-term compensation for
services in all capacities to 360 Global Wine for the fiscal year ended December
31, 2004 for each person who served as the Company's Chief Executive Officer and
the other most highly compensated Executive Officers with annual compensation in
excess of $100,000 for the fiscal year.
Summary Compensation Table
Long Term Compensation
Annual Compensation Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other Securities
Name Annual Restricted Under- All
and Compen- Stock lying LTIP Other
Principal sation Award(s) Options/ Payouts Compen-
Position Year Salary($) Bonus($) ($) ($) SARs (#) ($) sation
($)
<S> <C> <C> <C> <C>
Joel Shapiro, 2004 0 0 0 0 0 0 159,500
Chairman, 2003 0 0 0 0 0 0 114,500
President and 2002 0 0 0 0 0 0 0
CEO(1)
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Paul Gardner, 2004 50,700 0 0 0 0 0 50,700
Chief 2003 125,000(3) 0 0 0 0 0 22,800(4)
Marketing 2002 0 0 0 0 0 0 0
Officer(2)
Joseph Carr, 2004 139,375 20,000 100,000
President(5) 2003 125,000(3) 0 0 0 0 0 0
2002 0 0 0 0 0 0 0
Jay Essa, 2004 117,500 0 20,000 0 0 0
Executive Vice 2003
President of 2002
Sales (6)
Charles
Marin 2004 85,000 0 0 10,000 0 0 0
Executive 2003
Vice 2002
President of
Finance (7)
</TABLE>
(1) Mr. Carr replaced Mr. Shapiro as President in September 2004 and Mr. Bryan
replaced Mr. Shapiro as chairman of the Board in November 2004.
(2) On April 16, 2004, the Company and Mr. Gardner mutually agreed to terminate
their working relationship. As part of the agreement, we agreed to pay Mr.
Gardner approximately $50,700 of salary and expenses and Mr. Gardner agreed
to wave his severance package.
(3) Mr. Gardner and Mr. Carr are each compensated by Knightsbridge, the
Company's wholly owned subsidiary.
(4) Mr. Gardner received 986,700 shares of Knightsbridge's common stock valued
at $22,800.
(5) Mr. Carr was our Executive Vice President of Sales from August 2003 until
September 2004, when he was promoted to President. Pursuant to the terms of
Mr. Carr's employment agreement for his position as President, he is to
receive $155,000 compensation.
(6) Mr. Essa was hired to replace Mr. Carr as our Executive Vice President of
Sales in September 2004.
(7) Mr. Marin was promoted to Executive Vice President/Director of Finance in
November 2004.
<TABLE>
OPTION/SAR IN LAST FISCAL YEAR
Individual grants
- -------------------------------------------------------------------------------------------------------------------------------
- ----------------------------- ------------------------------ ---------------------------- ------------------- -----------------
NAME NUMBER OF SECURITIES PERCENT OF TOTAL EXERCISE OR BASE EXPIRATION DATE
UNDERLYING OPTIONS/SARS OPTIONS/SARS GRANTED TO PRICE ($/SH)
GRANTED (#) EMPLOYEES IN FISCAL YEAR
- ----------------------------- ------------------------------ ---------------------------- ------------------- -----------------
<S> <C> <C> <C>
(a) (b) (c) (d) (e)
- ----------------------------- ------------------------------ ---------------------------- ------------------- -----------------
Joel Shapiro, CEO 0 0 0 0
- ----------------------------- ------------------------------ ---------------------------- ------------------- -----------------
Michael Jeub, 120,000 41.66% 1.05 7/14/2009
Director
- ----------------------------- ------------------------------ ---------------------------- ------------------- -----------------
Joseph Carr, President 100,000 25.64% 1.05 6/27/14
- ----------------------------- ------------------------------ ---------------------------- ------------------- -----------------
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Jay Essa, 0 0 0 0
Executive Vice President of
Sales
- ----------------------------- ------------------------------ ---------------------------- ------------------- -----------------
- ----------------------------- ------------------------------ ---------------------------- ------------------- -----------------
</TABLE>
The individuals listed in the above table did not own any stock appreciation
rights as of December 31, 2004. None of the individuals, aside from Joseph Carr
owned any options in the last fiscal year and therefore, none of them, including
Joseph Carr exercised any options in the last fiscal year.
As of December 31, 2004, we did not maintain any long-term incentive plans.
BOARD OF DIRECTORS
Our directors who are employees do not receive any compensation from
the Company for services rendered as directors. Outside directors receive $1,000
a month for serving on the Board of Directors, an additional $1,000 per
committee meeting for service on a committee of the Board of Directors and may
in the future be granted incentive-based stock compensation. Cash fees to be
paid to directors have not been paid as of December 31, 2004 and are currently
accruing. On November 22, 2004, Mr. Bryan received an additional grant of
325,000 shares of the Company's common stock and Mr. Pearce received an
additional grant of 400,000 shares of the company's common stock. These shares
are subject to forfeiture if their directorship is terminated before the one
year anniversary of the date of issuance or if certain performance criteria, to
be determined, has not been met. Mr. Jeub received a warrant to purchase 120,000
shares of our common stock.
EMPLOYMENT AGREEMENTS
On February 20, 2003, we entered into an employment agreement with Mr.
Paul Gardner as an executive of 360 Global Wine Company effective March 1, 2003.
Pursuant to the share exchange and reverse acquisition with Tech-Net
Communications, Inc., that we completed on August 1, 2003, Mr. Gardner also
became our Chief Marketing Officer. Mr. Gardner's compensation was $125,000
(Australian Dollars) (US $94,155 at March 31, 2004) per annum along with other
similar employee benefits as offered to employees of the Company. In addition,
Mr. Gardner received 986,700 shares of stock of Knightsbridge valued at $22,800.
On April 16, 2004, 360 Global Wine Company and Mr. Gardner mutually agreed to
terminate their relationship. As part of their mutual agreement, the Company
agreed to pay Mr. Gardner approximately $50,700 as salary and expenses and Mr.
Gardner agreed to wave his severance package.
On June 1, 2003, we entered into an employment agreement with Mr. Joe
Carr as an executive of 360 Global Wine Company effective June 1, 2003. On
August 1, 2003, as a result of the share exchange, he also became our Executive
Vice President of Sales. Mr. Carr's compensation is $125,000 per annum along
with other similar employee benefits as offered to employees of 360 Global Wine.
Mr. Carr also received 350,000 shares of stock of 360 Global Wine valued at
approximately US $280,000. On September 24, 2004, Joseph Carr was promoted to
President of 360 Global Wine.
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On September 24, 2004 we promoted Jay Essa to Executive Vice President
of Sales. Previously, Mr. Essa was our Vice President of National Accounts.
Currently, we have a verbal agreement with Mr. Essa regarding his employment as
Executive Vice President. Jay Essa and 360 Global Wine have a verbal agreement
regarding his employment as our Executive Vice President of Sales and we are
working on finalizing the terms and reducing them to writing.
On October 8, 2004 360 Global Wine entered into an employment agreement
with Mr. Charles Marin as an Executive Vice President effective November 1,
2004. Mr. Marin will serve at the pleasure of the Board of Director's. Mr.
Marin's Compensation with be $100,000 per annum along with other similar
employee benefits as offered to employees of 360 Global Wine. Mr. Marin also
received a stock grant of 75,000 shares of our common stock.
STOCK OPTION PLANS
We do not currently have any stock option or incentive plans.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
As used in this section, the term beneficial ownership with respect to
a security is defined by Rule 13d-3 under the Securities Exchange Act of 1934,
as amended, as consisting of sole or shared voting power (including the power to
vote or direct the vote) and/or sole or shared investment power (including the
power to dispose of or direct the disposition of) with respect to the security
through any contract, arrangement, understanding, relationship or otherwise,
subject to community property laws where applicable.
As of April 14, 2005, we had a total of 42,540,297 shares of common
stock and no shares of Preferred Stock issued and outstanding, which are the
only issued and outstanding voting equity securities of the Company.
The following table sets forth, as of April 14, 2004: (a) the names and
addresses of each beneficial owner of more than five percent (5%) of our Common
Stock beneficially owned by each such person, and the percent of our Common
Stock so owned; and (b) the names and addresses of each director and executive
officer, the number of shares our Common Stock beneficially owned, and the
percentage of our Common Stock so owned, by each such person, and by all of our
directors and executive officers as a group. Each person has sole voting and
investment power with respect to the shares of our Common Stock, except as
otherwise indicated. Beneficial ownership consists of a direct interest in the
shares of Common Stock except as otherwise indicated.
AMOUNT AND NATURE OF BENEFICIAL PERCENTAGE
NAME AND ADDRESS OWNERSHIP Of Voting of
Securities
(1)
Joel Shapiro 10,900,225 25.68%
CEO
171 Proprietors Crossing
New Canaan, CT 06840
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AMOUNT AND NATURE OF BENEFICIAL PERCENTAGE
NAME AND ADDRESS OWNERSHIP Of Voting of
Securities
(1)
Gryphon Master Fund, L.P. 4,249,776 9.99%
100 Crescent Court, Suite 490
Dallas, Texas 75201
Anthony J. A. Bryan 600,000 1.41%
Director
2525 North Ocean Blvd
Gulfstream, FL 33483
Phillip E. Pearce 600,000 1.41%
Director
6624 Glenleaf Court
Charlotte, NC 28270
Michael Jeub 100,000 (3) 0.23%
12959 Chaparral Ridge Rd
San Diego, CA 92130
Larry Kirkland 4,255,320 (2) 10.00%
One Kirkland Ranch Road
Napa, CA 94558
Armadillo Investments, PLC 7,272,727 17.10%
C/O Pearl Investments Mgmt
Services LTD, 6th Floor
Great Cumberland Place
London, UK W1H7AL
Joseph Carr 370,000 0.87%
President
659 Western Avenue
Albany, NY 12203
TriPoint Capital Advisors, LLC 2,436,825 5.73%
400 Professional Drive, Ste 310
Gaithersburg, Maryland 20879
Charles D. Marin 85,000 0.20%
Executive Vice President/Director
of Finance
1 Kirkland Ranch Rd
Napa, CA 94558
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AMOUNT AND NATURE OF BENEFICIAL PERCENTAGE
NAME AND ADDRESS OWNERSHIP Of Voting of
Securities
(1)
Jay Essa 95,000 0.22%
Executive Vice President of Sales
1644 Black Fox Canyon Road
Henderson, NV 89052
Redwood Grove Capital 2,300,000 5.41%
Management, LLC
The Transamerica Pyramid
600 Montgomery Street, 4th Floor
San Francisco, CA 94111
All directors and officers as a
group (7 persons) 12,775,225 30.02%
* Included in this table are persons who may not own 5% of our outstanding
Voting Stock but who currently hold positions as our officers or directors.
- --------------
(1) All Percentages have been rounded up to the nearest one hundredth of one
percent.
(2) Per the terms of the membership agreement between 360 Global Wine Company,
Inc., Kirkland Ranch Winery and Mr. Larry Kirkland, Mr. Kirkland and/or various
trusts that Mr. Kirkland controls the voting rights to one hundred (100%)
percent of the 4,255,320 shares of Knightsbridge Fine Wines, Inc. that are owned
by Kirkland Knightsbridge, LLC. Therefore, Mr. Kirkland beneficially owns
4,255,320 shares of our voting stock
(3) Includes the 100,000 warrants, at an exercise price of $1.05 per share,
granted to Mr. Jeub in July 2004. as part of a grant of 120,000 warrants that
vest 10,000 per months begging in July 2004.
CHANGES IN CONTROL
We are not aware of any arrangements which may result in a change in
control of the Company.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Commencing April 21, 2004, our principal corporate office is located at
One Kirkland Ranch Road, Napa, California 94558. The property is owned by
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Knightsbridge Kirkland, LLC and has an existing mortgage securing a $20,000,000
loan. The Kirkland property consists of sixty-nine (69) acres of vineyard land
and a 57,000 square winemaking facility.
Prior to April 21, 2004, our principal corporate office was located at
65 Shrewsbury Road, Livingston, NJ 07039. We subleased that office from JS
Capital, LLC, a company wholly owned by Joel Shapiro, our CEO. Since relocation,
this office has become our U.S. Satellite office pursuant to a verbal lease
agreement with JS Capital. JS Capital has not, and does not charge us for this
space.
We formerly subleased our Australian office located at 13 Lileura
Avenue, Beaumaris, Victoria, AU 3193 pursuant to a verbal lease agreement with
The PLS Super Annuation Fund, a company that is 100% owned by Paul Gardner. The
Company was not charged rent for this space.
On September 24, 2004, we entered a Debt Restructuring Agreement with
Gryphon Master Fund, L.P. Pursuant to the Agreement, Gryphon agreed to cancel
certain penalties due to it under the Senior Secured Convertible Note dated
April 21, 2004, and to freeze remaining penalties that may come due pursuant to
the terms of the Registration Rights Agreement dated April 21, 2004. Gryphon
also agreed to cancel certain interest payments currently due and which will
become due pursuant to the terms of the $5,500,000 Note dated April 21, 2004. In
consideration for the foregoing agreements by Gryphon, we agreed to issue a new
promissory note in the amount of seven hundred thousand dollars ($700,000),
which will bear interest at 6% per annum and is due and payable on August 31,
2005. The new Note is secured by 3,000,000 shares of the Company's common stock
owned by Joel Shapiro, our Chief Executive Officer. Joel Shapiro, Gryphon and
Warren W. Garden, P.C. entered into a Stock Pledge Agreement on September 24,
2004, which secures payment of all of our obligations now or hereafter existing
under the Agreement and the new Note. The Collateral will be held pursuant to
the Stock Pledge and Escrow Agreements that were also entered into on September
24, 2004. Should an Event of Default (as defined in the new Note) occur, which
we do not cure following notice in accordance with the terms of the new Note,
then Gryphon shall have the right to immediately demand that the Collateral be
released to Gryphon and shall also be entitled to reinstate any interest or
penalties previously cancelled or frozen pursuant to the terms of the Agreement
less any amounts actually paid by us under the new Note. The principal and
interest of the new Note shall be paid by us if Gryphon makes such demand upon
the occurrence of an Event of Default or on August 31, 2005, whichever event
occurs earlier. The term of the Agreement begins as of the Effective Date of the
Agreement and ends on the date that the Note is paid in full and we have
complied with our obligations under the Agreement and the new Note.
On September 30, 2004, we entered an Amended Agreement with each of
Longview Fund, LP, Longview Equity Fund, LP and Longview International Equity
Fund. We were in default of the following: (i) the Note Purchase Agreement,
dated as of May 28, 2004, by and among 360 Global Wine Company, Longview Fund,
Longview Equity and Longview International; (ii) the Convertible Promissory Note
No. PN-04-1 dated May 28, 2004, in the principal amount of $250,000 issued by
360 Global in favor of Longview Fund; (iii) the Convertible Promissory Note No.
PN-04-2 dated May 28, 2004, in the principal amount of $200,000 issued by 360
Global in favor of Longview Equity; and, (iv) the Convertible Promissory Note
No. PN-04-3 dated May 28, 2004, in the principal amount of $50,000 issued by 360
Global in favor of Longview International. We currently owe to the Purchasers
the aggregate principal amount of $500,000, plus interest of $15,875 through
September 29, 2004. To cure any event of default or default under the Note
Purchase Agreement and the Notes, the parties agreed to amend certain provisions
of the Note Purchase Agreement and each of the Notes. As security for the
performance of our obligations under the Note Purchase Agreement, the Notes, and
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the Amended Agreement, our Chief Executive Officer, Mr. Shapiro pledged two
hundred and fifty thousand (250,000) shares of his own 360 Global Common Stock
to the Purchasers, pursuant to a Pledge Agreement dated September 30, 2004
between Mr. Shapiro and each of the Purchasers. Upon foreclosure under the
Pledge Agreement, the Pledged Shares shall be deemed Registrable Securities, and
such Pledged Shares shall be registered with the Securities and Exchange
Commission in accordance with the terms, conditions and provisions of the Note
Purchase Agreement.
Because of their management positions, organizational efforts and/or
percentage share ownership in 360 Global Wine Company, Messrs. Shapiro and
Kirkland may be deemed to be "parents" and "promoters" of the Company, as those
terms are defined in the Securities Act of 1933 and the applicable Rules and
Regulations under the Securities Act of 1933. Because of the above-described
relationships, transactions between and among Knightsbridge and Messrs. Shapiro
and Kirkland such as the sale of our common stock to each of them as described
above, should not be considered to have occurred at arm's-length.
Furthermore, with regard to our predecessor Tech-Net Communications,
Mr. Jayeson Carmichael, Mr. Ed Wong and Ms. Diane Travis, may have been deemed
to be "promoters" or "parents" of Tech-Net due to their share holdings. However,
Mr. Carmichael, Mr. Wong and Ms. Travis no longer have any affiliation with the
Company.
ITEM 13. EXHIBITS LIST AND REPORTS ON FORM 8-K -UPDATE
(a) Exhibits.
Exhibit Description
Number
2.1 Share Exchange Agreement between Tech-Net Communications, Inc. and
the shareholders of Knightsbridge Fine Wines, Inc., dated as of July
31, 2003 (Incorporated by reference to Exhibit 1.1 to the Company's
Current Report on Form 8-K filed on August 1, 2003).
2.2 Form of Termination, Settlement and Release Agreement between Raul
Enrique Granillo Ocampo, Nelida Barros Reyes de Granillo Ocampo,
Bodegas y Vinedos Anguinan S.A. and 360 Global Wine Company, KFWBA
Acquisition Corp., Raul Marozof, dated as of November 30, 2004
(Incorporate by reference to Exhibit 2.1 to the Company's Current
Report on Form 8-K filed on December 20, 2004.)
3.1 Articles of Incorporation of Tech-Net Communications, Inc.
(Incorporated by reference to Exhibit 3.1 to the Company's
Registration Statement on Form SB-2 (File No. 333-90456)).
3.2+ Articles of Incorporation of the Company, as amended
3.3 Amended Bylaws of the Company (Incorporated by reference to Exhibit
3.2 to the Company's Registration Statement on Form SB-2 (File No.
333-90456)).
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4.1 Form of certificate representing shares of the Company's common
stock.
10.1 Form of Purchase Agreement by and between the Company and Gryphon
Master Fund, L.P., dated as of October 16, 2003 (Incorporated by
reference to Exhibit 10.1 to the Company's Current Report on Form
8-K filed on October 17, 2003).
10.2 Form of Convertible Note issued by the Company to Gryphon Master
Fund, L.P., dated as of October 16, 2003 (Incorporated by reference
to Exhibit 10.2 to the Company's Current Report on Form 8-K filed on
October 17, 2003).
10.3 Form of Registration Rights Agreement by and between the Company and
Gryphon Master Fund, L.P., dated as of October 16, 2003
(Incorporated by reference to Exhibit 10.3 to the Company's Current
Report on Form 8-K filed on October 17, 2003).
10.4 Form of Common Stock Purchase Warrant issued by the Company to
Gryphon Master Fund, L.P., dated as of October 16, 2003
(Incorporated by reference to Exhibit 10.4 to the Company's Current
Report on Form 8-K filed on October 17, 2003).
10.5 Stock Purchase Agreement among Raul Granillo Ocampo, Nelida Barros
Reyes and KFWBA Acquisition Corp., dated as of November 5, 2003
(Incorporated by reference to Exhibit 2.1 to the Company's Current
Report on Form 8-K filed on November 6, 2003).
10.6 Form of Purchase Agreement by and between the Company and Gryphon
Master Fund, L.P., dated as of December 22, 2003 (Incorporated by
reference to Exhibit 10.1 to the Company's Current Report on Form
8-K filed on December 22, 2003).
10.7 Form of Convertible Note issued by the Company to Gryphon Master
Fund, L.P., dated as of December 22, 2003 (Incorporated by reference
to Exhibit 10.2 to the Company's Current Report on Form 8-K filed on
December 22, 2003).
10.8 Form of Common Stock Purchase Warrant issued by the Company to
Gryphon Master Fund, L.P., dated as of December 22, 2003
(Incorporated by reference to Exhibit 10.3 to the Company's Current
Report on Form 8-K filed on December 22, 2003).
10.9 Form of Registration Rights Agreement by and between the Company and
Gryphon Master Fund, L.P., dated as of December 22, 2003
(Incorporated by reference to Exhibit 10.4 to the Company's Current
Report on Form 8-K filed on December 22, 2003).
10.10 Form of Security Agreement by and between the Company and Gryphon
Master Fund, L.P., dated as of December 22, 2003 (Incorporated by
reference to Exhibit 10.5 to the Company's Current Report on Form
8-K filed on December 22, 2003).
10.11 Employment Agreement between Paul Gardner and the Company, dated
February 20, 2003.
10.12 Employment Agreement between Joe Carr and the Company, dated June 1,
2003.
10.13 Form of Capital Stock Contribution Agreement by and among Kirkland
Ranch, LLC, Kirkland Knightsbridge, LLC, Knightsbridge Fine Wines,
Inc and Mr. Larry Kirkland, dated as of April 21, 2004 (Incorporated
by reference to Exhibit 10.1 to the Company's Current Report on Form
8-K filed on May 3, 2004).
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10.14 Form of Guaranty issued by the Company in favor of The Travelers
Insurance Company, dated as of April 21, 2004 (Incorporated by
reference to Exhibit 10.2 to the Company's Current Report on Form
8-K filed on May 3, 2004).
10.15 Form of Promissory Note issued by Larry Kirkland, Kirkland
Knightsbridge, LLC and Kirkland Cattle Co. to The Travelers
Insurance Company, dated April 21, 2004 (Incorporated by reference
to Exhibit 10.3 to the Company's Current Report on Form 8-K filed on
May 3, 2004).
10.16 Form of Trust Deed, Security Agreement, Assignment of Rents and
Fixture Filing by and among Larry Kirkland, Kirkland Knightsbridge,
LLC, Kirkland Cattle Co., First American Title Insurance Company and
The Travelers Insurance Company, dated April 21, 2004 (Incorporated
by reference to Exhibit 10.4 to the Company's Current Report on Form
8-K filed on May 3, 2004).
10.17 Form of Securities Exchange Agreement by and between the Company and
Gryphon Master Fund, L.P., dated as of April 21, 2004 (Incorporated
by reference to Exhibit 10.5 to the Company's Current Report on Form
8-K filed on May 3, 2004).
10.18 Form of Convertible Note issued by the Company to Gryphon Master
Fund, L.P., dated April 21, 2004 (Incorporated by reference to
Exhibit 10.6 to the Company's Current Report on Form 8-K filed on
May 3, 2004).
10.19 Form of Common Stock Purchase Warrant issued by the Company to
Gryphon Master Fund, L.P., dated April 21, 2004 (Incorporated by
reference to Exhibit 10.7 to the Company's Current Report on Form
8-K filed on May 3, 2004).
10.20 Form of Common Stock Purchase Warrant (Green Shoe Warrant) issued by
the Company to Gryphon Master Fund, L.P., dated April 21, 2004
(Incorporated by reference to Exhibit 10.8 to the Company's Current
Report on Form 8-K filed on May 3, 2004).
10.21 Form of Registration Rights Agreement by and between the Company and
Gryphon Master Fund, L.P., dated as of April 21, 2004 (Incorporated
by reference to Exhibit 10.9 to the Company's Current Report on Form
8-K filed on May 3, 2004).
10.22 Form of Amended and Restated Security Agreement by and between the
Company and Gryphon Master Fund, L.P., dated as of April 21, 2004
(Incorporated by reference to Exhibit 10.10 to the Company's Current
Report on Form 8-K filed on May 3, 2004).
10.23 Form of Amendment Agreement by and between 360 Global Wine Company,
Longview Fund, LP, Longview Equity Fund, LP and Longview
International Equity Fund, LP, dated September 30, 2004.
(Incorporated by reference to Exhibit 10.1 to the Company's Current
Report on Form 8-K filed on October 7, 2004)
10.24 Form of Pledge Agreement by and between Mr. Shapiro, Longview Fund,
LP, Longview Equity Fund, LP and Longview International Equity Fund,
LP, dated September 30, 2004. (Incorporated by reference to Exhibit
10.1 to the Company's Current Report on Form 8-K filed on October 7,
2004) 10.25 Form of Debt Restructuring Agreement dated September 24,
2004 between 360 Global Wine Company and Gryphon Master Fund, LP
(Incorporated by reference to Exhibit 10.1 to the Company's Current
Report on Form 8-K filed on September 30, 2004)
10.26 Form of Escrow Agreement dated September 24, 2004 between Joel
Shapiro, Gryphon Master Fund, L.P., and Warren W. Garden, P.C.
(Incorporated by reference to Exhibit 10.1 to the Company's Current
Report on Form 8-K filed on September 30, 2004)
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10.27 Form of Irrevocable Escrow Agent Instructions dated September 24,
2004 (Incorporated by reference to Exhibit 10.1 to the Company's
Current Report on Form 8-K filed on September 30, 2004) 10.28 Form
of Notice Of Conversion Price Adjustment dated September 24, 2004
(Incorporated by reference to Exhibit 10.1 to the Company's Current
Report on Form 8-K filed on September 30, 2004)
10.29 Form of Promissory Note dated September 24, 2004 between 360 Global
Wine Company and Gryphon Master Fund, LP (Incorporated by reference
to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on
September 30, 2004) 10.30 Form of Stock Pledge Agreement dated
September 24, 2004 between Joel Shapiro, Gryphon Master Fund, L.P.,
and Warren W. Garden, P.C. (Incorporated by reference to Exhibit
10.1 to the Company's Current Report on Form 8-K filed on September
30, 2004) 14.1 Code of Ethics. 10.31 Employment Agreement between
Jay Essa and the Company dated February 20, 2003. 10.32 Employment
Agreement between Charles Marin and the Company, dated February 20,
2003. 16.1 Letter from Morgan & Company regarding change in
certifying accountant, dated December 1, 2003 (Incorporated by
reference to Exhibit 16.1 to the Company's amendment to Current
Report on Form 8-K/A filed on December 1, 2003).
16.2 Letter from Marks Paneth & Shron LLP regarding change in certifying
accountant, dated August 20, 2004 (Incorporate by reference to
Exhibit 16.1 to the Company's Current Report on Form 8-K filed on
August 26, 2004)
21.1 List of Subsidiaries
22.1 Information Statement Pursuant to Section 14C of the Securities
Exchange Act of 1934 (Incorporated by reference to the Company's
Definitive 14C filed on January 19, 2005)
31.1 Certification of Chief Executive Officer Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
31.2 Certification of Principal Financial and Accounting Officer Pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Chief Executive Officer and Principal Financial and
Accounting Officer Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
+ Filed herewith.
(b) Reports on Form 8-K
-------------------
1.) On May 3, 2004, the Company filed a Form 8-K under items 2, 5 and 7
with the Securities and Exchange Commission describing the closing
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<PAGE>
of its purchase of the 50% membership interest in Kirkland
Knightsbridge, LLC and the senior secured convertible note financing
that the Company had undertaken.
2.) Resignation of Marks Paneth & Shron LLP (the "Former Accountant")
and appointment of Lopez, Blevins, Bork & Associates, L.L.P. as the
Company's principal accountants on August 26, 2004, reporting an
event that occurred on August 20, 2004.
3.) Debt Restructuring Agreement Between Gryphon Master Fund L.P. and
the Company, Inc, reported on Form 8-K on September 30, 2004,
reporting an event that occurred on September 24, 2004.
4.) Appointment on New President and Executive Vice President of Sales
and Marketing. Share Exchange with Knightsbridge Fine Wines, Inc,
reported on Form 8-K on September 30, 2004, providing further
disclosure of an event that occurred on September 24, 2004.
5.) Amended Note Purchase Agreement between Longview Fund, LP, Longview
Equity Fund, LP and Longview International Equity Fund, LP and
Knightsbridge Fine Wines, Inc., reported on Form 8-K on October 7
2004, reporting an event that occurred on September 30, 2004.
6.) Appointment of new non-executive Chairman of the Board and
resignation of one Director reported on Form 8-K on November 8,
2004, reporting an event that occurred on November 5, 2004.
7.) Certain Financial Disclosures reported on Form 8-K on December 7,
2004, reporting an event that occurred on December 7, 2004.
8.) Completion of the of divesture of ownership interest in Bodegas
Anguinan Winery reported on Form 8-K on December 20, 2004, reporting
an event that occurred on December 16, 2004
9.) Name change reported on Form 8-K on February 22, 2004, reporting an
event that occurred on February 15, 2004.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
(1) AUDIT FEES
The aggregate fees billed for professional services rendered by Marks,
Paneth, and Shron, LLP and Lopez, Blevins and Bork LLP for the audit of the
registrant's annual financial statements and review of financial statements
included in the registrant's Form 10-KSB or services that are normally provided
by the accountant in connection with statutory and regulatory filings or
engagements for fiscal years 2003 and 2004 were $141,116 and $289,861,
respectively.
(2) AUDIT-RELATED FEES
NONE
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(3) TAX FEES
NONE
(4) ALL OTHER FEES
NONE
(5) AUDIT COMMITTEE POLICIES AND PROCEDURES
The policy of our Audit Committee is to pre-approve all audit and
permissible non-audit services to be performed by the Company's independent
auditors during the fiscal year.
No services related to Audit-Related Fees, Tax Fees or All Other Fees
described above, were approved by the Audit Committee.
83
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
360 Global Wine Company, Inc.
By: /s/ Joel Shapiro
-----------------------
Joel Shapiro,
Chief Executive Officer
Date: May 18, 2005
In accordance with the Exchange Act, this report has been signed
below by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
By: /s/ Joel Shapiro
----------------
Joel Shapiro,
Principal Financial and
Accounting Officer
Date: May 18, 2005
By: /s/ Anthony J.A. Bryan
----------------------
Anthony J.A. Bryan,
Chairman and Director
Date: May 18, 2005
By: /s/ Phillip E. Pearce
----------------------
Phillip E. Pearce
Director
Date: May 18, 2005
By: /s/ Joseph Carr
---------------
Joseph Carr
President
Date: May 18, 2005
By: /s/ Charles D. Marin
--------------------
Charles D. Marin
Vice President/Director of Finance
Date: May 18, 2005
By: /s/ Michael Jueb
-----------------
Michael Jueb
Director
Date: May 18, 2005
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<PAGE>
Exhibit 31.1
Certification of Chief Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act and Rule 13a-14(a)
or 15d-14(a) under the Securities Exchange Act of 1934
I, Joel Shapiro, certify that:
1. I have reviewed this Annual Report on Form 10-KSB of 360 Global Wine
Company, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the small business issuer as of, and for, the periods presented in this
report;
4. The small business issuer's other certifying officer and I are responsible
for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e) for the small
business issuer and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the small
business issuer, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the period
in which this report is being prepared;
b) Evaluated the effectiveness of the small business issuer's disclosure
controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as
of the end of the period covered by this report based on such
evaluation; and
c) Disclosed in this report any change in the small business issuer's
internal control over financial reporting that occurred during the
small business issuer's most recent fiscal quarter (the small business
issuer's fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect,
the small business issuer's internal control over financial reporting;
and
5. The small business issuer's other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the small business issuer's auditors and the audit committee
of the small business issuer's board of directors (or persons performing
the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the small business issuer's
ability to record, process, summarize and report financial information
; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the small business issuer's
internal control over financial reporting.
Date: May 18, 2005 By: /s/ Joel Shapiro
---------------------------
Joel Shapiro
Chief Executive Officer
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<PAGE>
Exhibit 31.2
Certification of Principal Financial and
Accounting Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act and Rule 13a-14(a)
or 15d-14(a) under the Securities Exchange Act of 1934
I, Joel Shapiro, certify that:
1. I have reviewed this Annual Report on Form 10-KSB of 360 Global Wine
Company, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the small business issuer as of, and for, the periods presented in this
report;
4. The small business issuer's other certifying officer and I are responsible
for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e) for the small
business issuer and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the small
business issuer, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the period
in which this report is being prepared;
b) Evaluated the effectiveness of the small business issuer's disclosure
controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as
of the end of the period covered by this report based on such
evaluation; and
c) Disclosed in this report any change in the small business issuer's
internal control over financial reporting that occurred during the
small business issuer's most recent fiscal quarter (the small business
issuer's fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect,
the small business issuer's internal control over financial reporting;
and
5. The small business issuer's other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the small business issuer's auditors and the audit committee
of the small business issuer's board of directors (or persons performing
the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the small business issuer's
ability to record, process, summarize and report financial information
; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the small business issuer's
internal control over financial reporting.
Date: May 18, 2005 By: /s/ Joel Shapiro
----------------------------
Joel Shapiro
Principal Financial and
Accounting Officer
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<PAGE>
Exhibit 32.1
Written Statement of the Chief Executive Officer and Principal Financial and
Accounting Officer
Pursuant to 18 U.S.C. Section 1350
In connection with the filing of the Annual Report on Form 10-KSB for the fiscal
year ended December 31, 2004 (the "Report") by 360 Global Wine Company, Inc.
("Registrant"), the undersigned hereby certifies that, to the best of his
knowledge:
1. The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934, as amended, and
2. The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of
the Registrant.
/s/ Joel Shapiro
- -----------------------
Joel Shapiro
Chief Executive Officer
/s/ Joel Shapiro
- -----------------------
Joel Shapiro
Principal Financial and
Accounting Officer
Date: May 18, 2005
A signed original of this written statement required by 18 U.S.C. Section 1350
has been provided to 360 Global Wine Company, Inc and will be retained by 360
Global Wine Company, Inc and furnished to the Securities and Exchange Commission
or its staff upon request.
87
<PAGE>
Exhibit 3.2
FILED: C13452-00 ARTICLES OF INCORPORATION Receipt #:
Pursuant to NRS 78
STATE OF NEVADA
Secretary of State
IN THE OFFICE OF
Dean Heller
DEAN HELLER,
SECRETARY OF STATE
(For filing office use) (For filing office use)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
IMPORTANT: Read instructions on reverse side before completing this form.
TYPE OR PRINT (BLACK INK ONLY)
1. NAME OF CORPORATION: 360 Global Wine Company
2. RESIDENT AGENT: (designated resident agent and his STREET ADDRESS in Nevada
where process may be served)
Name of Resident Agent: Michael A Cane
Street Address: 101 Convention Ctr. Dr Ste. 1200, Las Vegas, NV 89109
3. SHARES: (number of shares the corporation is authorized to issue) Number of
shares with par value: 100 Million Par value: $.001 No. without par value:
_________
4. GOVERNING BOARD: shall be styled as (check one): X Directors
-----------
Trustees
-----------
The FIRST BOARD OF DIRECTORS shall consist of 1 member(s) and the names and
addresses are as follows:
Michael A. Cane 101 Convention Ctr. Dr. Suite 1200 Las Vegas, NV 89109
- ---------------- ---------------------------------------------------------
Name Address City/State/Zip
- ---------------- ---------------------------------------------------------
Name Address City/State/Zip
5. PURPOSE: (optional): The purpose of the corporation shall be:
6. OTHER MATTERS: This form includes the minimal statutory requirements to
incorporate under NRS 78. You may attach additional information pursuant to NRS
78.037 or any other information you deem appropriate. If any of the additional
information is contradictory to this form it cannot be filed and will be
returned to you for correction. Number of pages attached: 0.
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7. SIGNATURES OF INCORPORATORS: The names and addresses of each of the
incorporators signing the articles.
Michael A. Cane
- -------------------------------
Name (print)
101 Convention Ctr. Dr Ste. 1200
Las Vegas, NV 89109
- --------------------------------
Address City/State/Zip
/s/ Michael Cane
- --------------------------------
Signature
State of Nevada County of Clark
This instrument was acknowledged before
me on May 15, 2000, by
Michael A. Cane
- --------------------------------------
Name of Person
as incorporator of Tech-net Communications, Inc.
/s/ Carolyne S. Johnson
- -------------------------------------
Notary Public Signature
(affix notary stamp or seal)
8. CERTIFICATE OF ACCEPTANCE OF APPOINTMENT OF RESIDENT AGENT:
I, Michael A. Cane hereby accept appointment as Resident Agent for the above
named corporation.
/s/ Michael Cane 05-15-00
- -------------------------------- -------------------------
Signature of Resident Agent Date
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Exhibit 14.1
KNIGHTSBRIDGE FINE WINES, INC.
CODE OF BUSINESS CONDUCT AND ETHICS
-----------------------------------
Our Company's reputation for honesty and integrity is the sum of the personal
reputations of our directors, officers and employees. To protect this reputation
and to promote compliance with laws, regulations and Company policies, the Board
of Directors has adopted this Code of Business Conduct and Ethics. This Code is
only one aspect of our commitment. You must be familiar with and comply with all
Company policies.
This Code states the basic standards of ethics and conduct to which all of our
directors, officers and employees are held. These standards are designed to
deter wrongdoing and promote honest and ethical conduct, but will not cover all
situations. There may be times when the law or local practice restrict your
conduct to a greater extent than this Code. In these cases you must comply with
the law or local custom and practice, whichever is more restrictive. Those who
violate the standards stated in this Code will be subject to disciplinary
action.
1. SCOPE
You are subject to this Code if you are a director, officer or employee
of the Company or any of its subsidiaries (or controlled entities).
2. HONEST AND ETHICAL CONDUCT
We as a Company require honest and ethical conduct from everyone subject
to this Code. Each of you has a responsibility to all other directors, officers,
employees and to our Company itself, to act responsibly, in good faith and with
competence and diligence. You are responsible to meet the Company's ethical and
legal standards without misrepresenting material facts or allowing your
independent judgment to be subordinated or compromised.
3. COMPLIANCE WITH LAWS, RULES AND REGULATIONS
You are required to comply with both the letter and spirit of all
applicable governmental laws, rules and regulations. Although you are not
expected to know the details of all applicable laws, rules and regulations, you
are expected to seek advice from our Company's General Counsel if you have a
question about any applicable laws, rules and regulations or if you are unsure
whether certain conduct is illegal or unethical.
4. CONFLICT OF INTEREST
You must handle any actual or apparent conflict of interest in an
ethical manner. Conflicts of interest are prohibited by Company policy and exist
when a person's private interest interferes in any way with the interest of our
Company. For example, taking actions or having interests that interfere with
your ability to effectively and objectively perform your work for our Company is
a conflict of interest. Conflicts of interest may also arise if you receive, or
a member of your family receives, an improper personal benefit as a result of
your position with the Company.
Company policy prohibits conflicts of interest except under guidelines
approved by the Board of Directors. The following standards apply to common
situations where potential conflicts of interest may arise.
A. GIFTS AND ENTERTAINMENT
Personal gifts and entertainment offered by persons doing business with
our Company may be accepted, when offered in the ordinary and normal course of
the business relationship. However, the frequency and cost of any gifts or
entertainment may not be so excessive that your ability to exercise independent
judgment on behalf of our Company is or may appear to be compromised. Cash in
any form is inappropriate and should not be accepted.
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B. FINANCIAL INTERESTS IN OTHER ORGANIZATIONS
The determination whether any outside investment, financial arrangement
or other interest in another organization is improper depends on the facts and
circumstances of each case. Your ownership of an interest in another
organization may be inappropriate if the other organization has a material
business relationship with, or is a direct competitor of, our Company and your
financial interest is of such a size that your ability to exercise independent
judgment on behalf of our Company is or may appear to be compromised. As a
general rule, a passive investment would not likely be considered improper if
it: (1) is in publicly traded shares; (2) represents less than 1% of the
outstanding equity of the organization in question; and (3) represents less than
5% of your net worth. Other interests also may not be improper, depending on the
circumstances.
C. OUTSIDE BUSINESS ACTIVITIES
The determination of whether any outside position an employee may hold
is improper will depend on the facts and circumstances of each case. Your
involvement in trade associations, professional societies, and charitable and
similar organizations will not normally be viewed as improper. However, if those
activities are likely to take substantial time from or otherwise conflict with
your responsibilities to our Company, you should obtain prior approval from your
supervisor and the Human Resources Department. Other outside associations or
activities in which you may be involved are likely to be viewed improper only if
they would interfere with your ability to devote proper time and attention to
your responsibilities to our Company or if your involvement is with another
Company with which our Company does business or competes. For a director,
employment or affiliation with a Company with which our Company does business or
competes must be fully disclosed to our Company's Board of Directors and must
satisfy any other standard s established by applicable law, rule (including
rules of a stock exchange, quotation system, OTC Bulletin Board or "pink
sheets") or regulation and any other corporate governance guidelines that our
Company may establish.
5. CORPORATE OPPORTUNITIES
You are prohibited from personally utilizing a corporate opportunity
unless the Board of Directors has declined to pursue that opportunity. You may
not use corporate property, information, or position for personal gain, or to
compete with our Company. You owe a duty to our Company to advance its
legitimate interests whenever the opportunity to do so arises.
6. FAIR DEALING
You should endeavor to deal fairly with our Company's suppliers,
customers, competitors and employees and with other persons with whom our
Company does business. You should not take unfair advantage of anyone through
manipulation, concealment, abuse of privileged information, misrepresentation of
material facts, or any other unfair-dealing practice.
7. PUBLIC DISCLOSURES
It is our Company's policy to provide full, fair, accurate, timely, and
understandable disclosure in all reports and documents that we file with, or
submit to, the Securities and Exchange Commission and in all other public
communications made by our Company.
8. CONFIDENTIALITY
You should maintain the confidentiality of all confidential information
entrusted to you by our Company or by persons with whom the Company does
business, except when disclosure is authorized or legally mandated. Confidential
information includes all non-public information that might be used by our
competitors, or harmful to, our Company or persons with whom our Company does
business, if disclosed.
9. INSIDER TRADING
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If you have access to material, non-public information concerning our
Company, you are not permitted to use or share that information for stock
trading purposes or any purpose other than to conduct our Company's business.
The prohibition on insider trading applies not only to our Company's securities,
but also to securities of other companies if you learn of material, non-public
information about these companies in the course of your duties to the Company.
Violations of this prohibition against "insider trading" may subject you to
criminal or civil liability, in addition to disciplinary action by our Company.
10. PROTECTION AND PROPER USE OF COMPANY ASSETS
You are responsible to protect our Company's assets and promote their
efficient use. Theft, carelessness and waste have a direct impact on the
profitability of the Company. Employees are obligated to protect the Company's
assets including proprietary information. Proprietary information includes
intellectual property such as trade secrets, patents, trademarks and copyrights
as well as business, marketing and service plans, engineering and marketing
ideas, designs, databases, records, salary information and any unpublished
financial data and reports. Unauthorized use or distribution of this information
is a violation of Company policy and could also be illegal and result in civil
or criminal penalties.
11. INTERPRETATIONS AND WAIVERS OF THE CODE OF BUSINESS CONDUCT AND ETHICS
If you are unsure whether a particular activity or relationship is
improper under this Code or requires a waiver of this Code, you should disclose
it to our Company's General Counsel, Chief Executive Officer or President (or
the Board of Directors or Audit Committee if you are a director), who will first
make a determination whether a waiver of this Code is required and second, if
required, whether a waiver will be granted. You may be required to agree to
conditions before a waiver or a continuing waiver is granted. However, any
waiver of this Code for an executive officer or director may only be made by the
Company's Board of Directors (or the Nominating Committee of the Board of
Directors) and will promptly be disclosed to the extent required by applicable
law, rule (including any rule of a stock exchange, quotation system, OTC
Bulletin Board or "pink sheets") or regulation.
12. REPORTING ANY ILLEGAL OR UNETHICAL BEHAVIOR
Any employee, including any supervisor, who receives a report of
unethical or illegal behavior from a subordinate, should promptly report such
violation of applicable laws, rules, regulations or this Code to a superior, our
Company's General Counsel, Chief Executive Officer or President (or the Board of
Directors or Audit Committee if you are a director). Any report or allegation of
a violation of applicable laws, rules, regulations or this Code need not be
signed and may be sent anonymously. All reports of violations of this Code,
including those sent anonymously, will be promptly investigated and, if found to
be credible and accurate, acted upon in a timely manner. If any report of
wrongdoing relates to accounting or financial reporting matters, such report
must be provided to a superior, our Company's General Counsel, Chief Executive
Officer or President (or the Board of Directors or Audit Committee if you are a
director). It is the Company's policy not to allow actual or threatened
retaliation, harassment or discrimination due to reports of misconduct by others
made in good faith by employees. Employees are required to cooperate in internal
investigations of misconduct.
13. COMPLIANCE STANDARDS AND PROCEDURES
Our Company wants to promote ethical behavior. This Code is intended as
a statement of basic principles and standards and does not include specific
rules that apply to every situation. Its contents have to be viewed within the
framework of our Company's other policies, practices, instructions and
requirements of the law. This Code is in addition to other policies, practices
or instructions of our Company that must be observed. Moreover, the absence of a
specific corporate policy, practice or instruction covering a particular
situation does not relieve you of the responsibility for exercising the highest
ethical standards applicable to the circumstances.
In some situations, it is difficult to know right from wrong. Because
this Code does not anticipate every situation that will arise, it is important
that each of you approach a new question or problem in a deliberate fashion:
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(a) Determine if you know all the facts.
(b) Identify exactly what it is that concerns you.
(c) Discuss the problem with a supervisor if you are a corporate
employee or the Company's General Counsel if you are an officer or
director. The Human Resources Department is always available to discuss
any ethical issues that you may have.
(d) Seek guidance before taking any action that you believe may be
unethical or dishonest.
You may also submit any questions that you may have relating to the
propriety of a situation in writing to our Company's General Counsel, who will
review the situation and provide you with advice as to the course of action that
you should take. If your concern relates to the Company's General Counsel, you
may submit your concern in writing to the Chief Executive Officer or President
of the Company. The mailing address for each of these individuals is included at
the end of this Code.
You will be governed by the following compliance standards:
o You are personally responsible for your own conduct and for
complying with all provisions of the Code and for properly
reporting known or suspected violations;
o If you are a supervisor, director or officer, you must use your
best efforts to ensure that employees understand and comply with
this Code;
o No one has the authority or right to order, request or even
influence you to violate this Code or the law. A request or order
from another person will not be an excuse for your violation of
this Code;
o Any attempt by you to induce another director, officer or
employee of our Company to violate this Code, whether successful
or not, is itself a violation of this Code and may be a violation
of law;
o Any retaliation or threat of retaliation against any director,
officer or employee of our Company for refusing to violate this
Code, or for reporting in good faith the violation or suspected
violation of this Code, is itself a violation of this Code and
may be a violation of law; and
o Our Company expects that every reported violation of this Code
will be investigated.
Violation of any of the standards contained in this Code, or in any other
policy, practice or instruction of our Company, can result in disciplinary
actions, including dismissal and civil or criminal action against the violator.
This Code should not be construed as a contract of employment and does not
change any person's status as an at-will employee.
This Code is for the benefit of our Company, and no other person is entitled to
enforce this Code. This Code does not, and should not be construed to, create
any private cause of action or remedy in any other person for a violation of the
Code.
The names, addresses, telephone numbers, facsimile numbers and e-mail addresses
of the Chief Executive Officer, President and General Counsel of our Company are
set forth below:
General Counsel (outside): Chief Executive Officer: President:
Martin Eric Weisberg, Esq. Mr. Joel Shapiro Mr. Joe Carr
Jenkens & Gilchrist Parker
Chapin LLP One Kirkland Ranch Road One Kirkland Ranch Road
The Chrysler Building Napa, California 94558 Napa, California 94558
405 Lexington Avenue (707) 254-9100 (707) 254-9100
New York, New York 10174 (707) 254-7258 (707) 254-7258
(212) 704-6050 jshapiro@knightsbridge jcarr@knightsbridge
(212) 704-6157 finewines.us finewines.us
[email protected]
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STATEMENT OF ACKNOWLEDGMENT
You are being furnished two copies of this Code of Business Conduct and Ethics.
To confirm that you have read and understand it, please sign one copy below and
return it to Human Resources.
I have read and I understand and I will observe the requirements of this Code of
Business Conduct and Ethics of Knightsbridge Fine Wines, Inc.
Name: ______________________________
Print Above
Signature: _________________________
Date: ______________________________
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Exhibit 21.1
KNIGHTSBRIDGE FINE WINES, INC.
SCHEDULE OF SUBSIDIARIES
12-31-04
Name of Subsidiary Percent Owned
- ------------------ -------------
360 Global Wine Company 100%
Dominion Wines, Ltd. 56%
KFWBA Acquisition Corporation 100%
Kirkland Knightsbridge, LLC 50%
Knightsbridge Torrique 100%
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