Good morning boys and girls. Let's grab us a cup of coffee and chat for awhile.
Be it that DKAM signed a distribution agreement with LIQR on July 8, 2008, and subsequently, LIQR has filed a Breach of Contract Claim against DKAM, then it is obvious that any discussion about LIQR here is considered on topic as it relates to DKAM. With that said, allow me to illustrate a few things to you.
I had occasion to spend last evening with a rather respected Corporate Attorney. For now, we'll just call him Uncle Sam. Uncle Sam shared some wisdom and insight with me and I thought I'd pass it along.
First:
On July 15, 2009, LIQR released its 10-Q and accompanying press release. In that press release, it stated the following:
Liquor Group Wholesale Finishes 27th Consecutive Profitable Period
JACKSONVILLE, Fla., Jul 15, 2009 (GlobeNewswire via COMTEX) -- Liquor Group Wholesale (OTCBB:LIQR) posted its Fiscal 3rd Quarter results today, documenting twenty-seven periods of consecutive accrued profitability.
Now, this would be an out and out lie, and a blatant attempt to deceive on a number of fronts. The company says in their headline statement that it is the 27th Consecutive Profitable Period. Below are the financials for this "period":
LIQUOR GROUP WHOLESALE, INC.
STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED MAY 31, 2009
AND MAY 31, 2008 (UNAUDITED)
For the Three Months Ended For the Nine Months Ended
May 31, May 31, May 31, May 31,
2009 2008 2009 2008
--------------------------- --------------------
SALES
Related party $ 89,014 $ 80,463 $ 288,087 $ 372,745
Other (net) 9,070 76,263 192,617 116,506
-------------- ------------ --------------- -------------
98,084 156,726 480,704 489,251
COST OF SALES (39,664) (117,596) (248,895) (379,637)
-------------- ------------ --------------- -------------
GROSS PROFIT 58,420 39,130 231,809 109,614
-------------- ------------ --------------- -------------
OTHER INCOME
Vendor contract terminations 92,152 - 188,917 -
Interest 6,039 - 6,039 -
-------------- ------------ --------------- -------------
98,191 - 194,956 -
-------------- ------------ --------------- -------------
OPERATING EXPENSES
Stock issued for compensation expense (see Note 7) 135,000 - 135,000 -
Professional, consulting, and
administrative costs, (which includes
$31,000 in stock issued for professional
and consulting fees for both three and
nine months ended May 31, 2009 (see Note 7)) 52,816 5,759 83,789 20,706
Insurance - 4,110 - 12,330
Interest expense 3,820 3,392 10,995 9,952
Rent - related party 3,000 3,500 11,391 9,500
Licenses and fees 100 60 1,344 9,494
Bank charges 1,231 2,412 2,514 6,248
Other 9,693 367 22,653 5,892
-------------- ------------ --------------- -------------
205,660 19,600 267,686 74,122
-------------- ------------ --------------- -------------
INCOME (LOSS) BEFORE PROVISION
FOR INCOME TAXES (49,049) 19,530 159,079 35,492
PROVISION FOR INCOME TAXES - - - -
-------------- ------------ --------------- -------------
NET INCOME (LOSS) $ (49,049) $ 19,530 $ 159,079 $ 35,492
============= ============ ============ =============
Average common shares outstanding 11,282,863 9,512,851 10,109,339 9,509,188
Fully diluted common shares outstanding 54,188,563 52,418,551 53,015,039 52,414,888
Basic earnings (loss) per common share $ (0.004) $ 0.002 $ 0.016 $ 0.004
Fully diluted earnings (loss) per common share $ (0.001) $ - $ 0.003 $ 0.001
You can clearly see above a $49K LOSS is not a profit. Sure, they quantify it as "accrued" profit within the press release. But that isn't what they said in the headline. This is fraud and actionable by the SEC even though they try to gloss it over by saying they earned a profit before they issued some stock.
Also, big no no! You cannot reference 27 previous reporting periods when you've only been public for three reporting periods.
Second:
During the peiod reported, the company issued shares for Investor Relations. This would be a stock payment to one Brandy Christine.
Is is also noted as such:
5/13/2009 Common Stock 100,000 $20,000
Professional Consultants Services
Third:
The company claims to have recorded 27 profitable periods in a row. LIQR has been a publicly traded company for 3 quarters. The SEC does not recognize the unaudited and unverifiable results of a private company, for filings or comparative purposes. Any reference to those results, and claims thereof are fraud.
Four:
On July 15, LIQR included these statements in its 10Q for the THIRD FISCAL QUARTER of 2009:
During the past quarter, as is a normal part of business operations, certain vendors failed to honor their agreements with the Company by not accepting exchanges, returns, or meeting required marketing and other program commitments. As permitted by the agreements with these vendors, and after a six-month notice, the Company liquidated the vendors' inventory to cover the vendor obligations under the agreements. The liquidation of the vendors' inventory resulted in income of $96,765 and $92,152 in the second and third quarter of fiscal year 2009, respectively, for a total of $188,917 for the nine months ended May 31, 2009. While the suppliers may dispute the Company's action, the Company believes any resolution of such disputes will not have a material effect on the Company's financial condition.
The Company is dependent upon payment from related parties of trade receivables totaling $1,905,406. Also, the Company may accept returns of product from its customers, which may not be fully offset by a reduction in trade payables or supplier buy backs. If nonpayment of related party trade receivables, defaults on supplier contracts, or early termination of significant contracts including those with related parties were to occur, these events would likely have a material effect on the Company's financial condition.
The Company's liability insurance was not renewed for the fiscal year ending August 31, 2009, due to excessive premiums. Accordingly, the Company will self-insure for any claims arising subsequent to August 31, 2008.
Yet, on July 15, LIQR made this statement in its earnings press release:
The Company's sales force continues to outpace major supplier inventories. All but one major supplier was able to fulfill outstanding back-orders: Drinks Americas (OTCBB:DKAM) left confirmed orders generated during the last several quarters of more than $830,000 unfilled and did not reimburse Liquor Group for more than $60,000 in marketing expenses. Liquor Group has taken legal action against DKAM to recover revenues and expenses lost.
All but one major supplier was able to fulfill outstanding back orders and that was Drinks Americas? It plainly says in the 10-Q that $92,152 was liquidated from a supplier who was unable to fulfill its order obligations. That supplier was NOT Drinks Americas. It was someone else. So, LIQR lied again.
Further, of those two amounts listed, there have been no Breach of Contract lawsuits filed against any party responsible for those subsequent liquidations.
Five:
Beginning July 8, 2008, LIQR group has issued various press releases referencing distribution news relating to its agreement with Drinks Americas. Liquor Group never once referenced Drinks Americas as a publicly traded company, nor did they give the stock symbol of DKAM. Once the 6 month notice was given that Drinks was not compliant with fulfilling orders on December 19, we then see the symbol referenced once in a February news release. DKAM is listed once again, in the Breach of Contract filing on July 1. However, in the 10-Q issued on July 15, we see the company Drinks Americas noted once, and then referred thereafter as DKAM no less than FIVE times in one paragraph.
On June 30, 2009, the Company filed a breach of contract claim against Drinks Americas Holdings, LTD / Drinks Americas, Inc. ("DKAM") claiming damages in excess of $1.95 million. The Company documented the failure of DKAM to pay their contracted and agreed marketing obligations totaling $7,000 per month for each month of the contract beginning May 2008 to the time of the filing; as well as DKAM's failure to fulfill back order obligations to Liquor Group customers in 18 States in excess of $830,000. Under the terms of our contract with DKAM, the contract entitles the Company to triple damages against DKAM, which now exceed more than $2.0 million. Further details of the claim can be found in the Company's filing on Form 8-K dated July 1, 2009.
This would be considered as tortious and malicious intent on the part of LIQR to further damage the business of Drinks Americas beyond any Breach of Contract claims to make LIQR whole again. This would be immediately actionable in any court. Drinks Americas can seek an immediate injunction and gag order.
Six:
Drawing back to number FOUR above, this is where it gets really good. The earnings release of July 15, 2009 for Liquor Group (LIQR) is for the 3rd Fiscal Quarter of 2009. The statement above is dated June 30, 2009, and references an action by the company outside of the reporting period. Therefore, it solidifies guilt on the part of LIQR to enact tortious and malicious intent to damage Drinks Americas beyond the Breach of Contract claim. Once again, Drinks can seek an immediate injunction and gag order.
Further, LIQR cannot include items in its earnings release that occurred after the reporting period. This renders the entire release void, and is actionable by the SEC for filing false results.
Seven:
Here is the definition of Liquidation Damages Clause:
Liquidated damages (also referred to as liquidated and ascertained damages) are damages whose amount the parties designate during the formation of a contract for the injured party to collect as compensation upon a specific breach (e.g., late performance).
When damages are not predetermined/assessed in advance, then the amount recoverable is said to be 'at large' (to be agreed or determined by a court or tribunal in the event of breach).
At common law, a liquidated damages clause will not be enforced if its purpose is to punish the wrongdoer/party in breach rather than to compensate the injured party (in which case it is referred to as a penal or penalty clause). One reason for this is that the enforcement of the term would, in effect, require an equitable order of specific performance. However, courts sitting in equity will seek to achieve a fair result and will not enforce a term that will lead to the unjust enrichment of the enforcing party.
In order for a liquidated damages clause to be upheld, two conditions must be met. First, the amount of the damages identified must roughly approximate the damages likely to fall upon the party seeking the benefit of the term. Second, the damages must be sufficiently uncertain at the time the contract is made that such a clause will likely save both parties the future difficulty of estimating damages. Damages that are sufficiently uncertain may be referred to as unliquidated damages, and may be so categorized because they are not mathematically calculable or are subject to a contingency which makes the amount of damages uncertain.
Every distributor contract at Liquor Group contains a Liquidation Clause. This "Clause" shall be held provided any supplier is found in Breach of Contract. By law, a Liquidation Clause cannot contain any penalties of any kind. The Liquidation Clause, in effect by design, takes into account that which will make the company whole again.
LIQR is seeking to be enriched by their Claim for Relief. Therefore, it renders their claim invalid.
Furthermore:
LIQR made the following statement in its 10-Q filed on July 15:
Other income I $98,191 * Includes the income recorded from vendor contract terminations and liquidation of vendor inventories. The Company also began
assessing interest on outstanding monthly accounts receivable balances in this quarter.
LIQR has a Liquidation Clause in effect for all suppliers. Therefore, they cannot arbitrarily begin assessing penalties of any kind. This invalidates the Liquidation Clause. This invalidates the company's ability to liquidate supplier's inventories. This renders a Breach of Contract claim as invalid and will be thrown out of court.
Eight:
For the periods ending Oct. 31, 2008, and Jan. 31, 2009, DKAM had sales of $1.145 million. LIQR contends on Dec. 19 that DKAM was deficient in filling $300K of orders. How is it the company is fulfilling everybody else's orders for the months from 8/2008-1/31/2009 and not a single bit of product is being filled for LIQR? Something must have prevented DKAM from filling those orders. DKAM had plenty of product available. The ONLU obvious answer is they were not getting paid by LIQR, and therefore stopped shipping product to them.
On Jan. 31, DKAM had $492K in Accounts Receivable. The law clearly states that if LIQR owes DKAM $1 or more in payments, then no Breach of Contract can be claimed. No Liquidation Clause can be enacted.
Nine:
From the 10-Q filed July 15 for LIQR:
The liquidation of the vendors' inventory resulted in income of $96,765 and $92,152 in the second and third quarter of fiscal year 2009, respectively, for a total of $188,917 for the nine months ended May 31, 2009.
Therefore, there are other parties who may be enjoined in a counter suit against LIQR as the current Breach of Contract suit filed by LIQR is pre emptive in nature and invalid.
Ten:
On July 15, LIQR made the following statement in its Earnings Press Release:
The Company's sales force continues to outpace major supplier inventories. All but one major supplier was able to fulfill outstanding back-orders: Drinks Americas (OTCBB:DKAM) left confirmed orders generated during the last several quarters of more than $830,000 unfilled and did not reimburse Liquor Group for more than $60,000 in marketing expenses. Liquor Group has taken legal action against DKAM to recover revenues and expenses lost.
The company states $60,000 is past due in marketing expenses. On July 15, in LIQR's 10-Q, the following statement exists:
After a courtesy five day notice sent on June 15, 2009, approximately $103,524.28 of Drinks Americas' inventory remaining in Liquor Group possession was declared liquidated per the terms of the contracts, and is now wholly owned by Liquor Group. The funds from the liquidation have been used to help defray Drinks Americas' marketing debt obligations to Liquor Group, which will still remain mostly unanswered.
LIQR claims they were owed $60,000 in marketing expenses. (This amount reflects their stated $7000/month for 9 months, give or take. They are obviously calculating a "per diem.") However, per the Liquidation Clause, they took control of $103,524.58 of "cost basis" inventory. How is it that $103K "helps defray" the marketing expenses of $60K due to LIQR? It cannot. It is 70% above the amount owed.
Per the law, LIQR has been made whole. No Breach of Contract claim can be made.
Further, LIQR was holding $103,524.58 of DKAM inventory for over 6 months with $300,000 in orders received and made NO attempt to fill any customer orders with it. Therefore, they are in direct violation of the contract with DKAM.
Eleven:
Ahhhh! My favorite part!
The Company's sales force continues to outpace major supplier inventories. All but one major supplier was able to fulfill outstanding back-orders: Drinks Americas (OTCBB:DKAM) left confirmed orders generated during the last several quarters of more than $830,000 unfilled and did not reimburse Liquor Group for more than $60,000 in marketing expenses. Liquor Group has taken legal action against DKAM to recover revenues and expenses lost.
The law is pretty clear and straightforward.
You CAN NOT sue for lost sales and revenues. You can only sue for lost profits. The Breach of Contract Claim on file in Liquor Group vs. Drinks Americas is completely invalid.
