Exhibit 99.2

 

 

PANACHE LLC

 

CONSOLIDATED FINANCIAL STATEMENTS

 

DECEMBER 31, 2010

 

 

 

TABLE OF CONTENTS

 

		Page
Report of Independent Registered Public Accounting Firm		2
Consolidated Balance Sheets as of December 31, 2010 and 2009		3
Consolidated Statements of Operations for the years ended December 31, 2010 and 2009		4
Consolidated Statements of Changes in Members’ Equity (Deficit) as of December 31, 2010		5
Consolidated Statements of Cash flows for the years ended December 31, 2010 and 2009		6
Notes to Consolidated Financial Statements		7-9

 

 

 

Silberstein Ungar, PLLC CPAs and Business Advisors

Phone (248) 203-0080

Fax (248) 281-0940

30600 Telegraph Road, Suite 2175

Bingham Farms, MI 48025-4586

www.sucpas.com

 

Report of Independent Registered Public Accounting Firm

 

 

To the Board of Directors of

Panache LLC

New York, New York

 

We have audited the accompanying balance sheets of Panache LLC (the “Company”) as of December 31, 2010 and 2009, and the related statements of operations, changes in members’ equity (deficit), and cash flows for the periods then ended. 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 audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Panache LLC as of December 31, 2010 and 2009, and the results of its operations and its cash flows for the periods then ended, in conformity with accounting principles generally accepted in the United States of America.

 

 

/s/ Silberstein Ungar, PLLC

 

Bingham Farms, Michigan

January 6, 2012 

 

 

PANACHE LLC
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2010 AND 2009
		2010				2009
ASSETS
Current Assets
Cash and cash equivalents		$	29,776			$	52,394
Accounts receivable – net			226,669				47,498
Inventory			96,190				299,745
Prepaid expenses			1,334,079				—
Total Current Assets			1,686,714				399,637
Property and Equipment - net			1,723				—
TOTAL ASSETS		$	1,688,437			$	399,637
LIABILITIES AND MEMBERS’ EQUITY (DEFICIT)
Current Liabilities
Accounts payable		$	245,811			$	301,142
Notes payable			93,137				35,000
Loans payable – related parties			322,298				282,582
Consulting fees payable – related party			52,751				30,000
Accrued interest			41,781				6,147
Other current liabilities			333,462				—
Total Current Liabilities			1,089,240				654,871
Long term debt			183,500				183,500
Total Liabilities			1,272,740				838,371
Members’ Equity (Deficit)
Members’ deficit attributable to Panache LLC			(1,056,691	)			(438,734	)
Non-controlling interests			1,472,388				—
Total Members’ Equity (Deficit)			415,697				(438,734	)
TOTAL LIABILITIES AND MEMBERS’ EQUITY (DEFICIT)		$	1,688,437			$	399,637

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

 

 

 

PANACHE LLC
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE PERIODS ENDED DECEMBER 31, 2010 AND 2009
		For the period ended December 31, 2010				For the period ended December 31, 2009
REVENUES - NET		$	798,680			$	247,386
COST OF GOODS SOLD			491,513				181,894
GROSS PROFIT			307,167				65,492
OPERATING EXPENSES
Advertising and promotion			2,067,051				2,933
Consulting			347,725				103,272
Professional fees			91,800				75
General and administrative			336,835				112,854
TOTAL OPERATING EXPENSES			2,843,411				219,134
INCOME (LOSS) FROM OPERATIONS			(2,536,244	)			(153,642	)
OTHER INCOME (EXPENSE)
Interest expense			(57,687	)			(11,317	)
INCOME (LOSS) FROM OPERATIONS AND BEFORE NON- CONTROLLING INTERESTS			(2,593,931	)			(164,959	)
LESS: LOSS ATTRIBUTABLE TO NON-CONTROLLING INTERESTS			2,173,112				—
NET LOSS ATTRIBUTABLE TO PANACHE LLC		$	(420,819	)		$	(164,959	)

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

 

 

 

PANACHE LLC
CONSOLIDATED STATEMENT OF CHANGES IN MEMBERS’ EQUITY (DEFICIT)
AS OF DECEMBER 31, 2010
		Non-Controlling				Members’ Equity
		Interests				(Deficit)				Total
Inception, August 14, 2009		$	—			$	—			$	—
Deemed distribution for liabilities transferred in			—				(273,775	)			(273,775	)
Net loss for the period ended December 31, 2009			—				(164,959	)			(164,959	)
Balance, December 31, 2009			—				(438,734	)			(438,734	)
Capital contributions			3,645,500				—				3,645,500
Deemed distribution for liabilities transferred in			—				(197,138	)			(197,138	)
Net loss for the period ended December 31, 2010			(2,173,112	)			(420,819	)			(2,593,931	)
Balance, December 31, 2010		$	1,472,388			$	(1,056,691	)		$	415,697

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

 

 

PANACHE LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE PERIODS ENDED DECEMBER 31, 2010 AND 2009
		For the period ended December 31, 2010				For the period ended December 31, 2009
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss for the period		$	(420,819	)		$	(164,959	)
Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities:
Non-controlling interest			(2,173,112	)			—
Depreciation			258				—
Bad debt expense			729				—
Advertising expense			1,915,921				—
Changes in assets and liabilities:
Accounts receivable			(179,900	)			(47,498	)
Inventory			203,555				(299,745	)
Accounts payable			(90,160	)			301,142
Consulting fees payable – related party			22,751				30,000
Accrued interest			35,634				6,147
Other current liabilities			171,153				—
CASH FLOWS USED IN OPERATING ACTIVITIES			(513,990	)			(174,913	)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment			(1,981	)			—
CASH FLOWS USED IN INVESTING ACTIVITIES			(1,981	)			—
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable			78,030				—
Repayments of notes payable			(19,893	)			—
Proceeds from loans payable – related parties			74,716				172,307
Repayments of loans payable – related parties			(35,000	)			—
Proceeds from long term debt			—				55,000
Capital contributions			395,500				—
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES			493,353				227,307
NET INCREASE (DECREASE) IN CASH			(22,618	)			52,394
Cash, beginning of period			52,394				—
Cash, end of period		$	29,776			$	52,394
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest		$	22,053			$	—
NONCASH OPERATING AND FINANCING ACTIVITIES
Assumption of liabilities – Accounts payable		$	34,829			$	—
Assumption of liabilities – Commission payable		$	162,309			$	—
Assumption of liabilities – Notes payable		$	—			$	35,000
Assumption of liabilities – Loans payable – related party		$	—			$	110,275
Assumption of liabilities – Long term debt		$	—			$	128,500
Capital contribution – Advertising services		$	3,250,000			$	—

  

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

 

  

PANACHE LLC

CONSOLIDATED NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2010 AND 2009

 

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Nature of operations

 

Panache, LLC (“Panache”) was organized as a limited liability company in the State of New York on February 9, 2010. Panache is an alcoholic beverage company specializing in development, global sales and marketing of spirits brands, and as of December 31, 2010 owned 67% ownership of Wodka LLC (“Wodka”), a New York Limited Liability Company organized on August 14, 2009. Upon its organization, Panache assumed ownership of Wodka from a related party. Wodka imports vodka under the brand name Wodka for wholesale distribution to retailers located throughout the United States and internationally.

 

Basis of consolidation

 

The consolidated financial statements include the accounts of Panache and the accounts of its 67% owned subsidiary Wodka (collectively, the “Company”). All material intercompany transactions have been eliminated.

 

Basis of presentation

 

The financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”) and are presented in US dollars.

 

Accounting basis

 

The Company uses the accrual basis of accounting and US GAAP. The Company has adopted a December 31 fiscal year end.

 

Fair value of financial instruments

 

The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, inventory, prepaid expenses, accounts payable, loans payable – related parties, consulting fees payable – related party, accrued interest, and other current liabilities. The carrying amount of these financial instruments approximates fair value due either to length of maturity or interest rates that approximate prevailing market rates unless otherwise disclosed in these financial statements.

 

Cash equivalents

 

Cash equivalents include bank demand deposits and all highly liquid investments with original maturities of three months or less.

 

Accounts receivable

 

Trade accounts receivable are stated at the amount the Company expects to collect. We evaluate the collectability of accounts receivable based on a combination of factors. When we are aware of circumstances that may impair a specific customer’s ability to meet its financial obligations, we record a specific allowance to reduce the net recognized receivable to the amount we believe will be collected. We write off the uncollectible amount against the allowance when we have exhausted our collection efforts.

 

Inventory

 

Inventory, consisting entirely of finished goods, is stated at the lower of cost or market, with cost determined by the first-in, first-out method. Inventory consists of cases of bottled vodka.

 

Property and equipment

 

Property and equipment are stated at cost. The costs of additions and betterments are capitalized and expenditures for repairs and maintenance are expensed in the period incurred. When items of property and equipment are sold or retired, the related costs and accumulated depreciation are removed from the accounts and any gain or loss is included in income.

 

Depreciation of property and equipment is provided utilizing the straight-line method over the estimated useful lives of the respective assets as follows:

 

Computer equipment 3 years

 

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (Continued)

 

Depreciation expense was $258 and $0 for the periods ended December 31, 2010 and 2009, respectively.

 

Income taxes

 

As limited liability companies, Panache and Wodka’s taxable income or loss is allocated to its members in accordance with their respective percentage ownership. Therefore, no provision or liability for federal or state income taxes has been included in these financial statements.

 

The Company recognizes and measures its unrecognized tax benefits in accordance with generally accepted accounting principles concerning income taxes. Under the guidance, the Company assesses the likelihood, based on their technical merit, that tax positions will be sustained upon examination based on the facts, circumstances and information available at the end of each period. The measurement of unrecognized tax benefits is adjusted when new information is available, or when an event occurs that requires a change.

 

Revenue recognition

 

We recognize revenue when title and risk of loss pass to the customer, typically when the product is shipped. Some sales contracts contain customer acceptance provisions that grant a right of return on the basis of either subjective or objective criteria. We record revenue net of the estimated cost of sales returns and allowances. Gross revenue was reduced due to sales returns and allowances by $28,482 and $0 during 2010 and 2009, respectively.

 

Sales discounts are recorded as a reduction of revenues and totaled $13,750 and $0 in 2010 and 2009, respectively.

 

From time to time the Company provides incentives to its customers in the form of free product. The costs associated with producing this product is included as an expense in costs of goods sold. No revenue is recognized with respect to such product giveaways. The Company gave away $5,400 and $0 of products in 2010 and 2009, respectively.

 

Excise taxes

 

Our sales are subject to excise taxes, which we collect from our customers and remit to governmental authorities. We present these taxes on a net basis in the consolidated statement of operations.

 

Advertising

 

Advertising costs are expensed as incurred and aggregated $2,067,051 and $2,933 for the periods ended December 31, 2010 and 2009, respectively.

 

Shipping and handling

 

Shipping and handling charges billed to customers are included in revenue. The costs of shipping and handling are included in cost of goods sold.

 

Use of estimates

 

The preparation of financial statements in conformity with GAAP 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 revenue and expenses during the reporting period. Actual results could differ from those estimates.

 

Recently issued accounting standards

 

The Company has reviewed all recently issued, but not yet effective, accounting pronouncements and does not believe the future adoption of any such pronouncements may be expected to cause a material impact on its consolidated financial condition or the consolidated results of its operations.

 

NOTE 2 – ACCOUNTS RECEIVABLE

 

The Company’s revenues are on open credit terms and governed by the terms specified in the contracts. The Company evaluates the need of an allowance for doubtful accounts based on specifically identified amounts that management believes to be uncollectible. If actual collections experience changes, revisions to the allowance may be required. Based on management review of outstanding balances, no allowance for doubtful accounts was recorded as of December 31, 2010 and 2009. Bad debt expense was $729 and $0 for the periods ended December 31, 2010 and 2009, respectively.

 

NOTE 3 – PREPAID EXPENSES

 

On August 9, 2010, Wodka entered into a membership interest purchase agreement with a third party whereby Wodka issued a 28% membership interest in Wodka to the third party. In exchange for the 28% membership interest, the third party is to provide Wodka with access to its out of home media space valued at $3,000,000 during a two year period and, further, is to incur up to an additional $250,000 of production and installment costs on behalf of Wodka. Upon consummation of the transaction, Wodka recorded paid in capital and prepaid advertising of $3,250,000. For the period ended December 31, 2010, $1,915,921 of advertising expense has been recognized in relation to this transaction and is included in advertising and marketing expense. Prepaid advertising related to this agreement of $1,334,079 is recorded as prepaid expenses in the balance sheet as of December 31, 2010.

 

  

NOTE 4 – PROPERTY AND EQUIPMENT

 

Property and equipment consisted of the following as of December 31, 2010 and 2009:

			2010				2009
Computer equipment		$	1,981			$	—
Less:  Accumulated depreciation			(258)				—
Net property and equipment		$	1,723			$	—

 

NOTE 5 – NOTES PAYABLE

 

On December 23, 2010, the Company borrowed NZD 100,000 from Natwest Finance Limited at an interest rate of 24% per annum and due in February 2011 with an extension option to March 2011. Based on the prevailing foreign exchange rates on the date of the loan, the Company recorded a loan payable of $74,660. Due to fluctuations in the foreign exchange rate, the balance of the loan was $78,030 as of December 30, 2010. The Company repaid the loan in full in March 2011.

 

The Company assumed a promissory note agreement with an individual lender in the amount of $35,000 at an annual interest rate of 12%, due upon the mutual agreement of the parties, and is collateralized by substantially all of the Company’s assets. The loan was transferred into Wodka from a related entity as a deemed distribution. The balance of this loan was $15,107 and $35,000 as of December 31, 2010 and 2009, respectively. This loan was fully repaid in 2011.

 

NOTE 6 – LOANS PAYABLE – RELATED PARTIES

 

The Company had an outstanding loan payable to a member in the amount of $245,000 as of December 31, 2010 and 2009. The loan balance includes $110,275 that was transferred into Wodka from a related entity as a deemed distribution. The loan is unsecured, and non-interest bearing. In order to induce a new member to purchase a membership interest, the related party agreed that the loan would not be repaid without unanimous Board approval. In addition, the loan would not become due and payable until all of the equity interests of Wodka, or substantially all of the assets of Wodka are sold to an unrelated third party.

 

The Company had additional loans payable to related parties totaling $77,298 and $37,582 at December 31, 2010 and 2009, respectively. The loans are unsecured and non-interest bearing with no stated payment terms. Proceeds of the loans were used to fund operations.

 

NOTE 7 – OTHER CURRENT LIABILITIES

 

Other current liabilities consisted of the following as of December 31, 2010 and 2009:

 

		2010				2009
Commissions payable		$	191,778			$	—
Excise taxes payable			141,684				—
Total other current liabilities		$	333,462			$	—

 

NOTE 8 – LONG TERM DEBT

 

The Company assumed an unsecured promissory note agreement with an individual lender in the amount of $128,500 at an annual interest rate of 24%, due upon the mutual agreement of the parties. The loan was transferred into Wodka from a related entity as a deemed distribution. The Company borrowed an additional $55,000 from this individual lender under the same terms. The additional proceeds were used to fund operations. The balance of this loan was $183,500 as of December 31, 2010 and 2009. The loan is personally guaranteed by a member.

 

NOTE 9 – RELATED PARTY TRANSACTIONS

 

As noted above, the Company recorded unsecured, non-interest bearing loans totaling $245,000 to a member in 2009. The loan consists of $110,275 transferred in from a related entity as a deemed distribution, plus cash loans of $134,725 for operations. The loan balance of $245,000 was outstanding as of December 31, 2010 and 2009.

 

In addition, the Company received various loans from related parties to fund operations. The related party loans totaled $77,298 and $37,582 at December 31, 2010 and 2009, and are unsecured and non-interest bearing with no stated payment terms.

 

The Company owes consulting fees totaling $52,751 and $30,000, at December 31, 2010 and 2009, respectively, to a member under a consulting agreement dated October 1, 2009. Consulting fee expense related to this agreement totaled $120,000 for 2010, and $30,000 for 2009.

 

NOTE 10 – COMMITMENTS AND CONTINGENCIES

 

The Company has a pending settlement with Incubrands Spirits Group (“Incubrands”) in connection with an equity agreement (the “Agreement”), dated April 30, 2007. Pursuant to the Agreement, Incubrands claimed commission fees of $191,778 incurred during the agreement period with a predecessor of the Company. Panache assumed this liability upon Panache’s creation in February 2010 and recorded $162,309 as a deemed distribution, since the liability was transferred from a related entity. The balance as of December 31, 2010 was $191,778.

 

The Company rents furnished office space on a month-to-month basis. Rent expense for the periods ended December 31, 2010 and 2009 was $9,075 and $0, respectively.

 

NOTE 11 – MEMBERS’ EQUITY (DEFICIT)

 

On August 9, 2010, Wodka entered into a membership interest purchase agreement with an unrelated third party whereby Wodka issued a 28% membership interest in Wodka to the third party. In exchange for the 28% membership interest, the third party is to provide Wodka with access to its out of home media space valued at $3,000,000 during a two year period and, further, is to incur up to an additional $250,000 of production and installment costs on behalf of Wodka. Upon consummation of the transaction, Wodka recorded contributed capital and prepaid advertising of $3,250,000.

 

During 2010, Wodka LLC sold membership interests totaling 5% to six unrelated third parties. Proceeds of $395,500 have been recorded as contributed capital.

 

Debts totaling $273,775 and $197,138 in 2009 and 2010, respectively, were transferred into the Company from a related entity as deemed distributions.

 

NOTE 12 – NON-CONTROLLING INTERESTS

 

As of December 31, 2010, the non-controlling interests balance was $1,472,388 due to minority members owning 33% of the membership interests of Wodka. The 2010 loss was allocated primarly to the non-controlling interests due to a provision in the Limited Liability Company Agreement that requires losses to be first allocated to members with positive capital account balances.

 

 

NOTE 13 – CONCENTRATIONS AND RISK

 

Major customers

 

The Company had two customers representing approximately 90% of revenues for the period ended December 31, 2010. These customers represented approximately 60% of the receivables outstanding as of December 31, 2010.

 

The Company had three customers representing approximately 90% of revenues for the period ended December 31, 2009. These customers represented approximately 70% of the receivables outstanding as of December 31, 2009.

 

Major suppliers

 

The Company had four suppliers representing approximately 95% of purchases for the period ended December 31, 2010. These suppliers represented approximately 40% of the payables outstanding as of December 31, 2010.

 

The Company had six suppliers representing approximately 95% of purchases for the period ended December 31, 2009. These customers represented approximately 99% of the payables outstanding as of December 31, 2009.

  

Credit risk

 

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and trade accounts receivable. The Company places its cash with commercial banking institutions. At times, such cash may be in excess of the Federal Deposit Insurance Corporation’s insurance limit. From time to time the Company may also hold cash in accounts with foreign financial institutions. The Company regularly assesses the risk associated with its foreign cash portfolio. The Company performs ongoing credit evaluations of its customers’ financial condition, but does not require collateral to support such receivables.

 

NOTE 14 – SUBSEQUENT EVENTS

 

The Company has evaluated subsequent events through January 6, 2012, the date on which these financial statements were available to be issued.

 

On August 19, 2011, the Company completed a stock exchange transaction with Panache Beverage, Inc. (“Panache Beverage”). Panache Beverage was incorporated in the State of Florida on December 28, 2004 under the name as Biometrix International Inc. On May 30, 2007, the Company changed its name to BMX Development Corp. On September 6, 2011, BMX Development Corp filed an Amendment to the Articles of Incorporation with the Florida Secretary of State to change its name to Panache Beverage Inc.

 

The stock exchange transaction involved two simultaneous transactions:

 

The majority shareholder of the Panache Beverage delivered 2,560,000 shares of Panache Beverage’s common stock to the member of Panache in exchange for total payments of $125,000 in cash.

 

At the same time, Panache Beverage issued to the members of Panache an amount equal to 17,440,000 new investment shares of common stock of Panache Beverage, Inc. pursuant to Rule 144 under the Securities Act of 1933, as amended, in exchange for one hundred percent (100%) of the issued and outstanding membership interest units of Panache from the members of Panache.

 

Upon completion of the exchange, Panache became wholly-owned subsidiary of the Panache Beverage, and Wodka, Panache’s 65%-owned subsidiary, became 65%-owned subsidiary of the Panache Beverage, Inc., and the former members of Panache then owned approximately 90% of the issued and outstanding shares of the Panache Beverage, Inc.