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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

 Washington, D.C. 20549

 

FORM 10-Q

 

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

   

For the Quarterly Period Ended March 31, 2012


 

[ ]  TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

       For the Transition Period From ____to _____

 

Commission File Number: 000-52670

 

PANACHE BEVERAGE INC.

(Exact name of small business issuer as specified in its charter) 

 

 

Florida 20-2089854
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)  

 

 

40 W. 23rd Street, 2nd Floor, New York, NY 10010

(Address of principal executive offices)

 

(347) 436-8383

(Issuer's telephone number)

 

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [x] No [ ]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files).

Yes [x] No [ ]

 

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 if Regulation S-K (229.405 of this Chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy of information statements incorporated by reference in Part III of this Form 10-Q or any amendments to this Form 10-Q.

Yes [ ] No [x]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  £ 
Non-accelerated filer  £ (Do not check if a smaller reporting company) 
Accelerated filer £
Smaller reporting company  S

 

Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act).

Yes [ ] No [x]

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

Yes [ ] No [ ]

 

Number of shares of common stock, par value $.001, outstanding as of May 21, 2012: 25,847,891

 

 

CAUTIONARY STATEMENT REGARDING FORWARD LOOKING INFORMATION

 

The discussion contained in this 10-Q under the Securities Exchange Act of 1934, as amended, contains forward-looking statements that involve risks and uncertainties. The issuer's actual results could differ significantly from those discussed herein. These include statements about our expectations, beliefs, intentions or strategies for the future, which we indicate by words or phrases such as "anticipate," "expect," "intend," "plan," "will," "we believe," "the Company believes," "management believes" and similar language, including those set forth in the discussions under "Notes to Consolidated Financial Statements" and "Management's Discussion and Analysis or Plan of Operation" as well as those discussed elsewhere in this Form 10-Q. We base our forward-looking statements on information currently available to us, and we assume no obligation to update them. Statements contained in this Form 10-Q that are not historical facts are forward-looking statements that are subject to the "safe harbor" created by the Private Securities Litigation Reform Act of 1995.

 

 

(1)

  

  TABLE OF CONTENTS  
   
PART I. FINANCIAL INFORMATION  
   
   
   
ITEM 1. FINANCIAL STATEMENTS 3
   
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 11
   
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK  13  
   
ITEM 4. CONTROLS AND PROCEDURES 13
   
PART II. OTHER INFORMATION  
   
ITEM 1. LEGAL PROCEEDINGS 14
   
ITEM 1A. RISK FACTORS   14   
   
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 14
   
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 14
   
ITEM 4. MINE SAFETY DISCLOSURES 14
   
ITEM 5. OTHER INFORMATION  14
   
ITEM 6. EXHIBITS 14
   
SIGNATURES 15
   
INDEX TO EXHIBITS 16

 

 

(2)

 

ITEM 1. FINANCIAL STATEMENTS

 

 

PANACHE BEVERAGE, INC.

 

CONSOLIDATED FINANCIAL STATEMENTS

 

MARCH 31, 2012 AND 2011

 

 

 

PANACHE BEVERAGE, INC.
CONSOLIDATED BALANCE SHEETS - (Unaudited)
       
    March 31,    December 31, 
    2012    2011 
           
ASSETS          
Current Assets          
Cash and cash equivalents  $100,961   $152,464 
Accounts receivable – net   261,477    430,087 
Inventory   23,188    41,723 
Prepaid expenses and other current assets   227,044    106,661 
Total Current Assets   612,670    730,935 
           
Property and Equipment - net   9,295    6,565 
           
TOTAL ASSETS  $621,965   $737,500 
           
LIABILITIES AND EQUITY (DEFICIT)          
           
Current Liabilities          
Accounts payable  $760,343   $621,397 
Due to factor   87,203    317,293 
Notes payable   28,000    28,000 
Loans payable – related parties   382,434    358,629 
Consulting fees payable – related party   —      2,705 
Accrued interest   42,530    38,860 
Other current liabilities   369,798    335,464 
Total Current Liabilities   1,670,308    1,702,348 
           
Long term debt   183,500    183,500 
           
Total Liabilities   1,853,808    1,885,848 
           
Equity (Deficit)          
Common stock, par value $0.001; 200,000,000 and 200,000,000  
   shares authorized as of March 31, 2012 and December 31, 
   2011, respectively; 25,857,891 and 25,107,891 shares
   issued and outstanding as of March 31, 2012 and December
   31, 2011, respectively
   25,858    25,108 
Additional paid in capital   2,016,332    1,303,412 
Additional paid in capital - warrants   313,677    163,097 
Retained (deficit)   (3,352,109)   (2,516,269)
Total stockholders' deficit   (996,242)   (1,024,652)
Non-controlling interests   (235,601)   (123,696)
Total Equity (Deficit)   (1,231,843)   (1,148,348)
           
TOTAL LIABILITIES AND EQUITY (DEFICIT)  $621,965   $737,500 

 

 

(3)

 

 

PANACHE BEVERAGE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS  - (Unaudited)
       
       
   For the three months ended
   March 31,
   2012  2011
       
REVENUES - NET  $368,483   $433,180 
           
COST OF GOODS SOLD   258,129    229,681 
           
GROSS PROFIT   110,354    203,499 
           
OPERATING EXPENSES          
Advertising and promotion   444,998    496,915 
Consulting   221,669    20,961 
Professional fees   286,670    10,814 
General and administrative   434,498    157,800 
TOTAL OPERATING EXPENSES   1,387,835    686,490 
           
LOSS FROM OPERATIONS   (1,277,481)   (482,991)
           
OTHER EXPENSE          
     Interest expense   (11,060)   (14,954)
           
LOSS FROM OPERATIONS AND BEFORE NON-
     CONTROLLING INTERESTS
   (1,288,541)   (497,945)
           
LESS: LOSS ATTRIBUTABLE TO NON-CONTROLLING
     INTERESTS
   452,701    599,231 
           
(LOSS) INCOME BEFORE PROVISION FOR INCOME
     TAXES
   (835,840)   101,286 
           
PROVISION FOR INCOME TAXES   —      —   
           
NET (LOSS) INCOME ATTRIBUTABLE TO PANACHE
     BEVERAGE, INC.
  $(835,840)  $101,286 
           
BASIC AND DILUTED RESULTS PER SHARE OF COMMON STOCK:          
           
    LOSS PER SHARE ATTRIBUTABLE TO PANACHE
          BEVERAGE, INC.:  BASIC AND DILUTED
  $(0.03)    N/A  
           
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING: BASIC AND DILUTED   25,520,199     N/A  

 

 

(4)

 

 

PANACHE BEVERAGE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - (Unaudited)
       
   For the three months ended
   March 31,
   2012  2011
CASH FLOWS FROM OPERATING ACTIVITIES          
Net (loss) income for the period  $(835,840)  $101,286 
Adjustments to Reconcile Net (Loss) Income to Net Cash Used in Operating Activities:          
Non-controlling interest   (452,701)   (599,231)
Depreciation   710    165 
Bad debt expense   —      2,026 
    Stock issued for services rendered   220,000    —   
    Advertising expense from capital contribution   340,796    438,884 
    Stock-based compensation   49,250    —   
Changes in assets and liabilities:          
Accounts receivable   168,610    11,808 
Inventory   18,535    7,308 
Prepaid expenses   (120,383)   —   
Accounts payable   138,946    (105,796)
Consulting fees payable – related party   (2,705)   4,884 
Accrued interest   3,670    (196)
Other current liabilities   34,334    (9,728)
CASH FLOWS USED IN OPERATING ACTIVITIES   (436,778)   (148,590)
           
CASH FLOWS FROM INVESTING ACTIVITIES          
Purchase of property and equipment   (3,440)   (1,658)
CASH FLOWS USED IN INVESTING ACTIVITIES   (3,440)   (1,658)
           
CASH FLOWS FROM FINANCING ACTIVITIES          
Proceeds from notes payable   —      282,215 
Repayments of notes payable   —      (154,965)
Proceeds from loans payable – related parties   23,805    105,922 
Repayments of loans payable – related parties   —      (72,452)
Net reduction of due to factor   (230,090)   —   
Proceeds from issuance of stock and warrants   595,000    —   
           
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES   388,715    160,720 
           
NET INCREASE (DECREASE) IN CASH   (51,503)   10,472 
Cash, beginning of period   152,464    29,776 
Cash, end of period  $100,961   $40,248 
           
SUPPLEMENTAL CASH FLOW INFORMATION:          
Cash paid for interest  $14,730   $14,758 
           
NONCASH INVESTING AND FINANCING ACTIVITIES          
Stock issued for services rendered  $220,000   $—   
Capital contribution – Advertising services  $340,796   $—   

 

 

(5)

 

PANACHE BEVERAGE, INC.

 

TABLE OF CONTENTS

 

MARCH 31, 2012 AND 2011

 

  

 

Consolidated Balance Sheets as of March 31, 2012 and December 31, 2011 (unaudited)

3
   

Consolidated Statements of Operations for the three months ended March 31, 2012 and 2011 (unaudited)  

4
   

Consolidated Statements of Cash Flows for the three months ended March 31, 2012 and 2011 (unaudited)

5
   

Notes to Consolidated Financial Statements (unaudited)

7

 

 

(6)

 

 

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Nature of operations

 

Panache Beverage Inc. (the “Company”) 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, the Company filed an Articles of Amendment to the Articles of Incorporation with the Florida Secretary of State to change its name to Panache Beverage Inc. and believed the new name would more accurately reflect its business after a stock exchange transaction with Panache LLC, a New York Limited Liability Company.

 

On August 19, 2011, the Company completed a stock exchange transaction with Panache LLC (“Panache”).  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 currently owns 65.5% 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.

 

The stock exchange transaction involved two simultaneous transactions:

 

The majority shareholder of the Company delivered 2,560,000 shares of the Company’s common stock to the Panache Members in exchange for total payments of $125,000 in cash and;

 

The Company issued to the Panache Members an amount equal to 17,440,000 new investment shares of common stock of the Company 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 Panache Members.

 

Alibi NYC, LLC (“Alibi”) was organized as a limited liability company in the State of New York on May 17, 2007 and remained dormant until it conducted its first business operations during the first quarter of 2012. Effective January 1, 2012, the members of Alibi transferred their interests to Panache Beverage, Inc. and Alibi became a 100% owned subsidiary of Panache Beverage, Inc. Alibi markets and distributes Alibi American Whiskey.

 

Basis of consolidation

 

The consolidated financial statements include the accounts of Panache Beverage, Inc., Panache LLC, Wodka LLC and Alibi NYC, LLC (collectively, the “Company”). All material intercompany transactions have been eliminated.

 

Basis of presentation

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with both generally accepted accounting principles for interim financial information, and the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The accompanying unaudited consolidated financial statements reflect all adjustments (consisting of normal recurring accruals) that are, in the opinion of management, considered necessary for a fair presentation of the results for the interim periods presented. Interim results are not necessarily indicative of results to be expected for a full year.

 

Basis of presentation- (Continued)

 

The unaudited consolidated financial statements and related disclosures have been prepared with the presumption that users of the interim financial information have read or have access to the Company’s annual audited consolidated financial statements for the preceding fiscal year. The financial statements of the Company are presented in US dollars.

 

Accounting basis

 

The Company uses the accrual basis of accounting and generally accepted accounting principles in the United States of America (“US GAAP”). The Company has adopted a December 31 fiscal year end. Certain reclassifications were made to the 2011 financial statements presentation in order to conform to the 2012 presentation. Such reclassifications had no effect on reported income.

 

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. Under these provisions, customers can return products that are not merchantable and fit and suitable for their intended use, are not of the same premium quality as products currently in existence, or are defectively packaged, bottled or labeled. Customers may also return any product that does not comply with all applicable laws and regulations. We record revenue net of the estimated cost of sales returns and allowances. Gross revenue was reduced due to sales returns and allowances by $29,900 and $16,110 during the three months ended March 31, 2012 and 2011, respectively.

 

Sales discounts were $25,701 and $3,271 for the three months ended March 31, 2012 and 2011.

 

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 did not give away any product during the three months ended March 31, 2012 and 2011, respectively.

 

Advertising

 

Advertising costs are expensed as incurred and aggregated $444,998 and $496,915 for the three months ended March 31, 2012 and 2011, respectively.

 

Wodka receives advertising services in the form of out of home media space from a related party who holds a non-controlling interest in Wodka. The Company recorded advertising expense and capital contributions from non-controlling interests of $340,796 and $438,884 in relation to this arrangement for the three months ended March 31, 2012 and 2011, respectively.

 

Other Significant Accounting Policies

 

Other significant accounting policies are set forth in Note 1 of the audited financial statements included in the Company’s 2011 Annual Report on Form 10-K and remain unchanged as of March 31, 2012.

 

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.

 

 

(7)

 

NOTE 2 – ACCOUNTS RECEIVABLE

 

The Company grants customers standard credit terms as governed by the terms specified in the contracts. Our major customers receive payment credit terms that range between 60 and 65 days.

 

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 March 31, 2012 and 2011.

 

Bad debt expense was $0 and $2,026 for the three months ended March 31, 2012 and 2011.

 

NOTE 3 – PREPAID EXPENSES

 

The Company has entered into various agreements with consultants whereby the Company issues common stock in exchange for consulting services. The Company values the common stock and the consulting services based on the closing price of its common stock on the date of the agreement or the negotiated value of the consulting services. The Company recognized $168,875 and $0 of professional fee expense in relation to these agreements for the three months ended March 31, 2012 and 2011, respectively. Prepaid expenses relating to these agreements were $177,187 and $101,563 as of March 31, 2012 and December 31, 2011, respectively.

 

NOTE 4 – FACTORING AGREEMENT

 

On June 10, 2011, the Company entered into a purchase and sale factoring agreement with a commercial factor whereby the Company sells certain accounts receivable to the factor. Under the terms of the agreement, the factor may, in its sole discretion, make advances to the Company of amounts representing up to 70% of the net amount of eligible accounts receivable up to a maximum of $1,000,000. On September 22, 2011, the factor increased the advance to 75% of eligible accounts receivable. On March 19, 2012, the factor reduced the advance to 70% of eligible accounts receivable. The factor's purchase of the eligible accounts receivable will be at a discounted fee which is deducted from the face value of each collection. The Discount Fee, is based on the number of days outstanding from the date of purchase. The Discount Fee will be; 2.50% if paid within 40 days, 3.34% if paid within 50 days, 4.18% if paid within 60 days, 5.00% if paid within 60 days, 5.84% if paid within 70 days, 6.68% if paid within 80 days, 7.50% if paid within 90 days and 2.0% for each 15 day period until the account is paid. Based on this arrangement, the Company is liable to the factor if the accounts receivable is not collected, and therefore the Company has accounted for cash received on factored receivables as a liability.

 

On December 22, 2011, the Company entered into a separate purchase and sale factoring agreement with a different commercial factor whereby the Company sells certain accounts receivable to the factor. Under the terms of this agreement, the factor makes advances to the Company of amounts representing up to 90% of certain accounts receivable. The factor purchases the accounts receivable at a $500 discount plus monthly compounded interest of 2% of the factored amount for the period the factored accounts receivable remain outstanding. Based on this arrangement, the Company is liable to the factor if the accounts receivable is not collected, and therefore the Company has accounted for cash received on factored receivables as a liability.

 

The combined balance due to the factors as of March 31, 2012 and December 31, 2011 was $87,203 and $317,293, respectively. Factor expense charged to operations for the three months ended March 31, 2012 and 2011 amounted to $26,380 and $0, respectively.

 

NOTE 5 – LOANS PAYABLE – RELATED PARTIES

 

The Company had an outstanding loan payable to its chief executive officer, majority shareholder and former member of Panache LLC in the amount of $245,000 as of March 31, 2012 and December 31, 2011. 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 $137,434 and $113,629 at March 31, 2012 and December 31, 2011, respectively. The loans are unsecured and non-interest bearing with no stated payment terms. Proceeds from the loans were used to fund operations.

 

 

NOTE 6 – OTHER CURRENT LIABILITIES

 

Other current liabilities consisted of the following as of March 31, 2011 and 2011:

 

         March 31,                  December 31,       
  2012 2011
Commissions payable   $            171,778   $            171,778
Excise taxes payable                   75,954                 101,262
Accrued expenses and other liabilities 122,066 62,424
Total other current liabilities $ 369,798 $ 335,464

 

(8)

 

NOTE 7 – 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 March 31, 2012 and December 31, 2011. The loan is personally guaranteed by a related party.

 

On January 1, 2012, the Company engaged this individual lender to provide business advisory services in exchange for 100,000 shares of common stock.

 

NOTE 8 – RELATED PARTY TRANSACTIONS

 

As noted above, the Company recorded unsecured, non-interest bearing loans totaling $245,000 to a related party 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 March 31, 2012 and December 31, 2011.

 

In addition, the Company received various loans from related parties to fund operations. The related party loans totaled $137,434 and $113,629 at March 31, 2012 and December 31, 2011, respectively, and are unsecured and non-interest bearing with no stated payment terms.

 

The Company owes consulting fees totaling $0 and $2,705, at March 31, 2012 and 2011, respectively, to a member under a consulting agreement dated October 1, 2009. Consulting fee expense related to this agreement totaled $60,000 and $18,820 for the three months ended March 31, 2012 and 2011, respectively.

 

As noted above, Wodka receives advertising services in the form of out of home media space from a related party who holds a non-controlling interest in Wodka. The Company recorded advertising expense and capital contributions from non-controlling interests of $340,796 in relation to this arrangement for the three months ended March 31, 2012. The Company recorded advertising expense and a reduction of prepaid expenses from prior year capital contributions from non-controlling interests of $438,884 in relation to this arrangement for the three months ended March 31, 2011.

 

NOTE 9 – 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 March 31, 2012 and December 31, 2011 was $171,778.

 

The Company rents furnished office space on a month-to-month basis. Rent expense was $3,080 and $2,825 for the three months ended March 31, 2012 and 2011, respectively.

 

 

NOTE 10 – STOCKHOLDERS’ DEFICIT

 

In the first quarter of 2012, the Company issued 280,000 shares of commons stock and 280,000 stock warrants for cash proceeds of $320,000. The Company used the Black Scholes model to bifurcate the value of the stock warrants from the common stock. The following weighted average assumptions were used in the Black Scholes calculation:

 

Risk free rate                0.2%
Expected dividend yield                0.0%
Expected volatility                76%
Expected life of options                1.16 years
Exercise price                $1.79
Stock price on issuance date                $1.53

 

Based on this calculation, the Company determined the value of the common stock was $253,074 and the value of the stock warrants was $66,926 at issuance.

On March 1, 2012, the Company modified 845,000 existing warrants to extend the expiration date. The Company used the Black Scholes model to determine the increase in value of the warrants caused by this modification. Based on this calculation, the Company determined that the modification increased the value of the warrants by $148,395 and therefore increased Common Stock – Warrants and decreased Additional Paid in Capital by $148,395.

The following table shows the warrant activity for the three months ended March 31, 2012:

Warrants

Number of

Warrants

Weighted

Average

Exercise

Price

Weighted

Average

Remaining

Term

Aggregate

Intrinsic

Value

   Outstanding as of January 1, 2012     1,373,500   $            1.35    
   Issued      280,000                 1.79    
   Exercised      (200,000)                 1.50    
   Expired (58,500)                  1.32    
   Outstanding of March 31, 2012 1,395,000   $            1.42        0.9 years   $   254,250
         

 

As noted above in Note 7 - Long Term Debt, the Company engaged an individual on January 1, 2012 to provide business advisory services through June 30, 2012 in exchange for 100,000 shares of common stock. The Company valued the common stock at $100,000, which is the value of the services provided. The Company recognized $50,000 of professional fee expense during the three months ended March 31, 2012. Prepaid expenses relating to this agreement were $50,000 as of March 31, 2012.

On January 1, 2012, the Company engaged a marketing firm to provide business advisory services from January 1, 2012 to June 30, 2012 in exchange for 100,000 shares of common stock. The Company valued the common stock at $100,000, which was the value of the services provided. The Company recognized $50,000 of professional fee expense during the three months ended March 31, 2012. Prepaid expenses relating to this agreement were $50,000 as of March 31, 2012. 

The Company also issued 20,000 shares of common stock to an accounting firm to provide accounting and advisory services. The Company valued the common stock at $20,000, which was the value of the accounting services provided. The Company used these services in the first quarter of 2012 and accordingly recognized $20,000 of professional fee expense for the three months ended March 31, 2012.

The Company recognized $49,250 of compensation expense for the three months ended March 31, 2012 in relation to the grants of 30,000 shares of common stock to employees as stock-based compensation. The shares immediately vested and the fair value of this stock issuance was determined by the closing price of the common stock on the grant date.

 

(9)

 

NOTE 11 – NON-CONTROLLING INTERESTS

 

As of March 31, 2012 and December 31 2011, the non-controlling interests balance was $(235,601) and $(123,696), respectively, due to minority members owning 34.5% of the membership interests of Wodka.

 

Profits and losses are allocated to the members of Wodka in accordance with Wodka’s Limited Liability Company Agreement (the “Agreement”). Profits are allocated first to members in the amounts and proportions necessary to bring the members’ respective capital account balances in proportion to their percentage ownership interests and thereafter to the members pro rata in accordance with their percentage ownership interests. The Agreement allocates losses first to the members in an amount equal to the positive balances in their Capital Accounts until the balances in such accounts are reduced to zero and thereafter to the members pro rata in accordance with their respective percentage ownerships interests.

 

For the three months ended March 31, 2012 and 2011, $212,459 and $0, respectively, of Wodka’s net loss was allocated to Panache and $452,701 and $599,231, respectively, was allocated to noncontrolling interests.

 

NOTE 12 – CONCENTRATIONS AND RISK

 

Major customers

 

The Company had two customers representing approximately 96% of revenues for the three months ended March 31, 2012. These customers represented approximately 96% of the receivables outstanding as of March 31, 2012.

 

The Company had one customer representing approximately 66% of revenues for the period ended March 31, 2011. This customer represented approximately 59% of the receivables outstanding as of March 31, 2011.

 

Major suppliers

 

The Company had one supplier represent approximately 94% of purchases for the three months ended March 31, 2012. This supplier represented approximately 43% of the payables outstanding as of March 31, 2012.

 

The Company had one supplier representing approximately 87% of purchases for the three months ended March 31, 2011. This supplier represented approximately 44% of the payables outstanding as of March 31, 2011.

 

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 13 – LOSS PER SHARE

 

Basic net loss per share is computed using the weighted average number of common shares outstanding during the three months ended March 31, 2012, respectively.  There was no dilutive earning per share due to net losses during the periods.  

 

The following table sets forth the computation of basic net loss per share for the periods indicated:

 

 

Three months ended

March 31,

  2012 2011
Numerator:    

Net (loss) income attributable to

Panache Beverage, Inc.

  $     (835,840)   $      101,286
     
Denominator:    
   Weighted average shares             outstanding      25,520,199                  N/A
     
Basic net (loss) income per share   $           (0.03)                  N/A

 

NOTE 14 – GOING CONCERN

 

These consolidated financial statements have been prepared assuming that Company will continue as a going concern, which contemplates the realization of assets and the discharge of liabilities in the normal course of business for the foreseeable future.

 

As of March 31, 2012, the Company had an accumulated deficit of $1,231,843. Management has taken certain actions and continues to implement changes designed to improve the Company’s financial results and operating cash flows. The actions involve certain cost-saving initiatives and growing strategies, including (a) reductions in operating expenses; and (b) expansion of the business model into new markets. Management believes that these actions will enable the Company to improve future profitability and cash flow in its continuing operations through March 31, 2013. As a result, the financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of the Company’s ability to continue as a going concern.

 

NOTE 15 – SUBSEQUENT EVENTS

 

The Company has evaluated subsequent events through May 21, 2012, the date on which these financial statements were available to be issued.

 

 

(10)

 

 

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

 

Forward Looking Statements

 

Certain statements in this report, including statements of our expectations, intentions, plans and beliefs, including those contained in or implied by "Management's Discussion and Analysis" and the Notes to Consolidated Financial Statements, are "forward-looking statements", within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), that are subject to certain events, risks and uncertainties that may be outside our control. The words “believe”, “expect”, “anticipate”, “optimistic”, “intend”, “will”, and similar expressions identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. We undertake no obligation to update or revise any forward-looking statements. These forward-looking statements include statements of management's plans and objectives for our future operations and statements of future economic performance, information regarding our expansion and possible results from expansion, our expected growth, our capital budget and future capital requirements, the availability of funds and our ability to meet future capital needs, the realization of our deferred tax assets, and the assumptions described in this report underlying such forward-looking statements. Actual results and developments could differ materially from those expressed in or implied by such statements due to a number of factors, including, without limitation, those described in the context of such forward-looking statements, our expansion strategy, our ability to achieve operating efficiencies, our dependence on distributors, capacity, suppliers, industry pricing and industry trends, evolving industry standards, domestic and international regulatory matters, general economic and business conditions, the strength and financial resources of our competitors, our ability to find and retain skilled personnel, the political and economic climate in which we conduct operations and the risk factors described from time to time in our other documents and reports filed with the Securities and Exchange Commission (the "Commission"). Additional factors that could cause actual results to differ materially from the forward-looking statements include, but are not limited to: 1) our ability to successfully develop and deliver our products on a timely basis and in the prescribed condition; 2) our ability to compete effectively with other companies in the same industry; 3) our ability to raise sufficient capital in order to effectuate our business plan; and 4) our ability to retain our key executives.

 

History

 

As used herein the terms "We", the "Company", "Panache", the "Registrant," or the "Issuer" refers to Panache Beverage Inc., its subsidiaries and predecessors, unless indicated otherwise. We were incorporated in the State of Florida on December 28, 2004 under the name Biometrix International Inc. On May 30, 2007, we changed our name to BMX Development Corp. On September 6, 2011, we filed an Articles of Amendment to the Articles of Incorporation with the Florida Secretary of State to change our name to Panache Beverage Inc. and believed the new name would more accurately reflect our business operations after a stock exchange transaction with Panache LLC, a New York Limited Liability Company.

 

As of August 19, 2011, we entered into a Plan of Exchange (the “Agreement”), between and among us, Michael J. Bongiovanni (“Mr. Bongiovanni”), an individual shareholder and our former President / former Chief Executive Officer, Panache LLC (“Panache”), a New York Limited Liability Company, James Dale, an individual member and Manager of Panache, and the individual members of Panache (collectively the “Panache Members”).

 

Pursuant to the terms of the Agreement, two simultaneous transactions were consummated at closing, as follows: (i) Mr. Bongiovanni delivered 2,560,000 shares of our common stock to Mr. James Dale in exchange for total payments of $125,000 in cash and (ii) we issued to the Panache Members an amount equal to 17,440,000 new investment shares of our common stock 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 Panache Members. Upon completion of the exchange, Panache became our wholly-owned subsidiary. Panache is currently 65.5% owner of Wodka LLC, a New York Limited Liability Company. All of these conditions to closing have been met, and we, Panache, the Panache Members and our Majority Shareholders declared the exchange transaction consummated on August 19, 2011. The transaction was treated for accounting purposes as a capital transaction and recapitalization by the accounting acquirer (Panache) and as a re-organization by the accounting acquiree (the Company).

 

Business Description of the Company

 

We began operating as a services provider regarding motor cycle repair and maintenance for customers located in and around the Charlotte, North Carolina area. Subsequent to the stock exchange transaction, we have continued operations of Panache, an alcoholic beverage company specializing in development, global sales and marketing of spirits brands, and are no longer engaged in the business of motor cycle repair services.

 

Panache was formed in November 2004 by James Dale as the import company of record for the premium vodka, 42 BELOW NZ. At that time, 42 BELOW was a publically traded company but lacked traction in the most important liquor markets in the world, including the United States. Panache provided the marketing solution for 42 BELOW, and it became a brand available in 19 strategically selected states and was over-performing in top tier image accounts a year later. By mid-2005 42 BELOW was a major player in the business and was being noticed in the United States by major suppliers.

 

After noticing that 42 BELOW has replaced Grey Goose in numerous key accounts, Bacardi added 42 BELOW to a list of top threats to Grey Goose in the US. Shortly thereafter 42 BELOW was formally approached for global acquisition. At this stage Panache was responsible for over 50% of the total annual cases sold globally and was among the key driving factors in the success of the brand. These agreements were purchased as part of the settlement and purchase of the 42 BELOW Public Company in December 2006.

 

During this time Panache was developing its current pipeline brands Alchemia Vodka and Alibi Bourbon with an eye toward developing a value brand, which became Wodka.

 

Today, Panache has developed a unique set of wholesale and retail relationships as well as sales and marketing infrastructure and proprietary partnerships that enable it to develop, roll out and exit its brands.

 

Panache is now focused on two additional brands, complimenting Wodka Vodka in its portfolio: Alchemia Infused Vodka and Alibi American Whiskey. Staying true to its credo, Panache developed Alchemia in parallel to the explosion of the epicurean craze. The premium, Polish rye vodka, is distilled three times and then infused, in oak barrels, with fresh ingredients to make its unique Chocolate, Ginger and Wild Cherry infusions. Alchemia’s infusions are a fresh escape for consumers who have been offered very little from a spirits world rife with the artificially flavored vodkas presently taking up store shelves and back bars. Panache is focused on making Alchemia a staple for any consumer whose palate demands just little more than chemical additives. Showing its propensity to stir up a little controversy, Panache is finishing test marketing for its latest creation, Alibi American Whiskey. While we could focus on the fact that Alibi is affordable premium Whiskey, distilled from Rye, aged four years in new American oak barrel — we think that's rather mundane. Alibi is an elixir for the flawed human spirit in all of us, a tonic for sin and an excuse for vulnerability. We created the spirit because we know mankind needs an out, a way to feel better about those poor decisions that will invariably be made. Everyone needs an Alibi. Panache Spirits’ goal is to continue to develop its portfolio of unique and diverse brands and is always working on the development of its next great brand.

 

(11)

 

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2012 AND 2011

 

Revenues

 

Revenues were $368,483 and $433,180 for the three months ended March 31, 2012 and 2011, respectively. We generate our revenues from sales of distilled spirits. The revenues are recognized when persuasive evidence of a sale exists, transfer of title has occurred, the selling price is fixed or determinable and collectability is reasonably assured. Our sales arrangements are not subject to warranty. Gross revenue was reduced due to sales returns and allowances by $29,900 and $16,110 during the three months ended March 31, 2012 and 2011, respectively.

The decrease in revenue during the three months ended March 31, 2012 compared to the same period in 2011 was primarily due to the production delays at our supplier in Bialystok, Poland. The distillery experienced difficulties in supplying Wodka and Alchemia products due to a number of issues beyond its control. The production delays resulted in the backlog of 13 customer orders totaling $454,079 in gross sales. Based on the distillers’ most recent production schedule and our analysis, the entire backlog should be cleared by the end of the second quarter. As a result of resolving production issues and filling the backlog we project significantly higher sales in Q2 of 2012.

 

Cost of Goods Sold

 

Cost of goods sold included expenses directly related to selling our products. Product delivery, broker fees and direct labor are included in cost of goods sold. Cost of goods sold was $258,129, or approximately 70% of revenue, and $229,681, or approximately 53% of revenue, during the three months ended March 31, 2012 and 2011, respectively.

 

The increase in COGS as a percentage of revenue during the three month period ended March 31,2012 in comparison to the same period in 2011 is mostly due to a significant customer switching to direct shipments from Wodka's supplier. This change decreases profit margins, but reduces certain operating expenses resulting in improved long-term financial performance.

 

Expenses

 

Operating expenses were $1,387,835 and $686,490 for the three months ended March 31, 2012 and 2011, respectively.

 

The increase in operating expenses during the three month ended March 31, 2012 compared to the three months ended March 31, 2011 was the result of Panache becoming a public company and its rapid growth. As a new public company Panache incurred substantial accounting and legal expenses, as well as financial consulting, research, and investor relations expenditures. However, substantial portion of these fees were paid in stock of Panache Beverage Inc. to alleviate pressure on cash reserves.

 

As part of its expansion and growth efforts, the Company has hired new employees and incurred higher employee compensation, executive recruiting, insurance, and T&E expenses in the first quarter of 2012. Management projects substantially lower operating expenses in the second quarter of 2012.

 

Net Income / (Loss)

 

The Company’s net (loss) income for stockholders was $(835,840) and $101,286 for the three months ended March 31, 2012 and 2011, respectively. The change in net income (loss) during the three months ended March 31, 2012 was attributable to the decrease in revenue, lower profit margins and higher operating expenses.

 

There can be no assurance that we will achieve or maintain profitability, or that any revenue growth will take place in the future.

 

Liquidity and Capital Resources

 

Cash flows used in operating activities were $436.778 and $148,590 for the three months ended March 31, 2012 and 2011, respectively. Negative cash flows from operations for the three months ended March 31, 2012 were due primarily to the net loss of $835,840, plus the loss allocated to non-controlling interests of $452,701 offset by non-cash advertising and consulting expenses of $560,796. Negative cash flows from operations for the three months ended March 31, 2011 were due primarily to the loss allocated to non-controlling interest of $599,231 and an increase in accounts payable of $105,796 offset by net income available to stockholders of $101,286 and non-cash advertising expense of $438,884.

 

Cash flows used in investing activities in both 2012 and 2011 were due to the purchase of equipment.

 

Cash flows provided by financing activities were $388,715 and $160,720 during the three months ended March 31, 2012 and 2011, respectively. Positive cash flows from financing activities during the three months ended March 31, 2012 were due primarily to proceeds of $595,000 from sales of common stock offset by the net reduction of due to factor. Positive cash flows from financing activities during the three months ended March 31, 2011 were due primarily to net proceeds from notes payable of $127,250 and net proceeds from loans payable from related parties of $33,470.

 

We project that we will need additional capital of $1,200,000 to fund operations over the next 12 months.

 

Overall, we have funded our cash needs from inception through March 31, 2012 with a series of debt and equity transactions, primarily with related parties. If we are unable to receive additional cash from our related parties, we may need to rely on financing from outside sources through debt or equity transactions. Our related parties are under no legal obligation to provide us with capital infusions. Failure to obtain such financing could have a material adverse effect on operations and financial condition.

    

We had cash of $100,961 on hand as of March 31, 2012. Currently, we may not be able to sustain our capital needs because we do not have enough cash to fund our operations for the next six months. This is based on current negative cash flows from operating activities and net losses during the periods. We will then need to obtain additional capital through equity or debt financing to sustain operations for an additional year. Our current level of operations would require capital of approximately $1,200,000 per year. Modifications to our business plans may require additional capital for us to operate. For example, if we are unable to raise additional capital in the future we may need to curtail our number of product offers or limit our marketing efforts to the most profitable geographical areas. This may result in lower revenues and market share for us. In addition, there can be no assurance that additional capital will be available to us when needed or available on terms favorable to us.

 

On a long-term basis, liquidity is dependent on continuation and expansion of operations, receipt of revenues, and additional infusions of capital and debt financing. Our current capital and revenues are insufficient to fund such expansion. If we choose to launch such an expansion campaign, we will require substantially more capital. The funds raised from this offering will also be used to market our products and services as well as expand operations and contribute to working capital. However, there can be no assurance that we will be able to obtain additional equity or debt financing in the future, if at all. If we are unable to raise additional capital, our growth potential will be adversely affected and we will have to significantly modify our plans. For example, if we unable to raise sufficient capital to develop our business plan, we may need to:

 

·

 

Curtail new product launches

·

 

Limit our future marketing efforts to areas that we believe would be the most profitable.

 

Demand for the products and services will be dependent on, among other things, market acceptance of our products, our brands’ recognition, distilled spirits market in general, and general economic conditions, which are cyclical in nature. Inasmuch as a major portion of our activities is the receipt of revenues from the sales of our products, our business operations may be adversely affected by our competitors and prolonged recession periods.

  

Our success will be dependent upon implementing our plan of operations and the risks associated with our business plans. We specialize in development, global sales and marketing of spirits brands. We plan to strengthen our position in these markets. We also plan to expand our operations through aggressively marketing our products and our concept. 

 

(12)

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

The information to be reported under this item is not required of smaller reporting companies.

 

ITEM 4. CONTROLS AND PROCEDURES.

 

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in company reports filed or submitted under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in company reports filed under the Exchange Act is accumulated and communicated to management, including the Company’s Chief Executive Officer and its Principal Accounting Officer (the “Certifying Officers”), as appropriate to allow timely decisions regarding required disclosure.

 

As required by Rules 13a-15 and 15d-15 under the Exchange Act, the Certifying Officers carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of March 31, 2012. Their evaluation was carried out with the participation of other members of the Company’s management. Based on an evaluation conducted by the Certifying Officers, of the effectiveness of the design and operation of our disclosure controls and procedures, as required by Exchange Act Rule 13a-15(e), the Certifying Officers concluded that our disclosure controls and procedures were effective as of December 31, 2011 to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the applicable rules and forms, and that it is accumulated and communicated to our management, including the Certifying Officers, as appropriate to allow timely decisions regarding required disclosure.

 

(13)

 

PART II. OTHER INFORMATION

 

ITEM 1.      LEGAL PROCEEDINGS

 

None.

 

ITEM 1A. RISK FACTORS

 

The information to be reported under this item is not required of smaller reporting companies.

 

ITEM 2.      UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

On February 22, 2012, the Company issued 100,000 shares of common stock to an individual in exchange for business advisory services to be provided from January 1, 2012 to June 30, 2012. The Company valued the common stock at $100,000, which is the value of the services provided. The Company recognized $50,000 of professional fee expense during the three months ended March 31, 2012. Prepaid expenses relating to this agreement were $50,000 as of March 31, 2012.

 

On February 22, 2012, the Company issued 100,000 shares of common stock to ADL Marketing in exchange for business advisory services to be provided from January 1, 2012 to June 30, 2012. The Company valued the common stock at $100,000, which is the value of the services provided. The Company recognized $50,000 of professional fee expense during the three months ended March 31, 2012. Prepaid expenses relating to this agreement were $50,000 as of March 31, 2012.

On February 22, 2012, the Company issued 20,000 shares of common stock to Rudney Solomon Cohen and Felzer, PC to provide accounting and advisory services. The Company valued the common stock at $20,000, which was the value of the accounting services provided. The Company used these services in the first quarter of 2012 and accordingly recognized $20,000 of professional fee expense for the three months ended March 31, 2012.

On March 2, 2012, the Company issued 100,000 shares of common stock in accordance with the exercise of a common stock warrant. The Company received $125,000 of proceeds in relation to this transaction.

 

On March 19, 2012, the Company issued 120,000 shares of common stock in accordance with the exercise of a common stock warrant. The Company received $150,000 of proceeds in relation to this transaction.

 

The Board of Directors approved the following stock issuances in 2012:

 

            Date               Number of Shares Cash Investment
     
January 30, 2012                       40,000    $                 40,000
February 14, 2012                       50,000                       50,000
February 21, 2012                       20,000                       20,000
February 27, 2012                       10,000                       10,000
February 27, 2012                       80,000                     100,000
March 13, 2012 80,000 100,000
  280,000 $ 320,000
     

 

ITEM 3.      DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4.      MINE SAFETY DISCLOSURES

 

None.

 

ITEM 5.      OTHER INFORMATION

 

None.

 

ITEM 6. EXHIBITS

 

31.1 Certification of Chief Executive Officer

31.2 Certification of Chief Financial Officer

32.1 Statement required by 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the

Sarbanes-Oxley Act of 2002.

32.2 Statement required by 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the

Sarbanes-Oxley Act of 2002

 

 

Reports on Form 8-K

 

1.On January 11, 2012, we filed an amendment to the current report on Form 8-K/A to amend the Form 8-K we filed on August 24, 2011.

 

2.On April 11, 2012, we filed an amendment to the current report on Form 8-K/A to amend the Form 8-K we filed on August 24, 2011.

 

 

(14)

 

SIGNATURES

 

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

 

 

  PANACHE BEVERAGE INC.
     
Date: May 21, 2012 By:   /s/ James Dale
 

James Dale

Chief Executive Officer

 

 

(15)

 

INDEX TO EXHIBITS

 

Exhibit No.   Description
     
31.1   Certification of Chief Executive Officer
     
31.2   Certification of Acting Principal Accounting Officer
     
32.1  

Statement required by 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.

 

32.2   Statement required by 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002