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WDKA > SEC Filings for WDKA > Form 10-Q on 19-Nov-2012All Recent SEC Filings

Show all filings for PANACHE BEVERAGE, INC.

Form 10-Q for PANACHE BEVERAGE, INC.


19-Nov-2012

Quarterly Report


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

The following information should be read in conjunction with our financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and well as our most recent Annual Report on Form 10-K. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions, which could cause actual results to differ materially from management's expectations. Please see "CAUTIONARY STATEMENT REGARDING FORWARD LOOKING INFORMATION"

We use the terms "Panache," "the Company," "we," "us," and "our" to refer to Panache Beverage Inc., its subsidiaries and predecessors, unless indicated otherwise.

Business Overview

Panache Beverages, Inc. is an alcoholic beverage company specializing in the development, global sales and marketing of spirits brands. The Company's expertise lies in the strategic development and aggressive early growth of its brands establishing its assets as viable and attractive acquisition candidates for the major global spirits companies. Panache intends to build its brands as individual acquisition candidates while continuing to develop its pipeline of new brands into the Panache portfolio. Panache's existing portfolio contains three brands:

Wodka Vodka (www.welovewodka.com)

Wodka is triple distilled and charcoal filtered earning it a 90 point rating by the Beverage Testing Institute - a first for any brand available for under $10. Wodka was developed as an egalitarian brand - coming from the position that consumers shouldn't have to pay $30 for a bottle of quality vodka. This position was authentic - the brand was discovered by Panache while walking through a distillery in Eastern Poland - Wodka Vodka, a relic from Poland's communist era, was government owned/issued vodka. Wodka stands tall in the exploding category of 'quality for value' spirit brands. It is uniquely positioned in the category as fun, quirky, aloof - all attributes which have been embraced by trade and consumers making Wodka a true "brand" very quickly.

Alchemia Infused Vodka (www.alchemiainfusions.com)

Alchemia is a premium, traditional Polish vodka that is naturally infused with select raw ingredients and made in the "Spiritus Vini", or "Spirit of Wine". The spirit is available in three varieties: Chocolate, Ginger, and Wild Cherry. 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. Alchemia has found a strategic niche in the exploding culinary world and is being favored by celebrity chefs and their restaurants. Cherry received a 94 PTS by Wine Enthusiast and was named a Top 50 Spirit for 2011, whereas Chocolate received a 92 by The Tasting Panel.

Alibi American Whiskey (www.alibiamerica.com)

Showing its propensity to stir up a little controversy, Panache is finishing test marketing for its latest creation, Alibi American Whiskey. Alibi has been developed to exploit a gap in the exploding brown spirits category - the need for an edgy, cool, premium Whiskey that appeals to the younger generation of legal age drinkers. 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.


History

The Company was incorporated in Florida effective December 28, 2004 and provided motorcycle repair services to customers located in and around the Charlotte, North Carolina area. Subsequent to the Plan of Exchange executed on August 19, 2011, the Company has continued operations of Panache, an alcoholic beverage company specializing in the development and global sales and marketing of spirits brands, and no longer be 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 publicly traded company but lack of 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 enabling it to successfully develop, roll out and exit its brands.

Operational Highlights for the nine months ended September 30, 2012

Panache continued its expansion into foreign markets by tapping O.B.H. Wine and Spirits Inc. as an exclusive partner to represent Wodka and Alchemia brands in Canada. Panache and O.B.H are in the process of securing approval from the Legal Control Board of Ontario to sell and market the brands throughout all provinces and territories of Canada.

Wodka Vodka has been accepted as a core range product for LMG Bottlemart Group, which represents 12% of total Australian packaged liquor market and comprises over 2,000 members throughout the country. The acceptance of Wodka by LMG Bottlemart is an endorsement of the brand's strategy, marketing, and pricing.

Alibi American Whiskey has received its Certificate of Label Approval from Alcohol and Tobacco Tax and Trade Bureau. The approval paves the way for Panache to roll out this highly anticipated brand in the third quarter of this year.

Panache added 2 new distributors for the Alchemia brand and expanded into 1 state in the third quarter of 2012. Our brands are now available in 31 states across the United States.


Results of Operations for the Three and Nine Months Ended September 30, 2012 and 2011

Revenues

Revenues were $271,241 and $433,979 for the three months ended September 30, 2012 and 2011, respectively, a decrease of 37%. Revenues were $1,310,765 and $1,265,671 for the nine months ended September 30, 2012 and 2011, respectively, an increase of 4%. 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 $0 and $65 during the three months ended September 30, 2012 and 2011, respectively and $30,325 and $16,142 during the nine months ended September 30, 2012 and 2011, respectively.

The decrease in revenue during the three months ended September 30, 2012 compared to the three months ended September 30, 2011 was primarily due to production issues at our supplier in Bialystock, Poland. Due to these issues at the distillery, the Company has contracted a new distillery on September 10, 2012 to supply its Wodka and Alchemia products and has now begun shipping these products at previous levels. The increase in revenue during the three and nine months ended September 30, 2012 compared to the same period in 2011 was primarily due to the implementation of our marketing strategies in new markets and growth in existing markets. This increase has been partially offset by the supplier issues noted above.

Cost of Goods Sold

Cost of goods sold included expenses directly related to selling our products. Product delivery, broker fees and direct labor would be examples of cost of goods sold items. Cost of goods sold was $115,122, or 42% of revenue, and $357,304, or approximately 82% of revenue, during the three months ended September 30, 2012 and 2011, respectively. Cost of goods sold was $811,462, or approximately 62% of revenue, and $1,004,756, or approximately 79% of revenue, during the nine months ended September 30, 2012 and 2011, respectively.

The decrease in costs of goods sold as a percentage of revenue during the three and nine month periods ended September 30, 2012 in comparison to the same periods in 2011 is primarily due to increased efficiencies in operations and higher gross profit on international sales, which accounted for a higher percentage of sales in 2012.

Expenses

Operating expenses were $876,066 and $1,442,269 for the three months ended September 30, 2012 and 2011, respectively and $3,198,285 and $2,809,753 for the nine months ended September 30, 2012 and 2011, respectively.


The increase in operating expenses during the nine months ended September 30, 2012 compared to the nine months ended September 30, 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 nine months of 2012.

The decrease in operating expenses during the three months ended September 30, 2012 compared to the same period in 2011 was due to the substantial accounting and legal expenses incurred in the early stages of operating at a public company during the third quarter of 2011. These expenses have decreased as the Company has established better business processes.

Net Loss

The Company's net loss for stockholders was $684,699 and $838,628 for the three months ended September 30, 2012 and 2011, respectively and $2,280,576 and $868,015 for the nine months ended September 30, 2012 and 2011, respectively. The change in net loss for the nine months ended September 30, 2012 compared to the same 2011 period was attributable to higher operating expenses and less loss allocated to non-controlling interests. The decrease in the loss for the three months ended September 30, 2012 compared to the same 2011 period was due to the decrease in 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 $1,529,853 and $765,749 for the nine months ended September 30, 2012 and 2011, respectively. Negative cash flows from operations for the nine months ended September 30, 2012 were due primarily to the net loss of $2,280,576 and the loss allocated to non-controlling interests of $480,329 offset by non-cash advertising of $257,944 and stock issued for services and compensation of $445,000. Negative cash flows from operations for the nine months ended September 30, 2011 were due primarily to the net loss of $868,015 and the loss allocated to non-controlling interests of $1,736,403 offset by non-cash advertising of $1,251,539.

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 $1,433,734 and $756,151 during the nine months ended September 30, 2012 and 2011, respectively. Positive cash flows from financing activities during the nine months ended September 30, 2012 were due primarily to proceeds of $1,022,700 from sales of common stock. Positive cash flows from financing activities during nine months ended September 30, 2011 were due primarily to proceeds of $270,000 from sales of common stock. Positive cash flows also resulted from contributions from non-controlling interests to consolidated subsidiaries of $199,800 and proceeds of $184,639 from factoring accounts receivable.

We project that we will need additional capital of approximately $1,100,000 to fund operations over the next 12 months.

Overall, we have funded our cash needs from inception through September 30, 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 $47,904 on hand as of September 30, 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 three 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 $1,100,000 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.

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