The common stock currently outstanding is validly issued, fully paid and non-assessable. In the event of liquidation of the Company, the holders of common stock will share equally in any balance of the Company’s assets available for distribution to them after satisfaction of creditors and preferred shareholders, if any. The holders of the Company’s common are entitled to equal dividends and distributions per share with respect to the common stock when, as and if, declared by the Board of Directors from funds legally available.
Our Articles of Incorporation, our Bylaws, and the applicable statutes of the state of Florida contain a more complete description of the rights and liabilities of holders of our securities.
During the year ended July 31, 2014, there was no modification of any instruments defining the rights of holders of the Company’s common stock and no limitation or qualification of the rights evidenced by the Company’s common stock as a result of the issuance of any other class of securities or the modification thereof.
Holders of shares of our common stock do not have cumulative voting rights, which means that the holders of more than 50% of the outstanding shares, voting for the election of directors, can elect all of the directors to be elected, if they so choose, and, in that event, the holders of the remaining shares will not be able to elect any of our directors.
The following table shows the number of shares of common stock that could be issued upon exercise of outstanding options and warrants, the weighted average exercise price of the outstanding options and warrants, and the remaining shares available for future issuance as of July 31, 2014.
None.
During the quarter ended July 31, 2014, the Company issued shares of common stock as a result of the conversion of convertible promissory notes, as detailed in the following table:
ITEM 6. SELECTED FINANCIAL DATA
As a smaller reporting company, we are not required to provide the information required by this item.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THIS FILING CONTAINS FORWARD-LOOKING STATEMENTS. THE WORDS “ANTICIPATED,” “BELIEVE,” “EXPECT,” “PLAN,” “INTEND,” “SEEK,” “ESTIMATE,” “PROJECT,” “WILL,” “COULD,” “MAY,” AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. THESE STATEMENTS INCLUDE, AMONG OTHERS, INFORMATION REGARDING FUTURE OPERATIONS, FUTURE CAPITAL EXPENDITURES, AND FUTURE NET CASH FLOW. SUCH STATEMENTS REFLECT THE COMPANY’S CURRENT VIEWS WITH RESPECT TO FUTURE EVENTS AND FINANCIAL PERFORMANCE AND INVOLVE RISKS AND UNCERTAINTIES, INCLUDING, WITHOUT LIMITATION, GENERAL ECONOMIC AND BUSINESS CONDITIONS, CHANGES IN FOREIGN, POLITICAL, SOCIAL, AND ECONOMIC CONDITIONS, REGULATORY INITIATIVES AND COMPLIANCE WITH GOVERNMENTAL REGULATIONS, THE ABILITY TO ACHIEVE FURTHER MARKET PENETRATION AND ADDITIONAL CUSTOMERS, AND VARIOUS OTHER MATTERS, MANY OF WHICH ARE BEYOND THE COMPANY’S CONTROL. SHOULD ONE OR MORE OF THESE RISKS OR UNCERTAINTIES OCCUR, OR SHOULD UNDERLYING ASSUMPTIONS PROVE TO BE INCORRECT, ACTUAL RESULTS MAY VARY MATERIALLY AND ADVERSELY FROM THOSE ANTICIPATED, BELIEVED, ESTIMATED, OR OTHERWISE INDICATED. CONSEQUENTLY, ALL OF THE FORWARD-LOOKING STATEMENTS MADE IN THIS FILING ARE QUALIFIED BY THESE CAUTIONARY STATEMENTS AND THERE CAN BE NO ASSURANCE OF THE ACTUAL RESULTS OR DEVELOPMENTS.
The following discussion and analysis of our financial condition and plan of operations should be read in conjunction with our financial statements and related notes appearing elsewhere herein. This discussion and analysis contains forward-looking statements including information about possible or assumed results of our financial conditions, operations, plans, objectives, and performance that involve risk, uncertainties, and assumptions. The actual results may differ materially from those anticipated in such forward-looking statements. For example, when we indicate that we expect to increase our product sales and potentially establish additional license relationships, these are forward-looking statements. The words expect, anticipate, estimate or similar expressions are also used to indicate forward-looking statements.
Background of our Company
Aristocrat Group Corp. was incorporated on July 20, 2011 in the state of Florida. On October 17, 2012, we formed Luxuria Brands LLC (“Luxuria”) as a wholly owned subsidiary of the Company. On January 10, 2013, we formed Level Two Holdings, LLC (“Level Two”) as a wholly owned subsidiary of the Company. On January 15, 2013, we formed Top Shelf Distributing, LLC (“Top Shelf”) as our wholly owned subsidiary. Top Shelf is focused on developing our distilled spirits line of business.
During the twelve months ended July 31, 2014, we acquired inventory and began to generate revenues from the sales of vodka.
Our fiscal year end is July 31.
Plan of Operations
Following the succession of Robert Federowicz as our sole director and officer, we have concentrated on the development of Top Shelf, our distilled spirits line of business Vodka accounts for almost one quarter of all distilled spirits sales and continues to grow. Selecting the distilled spirits sector enables Aristocrat to enter into a large diverse market with broad appeal and several similar supporting categories, such as the spirit industry and the music industry. These two sectors are easily linkable and present many original opportunities for partnership, sponsorship and brand awareness activities.
As of July 31, 2014, we had cash on hand of $13,103.
We do not have adequate funds to execute our business plan for the next twelve months unless we obtain additional funding. We intend to pursue capital through public or private financing in order to finance our business activities. We cannot guarantee that additional funding will be available on favorable terms, if at all. If adequate funds are not available, then our ability to continue our operations may be significantly hindered.
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The Jaxon Investment Agreement
On September 15, 2014, we entered into an investment agreement (the “Jaxon Investment Agreement”) with Jaxon Group Corp., a Louisiana corporation (“Jaxon”). Pursuant to the terms of the Jaxon Investment Agreement, Jaxon committed to purchase up to $5,000,000 of our common stock over a period of up to thirty-six (36) months.
In connection with the Jaxon Investment Agreement, we also entered into a registration rights agreement with Jaxon, pursuant to which we are obligated to file a registration statement with the SEC covering 10,000,000 shares of our common stock underlying the Jaxon Investment Agreement within 21 days after the closing of the transaction. In addition, we are obligated to use all commercially reasonable efforts to have the registration statement declared effective by the SEC within 120 days after the closing of the transaction and maintain the effectiveness of such registration statement until termination of the Jaxon Investment Agreement.
The proceeds to be received will depend upon the stock price immediately prior to the stock put being exercised.
Jaxon will periodically purchase our common stock under the Jaxon Investment Agreement and will, in turn, sell such shares to investors in the market at the market price. This may cause our stock price to decline, which will require us to issue increasing numbers of common shares to Jaxon to raise the same amount of funds, as our stock price declines.
The total investment amount of $5 million was determined based on numerous factors, including the following: Our current operating costs are approximately $500,000 per annum, and thus we need a portion of the investment amount to pay general operating expenses. We believe we need the remaining funds for capital expenditures related to promotion of unique distilled alcohol brands, including our RWB Vodka. While it is difficult to estimate the likelihood that the Company will need the full investment amount, we believe that the Company may need the full amount of $5 million funding under the Jaxon Investment Agreement.
No amounts have been requested by the Company or funded under the Jaxon Investment Agreement. Jaxon is not obligated to purchase our common stock under the Jaxon Investment Agreement until the registration statement is declared effective. The registration statement has not been declared effective as of the date of this filing.
Purchase of Shares under the Jaxon Investment Agreement
From time to time during the thirty-six (36) months period commencing with the effectiveness of the registration statement, we may deliver a put notice to Jaxon which states the dollar amount that we intend to sell to Jaxon on a date specified in the put notice. The purchase price per share to be paid by Jaxon shall be calculated at a fifty percent (50%) discount to the lowest price of the common stock as reported by Bloomberg, L.P. during the twenty (20) consecutive trading days immediately prior to the receipt by Jaxon of the put notice. We have reserved 30,000,000 shares of our common stock for issuance under the Jaxon Investment Agreement, including 10,000,000 shares included in the registration statement.
Results of Operations
We incurred a net loss of $1,372,360 for the year ended July 31, 2014. We had a working capital deficit of $214,137 as of July 31, 2014. Although we have begun to generate revenue from the sales of RWB Vodka, We do not anticipate having positive net income in the immediate future. Net cash used by operations for the year ended July 31, 2014 was $794,109.
We continue to rely on advances to fund operations. In the immediate future we will require funds from the sales of stock under the Jaxon Investment Agreement and possible other sources including loans and sales of equity. There can be no assurance that we will continue to have such sources of funds available. We will not be able to continue operations without them. We are pursuing alternate sources of financing, but there is no assurance that additional capital will be available to the Company when needed or on acceptable terms.
Fiscal year ended July 31, 2014 compared to the fiscal year ended July 31, 2013.
Revenue
Revenue increased to $26,539 for the year ended July 31, 2014, compared to $0 for the year ended July 31, 2013 because the company first began selling vodka in the current year.
Cost of Goods Sold
Cost of goods sold increased to $25,334 for the year ended July 31, 2014, compared to $0 for the comparable period in 2013 because the company first began selling vodka in the current year.
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Gross Profit
Gross profit increased to $1,205 for the year ended July 31, 2014, compared to $0 for the year ended July 31, 2013 because the company first began selling vodka in the current year.
General and Administrative Expenses
We recognized general and administrative expenses of $1,008,290 and $483,864, for the years ended July 31, 2014 and 2013, respectively. The increase was due to costs incurred in connection with the launch of our vodka sales, increased spending on marketing and higher professional fees.
Interest Expense
Interest expense increased from $33,507 for the year ended July 31, 2013 to $365,275 for the year ended July 31, 2014. Interest expense for the year ended July 31, 2014 included amortization of discount on convertible notes payable of $302,409, compared to $27,922 for the comparable period of 2013. The remaining increase is the result of the Company entering into interest-bearing convertible notes payable.
Net Loss
We incurred a net loss of $1,372,360 for the year ended July 31, 2014 as compared to $517,371 for the comparable period of 2013. The increase in the net loss was primarily the result of the increased marketing, professional fees, and interest expenses.
Liquidity and Capital Resources
We anticipate needing approximately of $1,000,000 to fund our operations and to execute our business plan over the next eighteen months. Currently available cash is not sufficient to allow us to commence full execution of our business plan. Our business expansion will require significant capital resources that may be funded through the issuance of common stock or of notes payable or other debt arrangements that may affect our debt structure. Despite our current financial status, we believe that we may be able to issue notes payable or debt instruments in order to start executing our business plan. However, there can be no assurance that we will be able to raise money in this fashion and have not entered into any agreements that would obligate a third party to provide us with capital, other than the Jaxon Investment Agreement.
Through July 31, 2014, we have incurred cumulative losses since inception of $1,941,106. We raised the cash amounts used in these activities from the sale of common stock and from advances. We currently have negative working capital of $214,137.
As of July 31, 2014, we had $13,103 of cash on hand. This amount of cash will be adequate to fund our operations for less than one month.
Capital Resources
We had no material commitments for capital expenditures as of July 31, 2014 and 2013. However, should we execute our business plan as anticipated, we would incur substantial capital expenditures and require financing in addition to what is required to fund our present operation.
Additional Financing
Additional financing is required to continue operations. Although actively searching for available capital, the Company does not have any current arrangements for additional outside sources of financing and cannot provide any assurance that such financing will be available.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
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Critical Accounting Policies and Estimates
We prepare our financial statements in conformity with accounting policies generally accepted in the United States of America (“US GAAP”), which requires management to make certain estimates and assumptions and apply judgments. We base our estimates and judgments on historical experience, current trends, and other factors that management believes to be important at the time the financial statements are prepared; actual results could differ from our estimates and such differences could be material. We have identified below the critical accounting policies, which are assumptions made by management about matters that are highly uncertain and that are of critical importance in the presentation of our financial position, results of operations and cash flows. Due to the need to make estimates about the effect of matters that are inherently uncertain, materially different amounts could be reported under different conditions or using different assumptions. On a regular basis, we review our critical accounting policies and how they are applied in the preparation our financial statements.
USE OF ESTIMATES - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
New Accounting Pronouncements
For a description of recent accounting standards, including the expected dates of adoption and estimated effects, if any, on our financial statements, see “Note 3: Significant Accounting Policies: Recently Issued Accounting Pronouncements” in Part II, Item 8 of this Form 10-K.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a smaller reporting company, we are not required to provide the information required by this item.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Aristocrat Group Corp.
Consolidated Financial Statements
July 31, 2014
Contents
| |
Report of Independent Registered Public Accounting Firm
| 12
|
Consolidated Balance Sheets
| 13
|
Consolidated Statements of Operations
| 14
|
Consolidated Statement of Changes in Stockholders’ Deficit
| 15
|
Consolidated Statements of Cash Flows
| 16
|
Notes to the Consolidated Financial Statements
| 17
|
- 11 -
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of Aristocrat Group Corp.
Miramar Beach, Florida
We have audited the accompanying consolidated balance sheets of Aristocrat Group Corp. as of July 31, 2014 and 2013, and the related consolidated statements of operations, changes in stockholders’ deficit, and cash flows for the years then ended. These consolidated financial statements are the responsibility of Aristocrat Group Corp.’s management. Our responsibility is to express an opinion on these consolidated 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 audit 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Aristocrat Group Corp., as of July 31, 2014 and 2013, and the results of its operations and cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has negative cash flows from operations and has a net capital deficiency which raises substantial doubt about its ability to continue as a going concern. Management’s plans regarding those matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ GBH CPAs, PC
GBH CPAs, PC
www.gbhcpas.com
Houston, Texas
November 13, 2014
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ARISTOCRAT GROUP CORP.
CONSOLIDATED BALANCE SHEETS
| | | | | | | |
| | July 31, 2014
| | July 31, 2013
| |
ASSETS
| | | | | | | |
| | | | | | | |
CURRENT ASSETS
| | | | | | | |
Cash and cash equivalents
| | $
| 13,103
| | $
| 205,153
| |
Accounts receivable
| | | 7,770
| | | —
| |
Prepaid expenses
| | | 57,168
| | | 88,609
| |
Inventory
| | | 14,906
| | | —
| |
Total current assets
| | | 92,947
| | | 293,762
| |
| | | | | | | |
Security deposits
| | | 1,367
| | | 1,367
| |
TOTAL ASSETS
| | $
| 94,314
| | $
| 295,129
| |
| | | | | | | |
LIABILITIES AND STOCKHOLDERS’ DEFICIT
| | | | | | | |
| | | | | | | |
CURRENT LIABILITIES
| | | | | | | |
Accounts payable and accrued liabilities
| | $
| 307,084
| | $
| 102,874
| |
Advances payable
| | | —
| | | 516,920
| |
Total current liabilities
| | | 307,084
| | | 619,794
| |
| | | | | | | |
Convertible notes payable, net of discount of $955,723 and $139,153, respectively
| | | 70,751
| | | 27,922
| |
Accrued interest payable
| | | 12,196
| | | 5,584
| |
TOTAL LIABILITIES
| | | 390,031
| | | 653,300
| |
| | | | | | | |
COMMITMENTS AND CONTINGENCIES
| | | | | | | |
| | | | | | | |
STOCKHOLDERS’ DEFICIT
| | | | | | | |
Common stock, $0.0001 par value; 250,000,000 shares authorized; 78,041,774 shares and 62,250,000 shares issued and outstanding at July 31, 2014 and July 31, 2013, respectively
| | | 7,804
| | | 6,225
| |
Additional paid-in capital
| | | 1,637,585
| | | 204,350
| |
Accumulated deficit
| | | (1,941,106
| )
| | (568,746
| )
|
Total stockholders’ deficit
| | | (295,717
| )
| | (358,171
| )
|
| | | | | | | |
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT
| | $
| 94,314
| | $
| 295,129
| |
The accompanying notes are an integral part of these audited consolidated financial statements.
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ARISTOCRAT GROUP CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
| | | | | | |
| Year ended
July 31,
| |
| 2014
| | 2013
| |
| | | | |
REVENUE
| $
| 26,539
| | $
| —
| |
COST OF GOODS SOLD
| | 25,334
| | | —
| |
| | | | | | |
GROSS PROFIT
| | 1,205
| | | —
| |
| | | | | | |
GENERAL AND ADMINISTRATIVE EXPENSES
| | 1,008,290
| | | 483,864
| |
| | | | | | |
LOSS FROM OPERATIONS
| | (1,007,085
| )
| | (483,864
| )
|
| | | | | | |
INTEREST EXPENSE
| | (365,275
| )
| | (33,507
| )
|
| | | | | | |
NET LOSS
| $
| (1,372,360
| )
| $
| (517,371
| )
|
| | | | | | |
NET LOSS PER COMMON SHARE – Basic and diluted
| $
| (0.02
| )
| $
| (0.01
| )
|
| | | | | | |
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING –
Basic and diluted
| | 64,724,511
| | | 62,250,000
| |
The accompanying notes are an integral part of these audited consolidated financial statements.
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ARISTOCRAT GROUP CORP.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIT
| | | | | | | | | | | | | | | |
| | Common Stock
| | Additional
Paid In
| | Accumulated
| | | |
| | Shares
| | Amount
| | Capital
| | Deficit
| | Total
| |
| | | | | | | | | | | | | | | |
BALANCE, July 31, 2012
| | 62,250,000
| | $
| 6,225
| | $
| 37,275
| | $
| (51,375
| )
| $
| (7,875
| )
|
| | | | | | | | | | | | | | | |
Beneficial conversion discount on convertible note payable
| | —
| | | —
| | | 167,075
| | | —
| | | 167,075
| |
Net loss
| | —
| | | —
| | | —
| | | (517,371
| )
| | (517,371
| )
|
| | | | | | | | | | | | | | | |
BALANCE, July 31, 2013
| | 62,250,000
| | $
| 6,225
| | $
| 204,350
| | $
| (568,746
| )
| $
| (358,171
| )
|
| | | | | | | | | | | | | | | |
Shares issued for conversion of notes payable
| | 15,791,774
| | | 1,579
| | | 314,256
| | | —
| | | 315,835
| |
Beneficial conversion discount on convertible notes payable
| | —
| | | —
| | | 1,118,979
| | | —
| | | 1,118,979
| |
Net loss
| | —
| | | —
| | | —
| | | (1,372,360
| )
| | (1,372,360
| )
|
| | | | | | | | | | | | | | | |
BALANCE, July 31, 2014
| | 78,041,774
| | $
| 7,804
| | $
| 1,637,585
| | $
| (1,941,106
| )
| $
| (295,717
| )
|
The accompanying notes are an integral part of these audited consolidated financial statements.
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ARISTOCRAT GROUP CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS