Aristocrat Group Corp. was incorporated in Florida on July 20, 2011. 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, a Texas limited liability company, (“Level Two”) as our wholly owned subsidiary of the Company. On January 15, 2013, we formed Top Shelf Distributing, LLC, a Texas limited liability company, (“Top Shelf”).
Aristocrat Brands is initially concentrating on the distilled spirits industry, with a focus on the Vodka segment. As a core direction, beverage alcohol marketing can be used as a platform to promote other business segments of the Company, such as event promotion. 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.
Top Shelf currently markets and sells RWB Ultra Premium Handcrafted Vodka (“RWB Vodka”). RWB Vodka is a potato-based, gluten-free vodka, which is currently distributed in North America and sold by a growing number of retailers.
RWB Vodka is currently distributed in major markets in Texas. We are continuing to seek opportunities to expand the distribution into other major markets including California and Western Canada.
RWB Vodka is distilled in the United States from the highest quality Idaho potatoes and pure mountain spring water using a four-column distillation process. Each bottle of RWB Vodka is refined by a five-stage filtration system that produces a 100% gluten-free superior quality spirit.
Vodka now represents almost one quarter of all spirits consumed in the United States. The market opportunity for the spirits market is vast; however, we face competition from other companies that are much larger than we are and have longer operating histories. We continue to work to expand our brand recognition and increase distribution of our product.
The Company has three employees. Our employees do not have written employment agreements. We have no collective bargaining agreements.
We prepare our consolidated financial statements in conformity with GAAP, which requires management to make certain estimates 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 condensed Consolidated financial statements are prepared. On a regular basis, we review our accounting policies and how they are applied and disclosed in our consolidated financial statements.
While we believe that the historical experience, current trends and other factors considered support the preparation of our consolidated financial statements in conformity with GAAP, actual results could differ from our estimates and such differences could be material.
For a full description of our critical accounting policies, please refer to Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report for the year ended July 31, 2014 on Form 10-K.
Results of Operations
Nine months ended April 30, 2015 compared to the nine months ended April 30, 2014.
Revenue
Revenue increased to $85,895 for the nine months ended April 30, 2015, compared to $14,837 for the nine months ended April 30, 2014 because in the past year we have grown our client base and distribution network. When we first started marketing RWB Vodka, we sold our product through only a single distributor. During the six months ended January 31, 2015, we began to sell RWB Vodka directly to retail outlets and have discontinued selling through a distributor.
Cost of Goods Sold
Cost of goods sold increased to $70,550 for the nine months ended April 30, 2015, compared to $9,605 for the comparable period in 2014 as a result of the increase in revenue. The increase is due to higher volume sales.
Gross Profit
Gross profit increased to $15,345 for the nine months ended April 30, 2015, compared to $5,232 for the nine months ended April 30, 2014. This is a result of the increases in revenue partially offset by the increase in cost of goods sold discussed above.
General and Administrative Expenses
We recognized general and administrative expenses of $1,098,944 and $697,775 for the nine months ended April 30, 2015 and 2014, respectively. The increase was due to higher professional fees (which include management fees) related to expanding our distribution network.
Interest Expense
Interest expense increased from $131,614 for the nine months ended April 30, 2014 compared to $427,798 for the nine months ended April 30, 2015. Interest expense for the nine months ended April 30, 2015 included amortization of discount on convertible notes of $329,354, compared to $87,395 for the comparable period of 2014. The remaining amount is the result of the Company entering into interest-bearing convertible notes payable.
Net Loss
We incurred a net loss of $1,511,397 for the nine months ended April 30, 2015 as compared to $824,157 for the comparable period of 2014. The increase in the net loss was primarily the result of increased professional fees (which include management fees) related to the expansion of our distribution network and higher interest expense.
Three months ended April 30, 2015 compared to the three months ended April 30, 2014.
Revenue
Revenue increased to $34,885 for the three months ended April 30, 2015, compared to $3,801 for the three months ended April 30, 2014 because in the past year we have grown our client base and distribution network. When we first began marketing RWB Vodka, we sold our product through only a single distributor. During the current fiscal year, we began to sell RWB Vodka directly to retail outlets and have discontinued selling through a distributor.
Cost of Goods Sold
Cost of goods sold increased to $32,583 for the three months ended April 30, 2015, compared to $2,473 for the comparable period in 2014 because of higher volume sales.
Gross Profit
Gross profit increased to $2,302 for the three months ended April 30, 2015, compared to $1,328 for the three months ended April 30, 2014. This is a result of the increases in revenue partially offset by the increase in cost of goods sold discussed above.
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General and Administrative Expenses
We recognized general and administrative expenses of $383,088 and $230,690 for the three months ended April 30, 2015 and 2014, respectively. The increase was due to higher professional fees (which include management fees) related to expanding our distribution network.
Interest Expense
Interest expense increased from $95,108 for the three months ended April 30, 2014 to $137,730 for the three months ended April 30, 2015. This is due to amortization of the discount on our convertible notes the interest expense on convertible note we issued during the period.
Net Loss
We incurred a net loss of $508,516 for the three months ended April 30, 2015 as compared to $324,470 for the comparable period of 2014. The increase in the net loss was primarily the result of increased professional fees (which include management fees) related to the expansion of our distribution network and higher interest expense.
Liquidity and Capital Resources
At April 30, 2015, we had cash on hand of $40,679. The Company has negative working capital of $313,377. Net cash used in operating activities for the nine months ended April 30, 2015 was $831,777. Cash on hand is adequate to fund our operations for less than one month. We do not expect to achieve positive cash flow from operating activities in the near future. We will require additional cash in order to implement our business plan. There is no guarantee that we will be able to attain funds when we need them or that funds will be available on terms that are acceptable to the Company. We have no material commitments for capital expenditures as of April 30, 2015.
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable to a smaller reporting company.
ITEM 4. CONTROLS AND PROCEDURES
Management’s Report on Internal Control over Financial Reporting
We carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of April 30, 2015. Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of April 30, 2015, our disclosure controls and procedures were not effective to ensure that information required to be disclosed in reports filed by us under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the required time periods and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
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1.
| As of April 30, 2015, we did not maintain effective controls over the control environment. Specifically we have not developed and effectively communicated to our employees our accounting policies and procedures. This has resulted in inconsistent practices. Further, the Board of Directors does not currently have any independent members and no director qualifies as an audit committee financial expert as defined in Item 407(d)(5)(ii) of Regulation S-K. Since these entity level programs have a pervasive effect across the organization, management has determined that these circumstances constitute a material weakness.
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2.
| As of April 30, 2015, we did not maintain effective controls over financial statement disclosure. Specifically, controls were not designed and in place to ensure that all disclosures required were originally addressed in our financial statements. Accordingly, management has determined that this control deficiency constitutes a material weakness.
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Our management, including our principal executive officer and principal financial officer, who is the same person, does not expect that our disclosure controls and procedures or our internal controls will prevent all error or fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.
Change in Internal Controls Over Financial Reporting
There was no change in our internal controls over financial reporting that occurred during the period covered by this report, which has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.
PART II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We know of no material, active or pending legal proceedings against us, nor are we involved as a plaintiff in any material proceedings or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered beneficial shareholder are an adverse party or has a material interest adverse to us.
ITEM 1A. RISK FACTORS
Not applicable to a smaller reporting company.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
There were no sales of unregistered equity securities during the nine months ended April 30, 2015.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
The Company has not defaulted upon senior securities.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable to the Company.
ITEM 5. OTHER INFORMATION
None.
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ITEM 6. EXHIBITS
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3.1
| Articles of Incorporation (1)
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3.2
| Bylaws (1)
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21
| Subsidiaries of the Registrant (2)
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31.1
| Rule 13(a)-14(a)/15(d)-14(a) Certification of principal executive officer and principal financial and account officer. (2)
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32.1
| Section 1350 Certification of principal executive officer and principal financial accounting officer. (2)
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101
| XBRL data files of Financial Statement and Notes contained in this Quarterly Report on Form 10-Q. (3)(4)
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(1)
| Incorporated by reference to our Form S-1 filed with the Securities and Exchange Commission on August 25, 2011.
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(2)
| Filed or furnished herewith.
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(3)
| In accordance with Regulation S-T, the Interactive Data Files in Exhibit 101 to the Quarterly Report on Form 10-Q shall be deemed “furnished” and not “filed.”
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(4)
| To be submitted by amendment.
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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 thereunto duly authorized.
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| Aristocrat Group Corp.
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Date: June 22, 2015
| BY: /s/ Robert Federowicz
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| Robert Federowicz
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| Chief Executive Officer, President, Secretary, Treasurer, Principal Executive Officer, Principal Financial and Accounting Officer and Sole Director
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