PANACHE BEVERAGE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
For the year ended
|
|
|
|
December 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
REVENUES - NET
|
|
$
|
3,694,020
|
|
|
$
|
3,290,814
|
|
|
|
|
|
|
|
|
|
|
COST OF GOODS SOLD
|
|
|
2,537,248
|
|
|
|
2,129,240
|
|
|
|
|
|
|
|
|
|
|
GROSS PROFIT
|
|
|
1,156,772
|
|
|
|
1,161,574
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
Advertising and promotion
|
|
|
1,042,284
|
|
|
|
964,442
|
|
Consulting
|
|
|
712,526
|
|
|
|
394,459
|
|
Professional fees
|
|
|
1,737,077
|
|
|
|
1,070,109
|
|
General and administrative
|
|
|
2,722,316
|
|
|
|
2,460,462
|
|
TOTAL OPERATING EXPENSES
|
|
|
6,214,203
|
|
|
|
4,889,472
|
|
|
|
|
|
|
|
|
|
|
LOSS FROM OPERATIONS
|
|
|
(5,057,431
|
)
|
|
|
(3,727,898
|
)
|
|
|
|
|
|
|
|
|
|
OTHER EXPENSE
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(702,371
|
)
|
|
|
(132,998
|
)
|
Interest income
|
|
|
207
|
|
|
|
-
|
|
Gain on disposal of fixed assets
|
|
|
100,609
|
|
|
|
-
|
|
Gain on legal settlements
|
|
|
224,674
|
|
|
|
-
|
|
Gain (loss) on extinguishment of debt
|
|
|
135,261
|
|
|
|
(26,839
|
)
|
TOTAL OTHER EXPENSE
|
|
|
(241,620
|
)
|
|
|
(159,837
|
)
|
|
|
|
|
|
|
|
|
|
LOSS FROM OPERATIONS AND BEFORE
NON-CONTROLLING INTERESTS
|
|
|
(5,299,051
|
)
|
|
|
(3,887,735
|
)
|
|
|
|
|
|
|
|
|
|
LESS: LOSS ATTRIBUTABLE TO NON-CONTROLLING
INTERESTS
|
|
|
716,382
|
|
|
|
620,670
|
|
|
|
|
|
|
|
|
|
|
LOSS BEFORE PROVISION FOR INCOME TAXES
|
|
|
(4,582,669
|
)
|
|
|
(3,267,065
|
)
|
|
|
|
|
|
|
|
|
|
PROVISION FOR INCOME TAXES
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
NET LOSS ATTRIBUTABLE TO PANACHE
BEVERAGE, INC.
|
|
$
|
(4,582,669
|
)
|
|
$
|
(3,267,065
|
)
|
|
|
|
|
|
|
|
|
|
BASIC AND DILUTED RESULTS PER SHARE OF
COMMON STOCK:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS PER SHARE ATTRIBUTABLE TO PANACHE
BEVERAGE, INC.: BASIC AND DILUTED
|
|
$
|
(0.17
|
)
|
|
$
|
(0.12
|
)
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING: BASIC AND DILUTED
|
|
|
27,022,028
|
|
|
|
26,137,361
|
|
See accompanying consolidated note to financial statements.
CONSOLIDATED STATEMENT OF EQUITY (DEFICIT)
|
|
Common Stock
|
|
|
Additional Paid in
|
|
|
Common Stock
|
|
|
Treasury
|
|
|
Accumulated
|
|
|
Total Stockholders' Equity
|
|
|
Non-Controlling
|
|
|
Total Equity
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Warrants
|
|
|
Stock
|
|
|
Deficit
|
|
|
(Deficit)
|
|
|
Interests
|
|
|
(Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1, 2012
|
|
|
25,107,891
|
|
|
$
|
25,108
|
|
|
$
|
1,303,412
|
|
|
$
|
163,097
|
|
|
$
|
-
|
|
|
$
|
(2,516,269
|
)
|
|
$
|
(1,024,652
|
)
|
|
$
|
(123,696
|
)
|
|
$
|
(1,148,348
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital contributions
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
257,944
|
|
|
|
257,944
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock and warrants issued
for $0.50 per share
|
|
|
120,000
|
|
|
|
120
|
|
|
|
99,761
|
|
|
|
20,119
|
|
|
|
-
|
|
|
|
-
|
|
|
|
120,000
|
|
|
|
-
|
|
|
|
120,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock and warrants issued
for $1.00 per share
|
|
|
590,000
|
|
|
|
590
|
|
|
|
631,712
|
|
|
|
105,198
|
|
|
|
-
|
|
|
|
-
|
|
|
|
737,500
|
|
|
|
-
|
|
|
|
737,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock & warrants issued
for services rendered
|
|
|
487,000
|
|
|
|
487
|
|
|
|
487,213
|
|
|
|
8,351
|
|
|
|
-
|
|
|
|
-
|
|
|
|
496,051
|
|
|
|
-
|
|
|
|
496,051
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued to satisfy debt
|
|
|
150,000
|
|
|
|
150
|
|
|
|
149,850
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
150,000
|
|
|
|
-
|
|
|
|
150,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares repurchased
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(150,000
|
)
|
|
|
-
|
|
|
|
(150,000
|
)
|
|
|
-
|
|
|
|
(150,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury shares sold
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
50,000
|
|
|
|
-
|
|
|
|
50,000
|
|
|
|
-
|
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury shares retired
|
|
|
(100,000
|
)
|
|
|
(100
|
)
|
|
|
(99,900
|
)
|
|
|
-
|
|
|
|
100,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants from debt issuance
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
14,449
|
|
|
|
-
|
|
|
|
-
|
|
|
|
14,449
|
|
|
|
-
|
|
|
|
14,449
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants exercised
|
|
|
230,000
|
|
|
|
230
|
|
|
|
337,506
|
|
|
|
(47,736
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
290,000
|
|
|
|
-
|
|
|
|
290,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants modified
|
|
|
-
|
|
|
|
-
|
|
|
|
(148,395
|
)
|
|
|
148,395
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants expired
|
|
|
-
|
|
|
|
-
|
|
|
|
177,756
|
|
|
|
(177,756
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
248,884
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
248,884
|
|
|
|
-
|
|
|
|
248,884
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of shares from stock-based
compensation
|
|
|
176,000
|
|
|
|
176
|
|
|
|
(176
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beneficial interest in conversion
feature of convertible debt
|
|
|
-
|
|
|
|
-
|
|
|
|
25,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
25,000
|
|
|
|
-
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the period ended
December 31, 2012
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,267,065
|
)
|
|
|
(3,267,065
|
)
|
|
|
(620,670
|
)
|
|
|
(3,887,735
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2012
|
|
|
26,760,891
|
|
|
|
26,761
|
|
|
|
3,212,623
|
|
|
|
234,117
|
|
|
|
-
|
|
|
|
(5,783,334
|
)
|
|
|
(2,309,833
|
)
|
|
|
(486,422
|
)
|
|
|
(2,796,255
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for services
rendered and dispute resolution
|
|
|
260,000
|
|
|
|
260
|
|
|
|
145,740
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
146,000
|
|
|
|
-
|
|
|
|
146,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants vested for services
rendered
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
475,020
|
|
|
|
-
|
|
|
|
-
|
|
|
|
475,020
|
|
|
|
-
|
|
|
|
475,020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants expired
|
|
|
-
|
|
|
|
-
|
|
|
|
225,764
|
|
|
|
(225,764
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
607,480
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
607,480
|
|
|
|
-
|
|
|
|
607,480
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of shares from stock-
based compensation
|
|
|
35,000
|
|
|
|
35
|
|
|
|
(35
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the period ended
December 31, 2013
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,582,669
|
)
|
|
|
(4,582,669
|
)
|
|
|
(716,382
|
)
|
|
|
(5,299,051
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2013
|
|
|
27,055,891
|
|
|
$
|
27,056
|
|
|
$
|
4,191,572
|
|
|
$
|
483,373
|
|
|
$
|
-
|
|
|
$
|
(10,366,003
|
)
|
|
$
|
(5,664,002
|
)
|
|
$
|
(1,202,804
|
)
|
|
$
|
(6,866,806
|
)
|
See accompanying consolidated note to financial statements.
PANACHE BEVERAGE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
For the year ended
|
|
|
|
December 31,
|
|
|
|
2013
|
|
|
2012
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
Net loss for the period
|
|
$
|
(4,582,669
|
)
|
|
$
|
(3,267,065
|
)
|
Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities:
|
|
|
|
|
|
|
|
|
Non-controlling interest
|
|
|
(716,382
|
)
|
|
|
(620,670
|
)
|
Depreciation
|
|
|
5,009
|
|
|
|
6,499
|
|
Bad debt expense
|
|
|
-
|
|
|
|
430,402
|
|
Gain on disposal of fixed assets
|
|
|
(100,609
|
)
|
|
|
-
|
|
Loss on extinguishment of debt attributable to loan discount
|
|
|
-
|
|
|
|
14,449
|
|
Amortization of loan discount
|
|
|
-
|
|
|
|
25,000
|
|
Stock issued and warrants vested for services rendered
|
|
|
621,020
|
|
|
|
496,051
|
|
Stock-based compensation
|
|
|
607,480
|
|
|
|
248,884
|
|
Advertising expense from capital contribution
|
|
|
-
|
|
|
|
257,944
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
Restricted cash
|
|
|
(1,342,158
|
)
|
|
|
(600,000
|
)
|
Accounts receivable
|
|
|
1,210,493
|
|
|
|
(1,384,611
|
)
|
Inventory
|
|
|
(943,894
|
)
|
|
|
(52,973
|
)
|
Prepaid expenses
|
|
|
(341,529
|
)
|
|
|
6,360
|
|
Accounts payable
|
|
|
164,875
|
|
|
|
454,147
|
|
Consulting fees payable – related party
|
|
|
-
|
|
|
|
(2,705
|
)
|
Accrued interest
|
|
|
309,026
|
|
|
|
16,086
|
|
Other current liabilities
|
|
|
50,525
|
|
|
|
233,623
|
|
CASH FLOWS USED IN OPERATING ACTIVITIES
|
|
|
(5,058,813
|
)
|
|
|
(3,738,579
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(995,053
|
)
|
|
|
(10,915
|
)
|
Proceeds from sale of property and equipment
|
|
|
1,067,750
|
|
|
|
-
|
|
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES
|
|
|
72,697
|
|
|
|
(10,915
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Proceeds from notes payable
|
|
|
22,861
|
|
|
|
597,700
|
|
Repayments of notes payable
|
|
|
(284,736
|
)
|
|
|
(180,638
|
)
|
Proceeds from loans payable – related parties
|
|
|
69,758
|
|
|
|
246,801
|
|
Repayments of loans payable – related parties
|
|
|
(190,275
|
)
|
|
|
(7,682
|
)
|
Net (decrease) increase in due to factor
|
|
|
(695,820
|
)
|
|
|
691,027
|
|
Proceeds from long term debt and related stock warrants
|
|
|
5,400,000
|
|
|
|
2,100,000
|
|
Repayments of long term debt
|
|
|
-
|
|
|
|
(183,500
|
)
|
Proceeds from issuance of stock and warrants
|
|
|
-
|
|
|
|
1,147,500
|
|
Repurchase of treasury stock
|
|
|
-
|
|
|
|
(100,000
|
)
|
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES
|
|
|
4,321,788
|
|
|
|
4,311,208
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH
|
|
|
(664,328
|
)
|
|
|
561,714
|
|
Cash, beginning of period
|
|
|
714,178
|
|
|
|
152,464
|
|
Cash, end of period
|
|
$
|
49,850
|
|
|
$
|
714,178
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
604,012
|
|
|
$
|
91,912
|
|
|
|
|
|
|
|
|
|
|
NONCASH INVESTING AND FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Stock issued and warrants vested for services rendered
|
|
$
|
621,020
|
|
|
$
|
1,508,502
|
|
Debt financed inventory purchases
|
|
$
|
83,333
|
|
|
$
|
-
|
|
Debt financed property and equipment purchases
|
|
$
|
3,416,667
|
|
|
$
|
-
|
|
Capitalization of accrued interest into debt principal
|
|
$
|
210,667
|
|
|
$
|
-
|
|
Capital contribution – Advertising services
|
|
$
|
-
|
|
|
$
|
257,944
|
|
Conversion of accounts payable to notes payable - related party
|
|
$
|
-
|
|
|
$
|
21,000
|
|
Conversion of debt to stock
|
|
$
|
-
|
|
|
$
|
150,000
|
|
See accompanying consolidated note to financial statements.
PANACHE BEVERAGE, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Panache was incorporated in the State of Florida on December 28, 2004 under the name Biometrix International Inc. On May 30, 2007, the Company changed its name to BMX Development Corp.
On August 19, 2011, the Company completed a stock exchange transaction with Panache LLC, a New York limited liability company and in connection with such transaction changed its name to Panache Beverage Inc. to more accurately reflect its business. We currently own 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 James Dale, our current CEO, in exchange for total payments of $125,000 in cash; and
The Company issued to the Panache LLC members an amount equal to 17,440,000 new shares of the Company’s common stock in exchange for one hundred percent (100%) of the issued and outstanding membership interest units of Panache LLC from the Panache members.
In October 2013, the Company reincorporated in the State of Delaware.
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.
Panache Distillery, LLC (“Panache Distillery”) was organized as a limited liability company in the State of Florida on February 20, 2013 as a wholly owned subsidiary of Panache Beverage, Inc. On August 23, 2013, Panache Distillery closed on the purchase of a distillery in New Port Richey, Florida for a total purchase price of $4,200,000, of which $700,000 was paid in cash at closing and the remaining $3,500,000 shall be payable in the form of a Promissory Note to be held by the sellers. The distillery will offer full integration of domestic distillation, bottling and sales operations.
Panache IP Holdings, Inc. (“IP Holdings”) was organized as a domestic corporation in the State of Delaware on September 26, 2013 as a wholly owned subsidiary of Panache Beverage, Inc. IP Holdings was established to preserve the Company’s patented intellectual property and trademarks. As of December 31, 2013, IP Holdings is dormant with no activity.
Basis of consolidation
The consolidated financial statements include the accounts of Panache Beverage, Inc., Panache LLC, Wodka LLC, Alibi NYC, LLC, Panache Distillery, LLC and Panache IP Holdings, Inc. (collectively, the “Company”). All material intercompany transactions have been eliminated.
PANACHE BEVERAGE, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (Continued)
Basis of presentation
The financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”) and are presented in US dollars.
Accounting basis
The Company uses the accrual basis of accounting and US GAAP. The Company has adopted a December 31 fiscal year end. Certain reclassifications were made to the 2012 financial statements presentation in order to conform to the 2013 presentation. Such reclassifications had no effect on reported income.
Fair value of financial instruments
The Company’s financial instruments consist of cash and cash equivalents, restricted cash, accounts receivable, inventory, prepaid expenses, accounts payable, due to factor, notes payable, loans payable – related parties, accrued interest, and other current liabilities. The carrying amount of these financial instruments approximates fair value due either to the length of maturity or interest rates that approximate prevailing market rates unless otherwise disclosed in the financial statements.
Cash equivalents
Cash equivalents include bank demand deposits and all highly liquid investments with original maturities of three months or less. Restricted cash
of $200,150 and $0 was held in escrow as collateral for a bond on Panache Distillery as of December 31, 2013 and 2012, respectively. Restricted cash of $1,742,008 and $600,000 was
held in escrow pursuant to loan agreements described in Note 9 - Long Term Debt
as of December 31, 2013 and 2012, respectively
.
Accounts receivable
Trade accounts receivable are stated at the amount the Company expects to collect. We evaluate the collectability of accounts receivable based on a combination of factors. When we are aware of circumstances that may impair a specific customer’s ability to meet its financial obligations, we record a specific allowance to reduce the net recognized receivable to the amount we believe will be collected. We write off the uncollectible amount against the allowance when we have exhausted our collection efforts.
Inventory
Inventory, consisting of finished goods and raw materials, is stated at the lower of cost of market, with cost determined by the first-in, first-out method. Inventory consists of cases of bottled spirits, dry goods and bulk citrus.
Property and equipment
Property and equipment are stated at cost. The costs of additions and betterments are capitalized and expenditures for repairs and maintenance are expensed in the period incurred. When items of property and equipment are sold or retired, the related costs and accumulated depreciation are removed from the accounts and any gain or loss is included in income.
PANACHE BEVERAGE, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (Continued)
Depreciation of property and equipment, other than land, is provided commencing when the property and equipment is put in service utilizing the straight-line method over the estimated useful lives of the respective assets as follows:
Buildings and improvements
|
15 - 39 years
|
Distillery equipment
|
7 years
|
Office equipment
|
3 - 7 years
|
Vehicles
|
5 years
|
Leasehold improvements are amortized over the shorter of the lease or the estimated useful life of the improvement. Depreciation expense was $5,009 and $6,499 for years ended December 31, 2013 and 2012, respectively.
Income taxes
Income taxes are provided in accordance Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 740 “Income Taxes”. A deferred tax asset or liability is recorded for all temporary differences between financial and tax and net operating loss carry forwards.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or the entire deferred tax asset will not be realized. Deferred tax assets and liabilities are adjusted for the effect of changes in tax laws and rates on the date of enactment. No provision for income taxes has been made for the years ended December 31, 2013 and 2012 due to the Company’s loss position. The Company has fully reserved its deferred tax assets due to the uncertainty of the Company’s ability to generate net income in the future. See Note 15 - Income Taxes.
The Company recognizes and measures its unrecognized tax benefits in accordance with generally accepted accounting principles concerning income taxes. Under the guidance, the Company assesses the likelihood, based on their technical merit, that tax positions will be sustained upon examination based on the facts, circumstances and information available at the end of each period. The measurement of unrecognized tax benefits is adjusted when new information is available, or when an event occurs that requires a change. Tax years through 2010 are closed to further assessment by the Internal Revenue Service. It is the Company’s policy to classify interest and penalties on income taxes as interest expense or penalties expense. As of December 31, 2013, there have been no interest or penalties incurred on income taxes.
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 $6,778 and $30,576 during 2013 and 2012, respectively.
PANACHE BEVERAGE, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – (Continued)
Sales discounts are recorded as a reduction of revenues and totaled $0 and $59,079 for years ended December 31, 2013 and 2012, respectively.
From time to time the Company provides incentives to its customers in the form of free product. The costs associated with producing this product is included as an expense in costs of goods sold. No revenue is recognized with respect to such product giveaways. The Company gave away product costing $0 and $1,440 during 2013 and 2012, respectively.
Excise taxes
Our sales are subject to excise taxes, which we collect from our customers and remit to governmental authorities. We present these taxes on a net basis in the consolidated statement of operations.
Advertising
Advertising costs are expensed as incurred and aggregated $1,042,284 and $964,442 for the years ended December 31, 2013 and 2012, respectively.
Wodka received 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 $0 and $257,944 in relation to this arrangement for the years ended December 31, 2013 and 2012, respectively.
Shipping and handling
The costs of shipping and handling are included in cost of goods sold. Shipping and handling charges billed to customers offset cost of goods sold.
Use of estimates
The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Recently issued accounting standards
The Company has reviewed all recently issued, but not yet effective, accounting pronouncements and does not believe the future adoption of any such pronouncements may be expected to cause a material impact on its consolidated financial condition or the consolidated results of its operations.
NOTE 2 – ACCOUNTS RECEIVABLE
The Company grants customers standard credit terms as governed by the terms specified in the contracts. Our major customers receive payment credit terms that range between 30 and 60 days.
NOTE 2 – ACCOUNTS RECEIVABLE – (Continued)
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, an allowance for doubtful accounts of $0 and $430,402 was recorded as of December 31, 2013 and 2012.
Bad debt expense of $0 and $430,402 was recognized for the years ended December 31, 2013 and 2012, respectively.
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 $144,417 and $423,693 of professional fee expense in relation to these agreements for the years ended December 31, 2013 and 2012, respectively. Prepaid expenses relating to these agreements were $0 and $43,918 as of December 31, 2013 and December 31, 2012, respectively.
NOTE 4 – PROPERTY AND EQUIPMENT
Property and equipment consisted of the following as of December 31, 2013 and 2012:
|
|
December 31,
|
|
|
|
2013
|
|
|
2012
|
|
Land
|
|
$
|
144,745
|
|
|
$
|
-
|
|
Buildings and improvements
|
|
|
754,961
|
|
|
|
-
|
|
Distillery equipment
|
|
|
2,491,782
|
|
|
|
-
|
|
Office equipment
|
|
|
45,180
|
|
|
|
12,088
|
|
Vehicles
|
|
|
21,659
|
|
|
|
1,659
|
|
Leasehold improvements
|
|
|
5,000
|
|
|
|
5,000
|
|
|
|
|
3,463,327
|
|
|
|
18,747
|
|
Less: accumulated depreciation
|
|
|
(12,776
|
)
|
|
|
(7,766
|
)
|
Net property and equipment
|
|
$
|
3,450,551
|
|
|
$
|
10,981
|
|
On August 23, 2013, Panache Distillery, pursuant to an Asset Purchase Agreement, acquired all right, title and interest in and to certain assets owned by the Douglas Joint Venture, Empire Joint Venture, and V-3 Joint Venture, LLC, (collectively the "Sellers") located at 11807 Little Road, New Port Richey, Florida. This property includes land, buildings, and machinery used in the distillation, bottling and sales operations. As consideration, Panache Distillery paid to the Sellers a total purchase price of $4,200,000, of which $700,000 was paid in cash and the remaining $3,500,000 is payable in the form of a Promissory Note to be held by the Sellers. This property is expected to be producing product by the end of first quarter 2014.
PANACHE BEVERAGE, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
NOTE 5– FACTORING AGREEMENT
In the third quarter of 2012, the Company entered into a purchase and sale factoring agreement with a commercial factor whereby the Company sells certain Alchemia 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 75% of the net amount of eligible accounts receivable up to an initial maximum of $150,000 with a possible increased maximum of $300,000. In the fourth quarter of 2012, the agreement was expanded to include Wodka and Alibi accounts receivable with the initial limits of $250,000 for each brand and possible increased maximum of $1,000,000 and $500,000, respectively. The factor's purchase of the eligible accounts receivable includes a discount 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. In the second quarter of 2013, the agreement was amended to decrease the discount fee to 3.0% if paid within 30 days and 0.83% for each 10 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.
From time to time, the Company enters into purchase and sale factoring agreement with a different commercial factor whereby the Company sells certain accounts receivable to the factor. Under the terms of these agreements, 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.
In the third quarter of 2013, the Company entered into a factoring and advance agreement with a commercial factor whereby the Company sells its accounts receivables to the factor. Under the terms of the agreement, the factor may purchase individually or collectively any invoice of the Company if the Company agrees to sell them and make advances of amounts representing up to 85% of the net amount of eligible accounts receivable up to $2,000,000. The factor's purchase of the eligible accounts receivable includes a discount 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 and shall be 2.5% if paid within 30 days and 0.85% for each 10 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.
The combined balance due to the factors as of December 31, 2013 and December 31, 2012 was $312,500 and $1,008,320, respectively. Factor expense charged to operations for the years ended December 31, 2013 and 2012 amounted to $179,844 and $120,573, respectively.
PANACHE BEVERAGE, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
On June 11, 2013, the Company borrowed $22,860 from a third party at an interest rate of 7.20% per annum. The loan was used to finance directors’ and officers’ insurance and is due in nine equal monthly payments of $2,617. The balance of this loan was $5,187 as of December 31, 2013.
On November 15, 2012, Wodka borrowed $16,875 from a third party at an interest rate of 7.25% per annum. The loan was used to finance credit insurance and is due in three equal payments of $5,796 due December 15, 2012, March 15, 2013 and June 15, 2013. The Company repaid the loan in full on June 15, 2013. The balance of this loan was $0 and $11,283 as of December 31, 2013 and 2012, respectively.
On October 10, 2012, Alibi borrowed $300,000 from a third party via a Convertible Promissory Note (“Note”) maturing on October 31, 2013 with an interest rate of 15% per annum. The Note provided the holder with 120,000 warrants to purchase the Company’s common stock at a strike price of $1.25 and the option to convert the outstanding principal and interest of the Note into the Company’s common stock at a conversion price of $1.25. On December 17, 2012, the Company purchased the Note, stock warrants, and applicable accrued interest for $172,500 and 150,000 shares of the Company’s common stock. The balance of the loan on December 31, 2013 and 2012 was $0.
On September 14, 2012, the Company borrowed $250,000 from a third party for working capital purposes payable on January 15, 2013. Per the agreement, interest of $25,000 was paid via regular payments through the term of the loan. The Company repaid the loan in full on January 15, 2013. The balance of the loan as of December 31, 2013 and 2012 was $0 and $248,145, respectively.
On June 11, 2012, the Company financed its directors and officers insurance for $22,500 over nine monthly payments of $2,575 at 7.1%. The Company repaid the loan in full in 2013. The balance of the loan as of December 31, 2013 and 2012 was $0 and $7,633, respectively.
On August 11, 2011, the Company borrowed $28,000 from a third party for working capital purposes. The loan is non-interest bearing and payable on demand. The balance of this loan was $28,000 as of December 31, 2013 and December 31, 2012.
NOTE 7 – 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 December 31, 2013 and 2012. 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 will 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.
On July 10, 2012, the Company entered into a loan agreement with its chief executive officer and majority shareholder whereby it borrowed $150,000 at an interest rate of 24% per annum. The loan agreement provided the chief executive officer with the option to convert the outstanding loan balance into shares of Panache Beverage, Inc. common stock at $1.00 per share. The loan agreement also allowed the Company to borrow an additional $50,000 under the same terms, which the Company did on August 16, 2012. Per the terms of the agreement, the loan was to be repaid within four months of its commencement. The Company repaid the loan on February 14, 2013. The balance of the loan as of December 31, 2013 and 2012 was $0 and $191,960, respectively.
PANACHE BEVERAGE, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
NOTE 7 – LOANS PAYABLE – RELATED PARTIES – (Continued)
Because the conversion feature was at a share price less than the Company’s share price at the time of the loan, it is deemed beneficial to the holder. As such, generally accepted accounting principles required the Company to record the intrinsic value of the conversion feature as additional paid in capital and record a
corresponding discount on the loan payable. This discount was amortized to interest expense over the life of the loan. The full $25,000 discount on the loan payable due to the intrinsic value of the conversion feature was amortized to interest expense over the four month term of the loan in 2012.
The Company had additional loans payable to related parties totaling $253,231 and $181,788 at December 31, 2013 and 2012, respectively. The loans are unsecured and non-interest bearing with no stated payment terms. Proceeds from the loans were used to fund operations.
NOTE 8 – OTHER CURRENT LIABILITIES
Other current liabilities consisted of the following:
|
|
|
|
|
|
|
Commissions payable
|
|
$
|
-
|
|
|
$
|
171,778
|
|
Excise taxes payable
|
|
|
75,954
|
|
|
|
75,954
|
|
Customer deposits
|
|
|
9,561
|
|
|
|
115,464
|
|
Accrued salaries
|
|
|
330,374
|
|
|
|
138,900
|
|
Deferred revenue
|
|
|
100,000
|
|
|
|
-
|
|
Accrued expenses and other liabilities
|
|
|
103,723
|
|
|
|
66,991
|
|
Total other current liabilities
|
|
$
|
619,612
|
|
|
$
|
569,087
|
|
NOTE 9 – LONG TERM DEBT
On August 22, 2013, pursuant to an Amendment to the Asset Purchase Agreement for the purchase of the Panache Distillery previously executed on May 15, 2013 between the parties, the Company issued a promissory note for $3,500,000 to Douglas Joint Venture, Empire Joint Venture, and V-3 Joint Venture, LLC (“the Sellers”) due on August 22, 2016 and bearing interest at 6% per annum. Interest is payable semiannually in arrears. The promissory note is secured by a first lien Purchase Money Mortgage and Security Agreement secured by the Purchased Assets. The balance of this note as of December 31, 2013 was $3,500,000.
On May 9, 2013, Panache Beverage, Inc. issued a promissory note to Consilium Corporate Recovery Master Fund, Ltd, which resulted in gross proceeds of $4,000,000 before fees and other expenses associated with the transaction (the “$4,000,000 Note”).
The note bears interest at 8% per annum with interest payable quarterly in arrears starting on March 31, 2014. Interest accrued through December 31, 2013 was capitalized and added to the principal. A final payment of all principal due under the promissory note, plus accrued interest to date, shall be made on May 9, 2016. On December 31, 2013, the Company capitalized $210,667 of interest into the principal of the note. The balance of the note as of December 31, 2013 was $4,210,667.
The Company agreed to retain a portion of this loan in escrow to be released in accordance with annual budgets approved by the lender. In March 2014, the Company and Consilium Corporate Recovery Master Fund, Ltd entered into an agreement that extended the maturity date of the $4,000,000 Note to May 9, 2017.
On February 14, 2013, pursuant to a Term Loan Agreement dated February 14, 2013 (“2013 Loan Agreement”) between the parties, the Wodka issued a promissory note for $1,400,000 to Consilium Corporate Recovery Master Fund, LTD due on February 14, 2016 and bearing interest at 12% per annum (the “$1,400,000 Note”). Interest is payable quarterly in arrears. The Company is using the proceeds to fund operations and repay existing debt. The Company pledged its tangible and intangible assets pursuant to the 2013 Loan Agreement and agreed to retain $800,000 of the proceeds in escrow to be released in accordance with annual budgets approved by the lender. In March 2014, the Company and Consilium Corporate Recovery Master Fund, Ltd entered into an agreement that extended the maturity date of the $1,400,000 Note to May 9, 2017.
PANACHE BEVERAGE, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
NOTE 9 – LONG TERM DEBT – (Continued)
On December 21, 2012, pursuant to a Term Loan Agreement (“Loan Agreement”) between the parties, the Company issued a promissory note for $2,100,000 to Consilium Corporate Recovery Master Fund, Ltd. due on December 31, 2015 and bearing interest at 12% per annum (the “$2,100,000 Note”). Interest is payable quarterly in arrears. The Company is using the proceeds to fund operations and repay existing debt. The Company pledged its tangible and intangible assets pursuant to the Loan Agreement and
agreed to retain $600,000 of the proceeds in escrow to be released in accordance with annual budgets approved by the lender. Concurrent with the issuance of the note, the managing director of Consilium Investment Management, LLC (“Consilium”) was appointed to the Board of Directors of the Company. The balance of this note as of December 31, 2013 and 2012 is $2,100,000. In March 2014, the Company and Consilium Corporate Recovery Master Fund, Ltd entered into an agreement that extended the maturity date of the $2,100,000 Note to May 9, 2017.
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 loan was personally guaranteed by a related party. Panache Beverage, Inc. purchased the loan from the individual investor on December 31, 2012. The Company’s obligation under this loan is $0 as of December 31, 2013 and 2012.
On January 1, 2012, the Company engaged this individual lender to provide business advisory services in exchange for 100,000 shares of common stock.
Future maturities of debt as of December 31, 2013 are as follows:
For the year ended:
|
|
|
|
December 31, 2014
|
|
$
|
531,418
|
|
December 31, 2015
|
|
|
-
|
|
December 31, 2016
|
|
|
3,500,000
|
|
December 31, 2017
|
|
|
7,710,667
|
|
December 31, 2018
|
|
|
-
|
|
|
|
$
|
11,742,085
|
|
NOTE 10 – RELATED PARTY TRANSACTIONS
On May 9, 2013, Panache Beverage, Inc. issued a promissory note to Consilium Corporate Recovery Master Fund, which resulted in gross proceeds of $4,000,000 before fees and other expenses associated with the transaction. The note will bear interest at 8% per annum with interest payable quarterly in arrears starting on March 31, 2014. Interest accrued through December 31, 2013 shall be capitalized and added to the principal. A final payment of all principal due under the promissory note, plus accrued interest to date, shall be made on May 9, 2016. On December 31, 2013, the Company capitalized $210,667 of interest into the principal of the note. The balance of the note as of December 31, 2013 is $4,210,667.
On February 14, 2013, pursuant to a Term Loan Agreement dated February 14, 2013 (“2013 Loan Agreement”) between the parties, Wodka issued a promissory note for $1,400,000 to Consilium Corporate Recovery Master Fund, LTD due on February 14, 2016 and bearing interest at 12% per annum. Interest is payable quarterly in arrears. The Company is using the proceeds to fund operations and repay existing debt. The Company pledged its tangible and intangible assets pursuant to the 2013 Loan Agreement and agreed to retain $800,000 of the proceeds in escrow. The balance of the note as of December 31, 2013 is $1,400,000.
In 2013, MGR Eventures, a company owned by an executive of the Company, organized a number of marketing events and created focused brand opportunities for Alibi and Wodka by supplying operations, programming and an audience. The Company paid $23,000 to MGR Eventures for services rendered in 2013.
PANACHE BEVERAGE, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
NOTE 10 – RELATED PARTY TRANSACTIONS – (Continued)
On December 21, 2012, pursuant to a Term Loan Agreement (“Loan Agreement”) between the parties, the Company issued a promissory note for $2,100,000 to Consilium Corporate Recovery Master Fund, Ltd. due on December 31, 2015 and bearing interest at 12% per annum. Interest is payable quarterly in arrears. The Company is using the proceeds to fund operations and repay existing debt. The Company pledged its tangible and intangible assets pursuant to the Loan Agreement and agreed to retain $600,000
of the proceeds in escrow. Concurrent with the issuance of the note, the managing director of Consilium was appointed to the Board of Directors of the Company.
The balance of the note as of December 31, 2013 and 2012 was $2,100,000.
On February 14, 2013, the Company issued Consilium warrants to purchase up to 1,840,000 shares of the Company’s common stock at an exercise price of $0.50 per share in exchange for consulting services to be provided over four years. The warrants vest in eight equal tranches every six months over the consulting period. The exercise of the warrants is limited pursuant to a blocker provision contained in the warrants so that the warrants may only be exercised to extent that Consilium’s beneficial ownership does not exceed 4.99% of the issued and outstanding shares of common stock after taking into account the exercise of the warrant. Such amount may be increased or decreased by Consilium upon 61 days prior written notice to the Company. The warrants expire on February 14, 2018. The Company valued the stock warrants at $740,968 using the Black Scholes model.
On December 21, 2012, the Company also issued Consilium warrants to purchase up to 2,760,000 shares of the Company’s common stock at an exercise price of $0.50 per share in exchange for consulting services to be provided over four years. The warrants vest in eight equal tranches every six months over the consulting period. The exercise of the warrants is limited pursuant to a blocker provision contained in the warrants so that the warrants may only be exercised to extent that Consilium’s beneficial ownership does not exceed 4.99% of the issued and outstanding shares of common stock after taking into account the exercise of the warrant. Such amount may be increased or decreased by Consilium upon 61 days prior written notice to the Company. The warrants expire on December 21, 2017. The Company valued the stock warrants at $1,229,304 using the Black Scholes model.
The Company has recognized $474,559 and $8,351 of consulting expense in relation to these warrant agreements with Consilium for consulting services for the year ended December 31, 2013 and 2012 respectively.
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 December 31, 2013 and December 31, 2012.
In addition, the Company received various loans from related parties to fund operations. The related party loans totaled $253,231 and $181,788 at December 31, 2013 and 2012, respectively, and are unsecured and non-interest bearing with no stated payment terms.
NOTE 11 – COMMITMENTS AND CONTINGENCIES
On May 2, 2013, the Company settled its dispute with Incubrands Spirits Group (“Incubrands”) concerning an equity agreement with a predecessor of the Company dated April 30, 2007. Per the terms of the settlement, the Company agreed to pay Incubrands 40,000 shares of the Company’s common stock and $84,000 payable over ninety days. As of December 31, 2013, the dispute amount has been paid off in full.
On August 8
th
2013 we entered into an agreement with Engine Shop LLC, having an office at 150 Fifth Avenue, 3
rd
Floor, New York, NY 10011, to sublease administrative space for $5,000 per month until January 30, 2018. We feel this is adequate for our present and planned future operations. We have the right to terminate the sublet agreement with 30 days’ notice.
PANACHE BEVERAGE, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
NOTE 12 – STOCK BASED COMPENSATION
The Company recognized $42,500 of compensation expense for the year ended December 31, 2013 in relation to the grants of 35,000 shares of common stock as stock-based compensation. The Company recognized $233,150 of compensation expense for the year ended December 31, 2012 in relation to the grants of 176,000 shares of common stock as stock-based compensation. The shares immediately vested and the fair value of this stock issuance was determined by the value of the services provided.
On June 30, 2013, the Company issued a director warrants to purchase 15,000 shares of common stock at an exercise price of $1.50 with an expiration date of June 30, 2015. The warrants vested on December 31, 2013.
On August 15, 2013, the Company issued an employee warrants to purchase 10,000 shares of common stock at an exercise price $1.50 with an expiration date of August 15, 2016. The warrants vested immediately.
On September 30, 2013, the Company issued a director warrants to purchase 15,000 shares of common stock at an exercise price of $1.50 with an expiration date of September 30, 2015. The warrants vest on March 31, 2014.
On December 31, 2013, the Company issued a director warrants to purchase 15,000 shares of common stock at an exercise price of $1.50 with an expiration date of December 31, 2015. The warrants vest on June 30, 2014.
The fair value of all the above warrants issued to employees and directors was estimated to be $2,172 using the Black Scholes model with the following weighted average assumptions:
Risk free rate
|
|
|
0.4
|
%
|
Expected dividend yield
|
|
|
0.0
|
%
|
Expected volatility
|
|
|
80
|
%
|
Expected life of options
|
|
2.18 years
|
Exercise price
|
|
$
|
1.50
|
|
Stock price on issuance date
|
|
$
|
0.35
|
|
On December 21, 2012, pursuant to the 2012 Non-Qualified Stock and Option Compensation Plan, the Company issued warrants to purchase 2,700,000 shares of common stock at an exercise price of $1.00 per share with an expiration date of December 21, 2015. The warrants vest in two equal tranches on December 31, 2013 and December 31, 2014. The fair value of the warrants was estimated at the grant date to be $765,720 using the Black Scholes model with the following weighted average assumptions:
Risk free rate
|
|
|
0.2
|
%
|
Expected dividend yield
|
|
|
0.0
|
%
|
Expected volatility
|
|
|
95
|
%
|
Expected life of options
|
|
3.00years
|
Exercise price
|
|
$
|
1.00
|
|
Stock price on issuance date
|
|
$
|
0.59
|
|
The Company has recognized $564,981 and $15,734 of stock compensation expense relating to warrants issued to employees and directors for the year ended December 31, 2013 and December 31, 2012, respectively.
PANACHE BEVERAGE, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
NOTE 13 – STOCKHOLDERS’ EQUITY (DEFICIT)
Stock Issuances
In 2013, the Company did not issue any common stock for cash proceeds. In 2012, the Company issued 710,000 shares of commons stock and 586,250 stock warrants for cash proceeds of $857,000. 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
|
|
|
73
|
%
|
Expected life of options
|
|
1.20 years
|
Exercise price
|
|
$
|
1.74
|
|
Stock price on issuance date
|
|
$
|
1.28
|
|
Based on this calculation, the Company determined the value of the common stock was $732,183 and the value of the stock warrants was $125,317 at issuance.
On January 24, 2013, the Company entered into a mutual release with a consultant whereby it issued 200,000 shares of the Company’s common stock in consideration and final payment for all compensation due pursuant to a consulting agreement between the parties. The Company valued the shares at $0.60 per share and recognized $120,000 of expense for the year ended December 31, 2013.
On March 12, 2013, the Company engaged a law firm to provide counsel in exchange for 15,000 shares of the Company’s common stock. The Company valued the shares at $0.60 per share and recognized and $9,000 of professional fees for the year ended December 31, 2013.
On April 1, 2013, the Company engaged an individual consultant to provide marketing services in exchange for 5,000 shares of the Company’s common stock. The Company valued the shares at $1.00 per share and recognized $5,000 of professional fees for the year ended December 31, 2013.
As noted above in Note 11 – Commitments and Contingencies, the Company settled a dispute on May 2, 2013 in part by issuing 40,000 shares of its common stock.
As noted above in Note 6 – Notes Payable, the Company issued 150,000 shares of the Company’s common stock and paid $172,500 on December 17, 2012 to satisfy a note payable and previously issued stock warrants.
On December 12, 2012, the Company engaged a law firm to provide counsel in exchange for 25,000 shares of the Company’s common stock. The Company valued the shares at $0.60 per share and recognized $0 and $15,000 of professional fees for the years ended December 31, 2013 and 2012, respectively.
On October 1, 2012, the Company engaged an individual to provide consulting services from October 1, 2012 to October 1, 2013 in exchange for 22,000 shares of common stock. The Company valued the common stock at $27,500, which was the value of the services provided. The Company recognized $9,375 and $18,125 of professional fees expense in relation to this agreement for the years ended December 31, 2013 and 2012, respectively.
PANACHE BEVERAGE, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
NOTE 13 – STOCKHOLDERS’ EQUITY (DEFICIT) – (Continued)
Stock Issuances – (Continued)
On July 11, 2012, the Company engaged a consulting firm to provide corporate consulting services for six months in exchange for 50,000 shares of common stock. The Company valued the common stock at $50,000, which was the value of the services provided. The Company recognized $5,376 and $44,624 of professional fee expense for the years ended December 31, 2013 and 2012, respectively.
On May 30, 2012, the Company engaged a marketing firm to provide business advisory services from May 30, 2012 to May 30, 2013 in exchange for 20,000 shares of common stock. The Company valued the common stock at $25,000, which was the value of the services provided. The Company recognized $10,417 and $14,583 of professional fee expense during years ended December 31, 2013 and 2012, respectively.
On April 1, 2012, the Company engaged a consulting firm to provide business advisory services from April 1, 2012 to June 30, 2012 in exchange for 150,000 shares of common stock. The Company valued the common stock at $150,000, which was the value of the services provided. The Company recognized $0 and $150,000 of professional fee expense for the years ended December 31, 2013 and 2012, respectively.
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 2012 and accordingly recognized $0 and $20,000 of professional fee expense for years ended December 31, 2013 and 2012, respectively.
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 $0 and $100,000 of professional fee expense for the years ended December 31, 2013 and 2012, respectively.
As noted above in Note 9 - 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 $0 and $100,000 of professional fee expense for the years ended December 31, 2013 and 2012, respectively.
Treasury Stock
On June 30, 2012 the Company’s Board of Directors passed a resolution to repurchase 50,000 shares of the Company’s common stock from an executive officer for $50,000. On December 4, 2012, the Company repurchased 50,000 shares of the Company’s common stock from a shareholder for $50,000. On December 26, 2012, the Company issued 50,000 shares out of treasury for a cash investment of $50,000 from a director. On December 28, 2012, the Company’s Board of Directors passed a resolution to repurchase an additional 50,000 shares from an executive officer for $50,000. On December 28, 2012, the Company’s Board of Director’s passed a resolution to retire 100,000 treasury shares.
PANACHE BEVERAGE, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
NOTE 13 – STOCKHOLDERS’ EQUITY (DEFICIT) – (Continued)
Treasury Stock – (Continued)
On December 26, 2012, the Company issued 50,000 shares out of treasury for a cash investment of $50,000 from a director. On December 28, 2012, the Company’s Board of Directors passed a resolution to repurchase an additional 50,000 shares from an executive officer for $50,000. On December 28, 2012, the Company’s Board of Director’s passed a resolution to retire 100,000 treasury shares.
Warrants
On February 14, 2013, as noted above, the Company issued Consilium warrants to purchase up to 1,840,000 shares of the Company’s common stock at an exercise price of $0.50 per share in exchange for consulting services to be provided over four years. The warrants vest in eight equal tranches every six months over the consulting period. The exercise of the warrants is limited pursuant to a blocker provision contained in the warrants so that the warrants may only be exercised to extent that Consilium’s beneficial ownership does not exceed 4.99% of the issued and outstanding shares of common stock after taking into account the exercise of the warrant. Such amount may be increased or decreased by Consilium upon 61 days prior written notice to the Company. The warrants expire on February 14, 2018. The Company valued the stock warrants at $740,968 using the Black Scholes model with the following assumptions:
Risk free rate
|
|
|
0.9
|
%
|
Expected dividend yield
|
|
|
0.0
|
%
|
Expected volatility
|
|
|
99
|
%
|
Expected life of options
|
|
5.00 years
|
|
Exercise price
|
|
$
|
0.50
|
|
Stock price on issuance date
|
|
$
|
0.54
|
|
On December 21, 2012, the Company issued Consilium warrants to purchase up to 2,760,000 shares of the Company’s common stock at an exercise price of $0.50 per share in exchange for consulting services to be provided over four years. The warrants vest in eight equal tranches every six months over the consulting period. The exercise of the warrants is limited pursuant to a blocker provision contained in the warrants so that the warrants may only be exercised to extent that Consilium’s beneficial ownership does not exceed 4.99% of the issued and outstanding shares of common stock after taking into account the exercise of the warrant. Such amount may be increased or decreased by Consilium upon 61 days prior written notice to the Company. The warrants expire on December 21, 2017. The Company valued the stock warrants at $1,229,304 using the Black Scholes model with the following assumptions:
Risk free rate
|
|
|
0.8
|
%
|
Expected dividend yield
|
|
|
0.0
|
%
|
Expected volatility
|
|
|
98
|
%
|
Expected life of options
|
|
5.00 years
|
|
Exercise price
|
|
$
|
0.50
|
|
Stock price on issuance date
|
|
$
|
0.59
|
|
The Company is amortizing the value of both Consilium warrant issuances to consulting expense ratably over the four year consulting periods. The Company has recognized $474,559 and $8,351 of consulting expense for the years ended December 31, 2013 and 2012, respectively.
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.
PANACHE BEVERAGE, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
NOTE 13 – STOCKHOLDERS’ EQUITY (DEFICIT) – (Continued)
Warrants – (Continued)
The following table shows the warrant activity for the year ended December 31, 2013:
Warrants
|
|
Number of
Warrants
|
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Remaining
Term
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding as of January 1, 2013
|
|
|
6,263,750
|
|
|
$
|
0.86
|
|
|
|
|
|
Issued
|
|
|
1,905,000
|
|
|
$
|
0.53
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(803,750
|
)
|
|
|
|
|
|
|
|
|
Outstanding of December 31, 2013
|
|
|
7,365,000
|
|
|
$
|
0.69
|
|
3.26 years
|
|
$
|
-
|
|
NOTE 14 – NON-CONTROLLING INTERESTS
As of December 31, 2013 and December 31 2012, the non-controlling interests balance was $(1,202,804) and $(486,422), 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 year ended December 31, 2013 and 2012, $1,360,087 and $688,653 respectively, of Wodka’s net loss was allocated to Panache and $716,382 and $620,670, respectively, was allocated to non-controlling interests.
PANACHE BEVERAGE, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
NOTE 15 – INCOME TAXES
No provision for income taxes has been made for the years ended December 31, 2013 and 2012. See Note 1 for a discussion on our policies regarding income taxes.
Temporary differences in the basis of assets and liabilities for consolidated financial statement and income tax reporting arise from the tax loss carryforwards generated by the Company in the current year.
Components of deferred income tax balances consist of the following:
|
|
December 31,
|
|
|
|
2013
|
|
|
2012
|
|
Deferred income tax assets
|
|
|
|
|
|
|
Net operating loss carryforward
|
|
$
|
2,004,441
|
|
|
$
|
986,333
|
|
Other
|
|
|
(52,748
|
)
|
|
|
1,757
|
|
Valuation allowance
|
|
|
(1,951,693
|
)
|
|
|
(988,090
|
)
|
|
|
$
|
-
|
|
|
$
|
-
|
|
The deferred income tax assets include federal net operating loss carryforwards of $9,069,923 as of December 31, 2013. These net operating loss carryforwards start to expire in the year ending December 31, 2031.
As of December 31, 2012, the Company had no assurance that future taxable income would be sufficient to fully utilize the net operating loss carryforwards in the future. Consequently, the Company determined that a valuation allowance of $1,951,693 was needed as of December 31, 2013.
NOTE 16 – CONCENTRATIONS AND RISK
Major customers
The Company had two customers representing approximately 76% of revenues for the year ended December 31, 2013. The Company did not have any receivables from these customers as of December 31, 2013.
The Company had two customers representing approximately 85% of revenues for the year ended December 31, 2012. These customers represented approximately 79% of the receivables outstanding as of December 31, 2012.
Major suppliers
The Company had two suppliers represent approximately 98% of purchases for the year ended December 31, 2013. These suppliers represented approximately 4% of the payables outstanding as of December 31, 2013.
The Company had two suppliers representing approximately 98% of purchases for the year ended December 31, 2012. These suppliers represented approximately 52% of the payables outstanding as of December 31, 2012.
PANACHE BEVERAGE, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
NOTE 16 – CONCENTRATIONS AND RISK – (Continued)
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 17 – LOSS PER SHARE
Basic net loss per share is computed using the weighted average number of common shares outstanding during the years ended December 31, 2013 and 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:
|
|
Years ended
December 31,
|
|
|
|
2013
|
|
|
2012
|
|
Numerator:
|
|
|
|
|
|
|
Net loss attributable to
Panache Beverage, Inc.
|
|
$
|
(4,582,669
|
)
|
|
$
|
(3,267,065
|
)
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
27,022,028
|
|
|
|
26,137,361
|
|
|
|
|
|
|
|
|
|
|
Basic net loss per share
|
|
$
|
(0.17
|
)
|
|
$
|
(0.12
|
)
|
NOTE 18 – 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 December 31, 2013, the Company had an accumulated deficit of $10,366,003. 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 certain operating expenses; (b) increase and diversification of revenue streams; and (c) 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 December 31, 2014. 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.
PANACHE BEVERAGE, INC.
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
NOTE 19 – SUBSEQUENT EVENTS
In March 2014, the Company and Consilium Corporate Recovery Master Fund, Ltd entered into an agreement that extended the maturity dates of the $4,000,000 Note, the $1,400,000 Note and the $2,100,000 Note to May 9, 2017.
The Company has evaluated subsequent events through the date on which these financial statements were available to be issued.