WDKA - Panache Beverage sees Revenue and Margin Growth

Zacks Small Cap Research

By Ken Nagy, CFA

On August 20, 2012, Panache Beverage Inc. (OTC Markets:WDKA), an alcoholic beverage company that specializes in the development, global sales, and marketing of spirits brands, reported financial results for its fiscal 2012 second quarter and six months ended June 30, 2012.

Second quarter revenue soared over 68 percent or $272,529 year over year from $398,512 for the second quarter fiscal 2011 to $671,041 for the three months ended June 30, 2012.

The jump in revenues for the fiscal 2012 second quarter was due to the implementation of marketing strategies in new markets and growth in existing markets as well as a substantial increase in international market sales.

Still, net loss for stockholders was $760,038 for the fiscal 2012 second quarter compared to net loss for stockholders of $102,576 for three months ended June 30, 2011. The year over year increase in net loss for the three months ended June 30, 2012 was a result of higher operating expenses and net loss allocated to non-controlling interests.

Total operating expense increased year over year by $391,610 to $1.092 million from $700,997 for the comparable three months of 2011.

The increase in operating expenses during the three months ended June 30, 2012 compared to the comparable three months of 2011 was the result of Panache incurring substantial accounting and legal expenses, as well as financial consulting, research, and investor relations expenditures as a result of becoming a public company and of its rapid growth.

Still, a substantial portion of these fees were paid in stock of Panache Beverage Inc. to alleviate pressure on cash reserves.

Net loss attributable to non controlling interest was $111,830 for the three months ended June 30, 2012 compared to $621,794 for the comparable three months of 2011.

However, gross margin exploded year over year from 2.7 percent in the first quarter of 2011, up to 34.7 percent for the three months ended June 30, 2012.The jump in gross margin was primarily a result of increased efficiencies in operations and higher gross profit on international sales, which accounted for a higher percentage of sales in 2012.

Based on a weighted average number of basic and diluted shares of 26.332 million, basic and diluted net loss per share resulted in a net loss of $0.03 per share for the second quarter of fiscal 2012.

Revenue for the first half of 2012 jumped nearly 25 percent or $207,832 year over year to $1.039 million from $831,692 for the first six months of 2011.

Here again, the jump in revenues for the first half of fiscal 2012 was due to the implementation of marketing strategies in new markets and growth in existing markets as well as a substantial increase in international market sales.

Still, net loss attributable to Panache was $1.595 million for the fiscal 2012 first half compared to net loss attributable to Panache of $16,336 for six months ended June 30, 2011.

Again, the year over year increase in net loss for the six months ended June 30, 2012 was a result of higher operating expenses and less loss allocated to non-controlling interests.

Total operating expense increased year over year by $934,732 to $2.322 million from $1.387 million for the comparable six months of 2011.

Once more, the increase in operating expenses during the six months ended June 30, 2012 compared to the comparable six months of 2011 was the result of Panache incurring substantial accounting and legal expenses, as well as financial consulting, research, and investor relations expenditures as a result of becoming a public company and of its rapid growth.

Still, a substantial portion of these fees were paid in stock of Panache Beverage Inc. to alleviate pressure on cash reserves.

Net loss attributable to non controlling interest was $406,309 for the six months ended June 30, 2012 compared to $1.221 million for the comparable three months of 2011.

Gross margin jumped year over year from 22.2 percent in the first half of 2011, up to 33 percent for the six months ended June 30, 2012.

Once again, the jump in gross margin was primarily a result of increased efficiencies in operations and higher gross profit on international sales, which accounted for a higher percentage of sales in 2012.

Based on a weighted average number of basic and diluted shares of 25.839 million, basic and diluted net loss per share resulted in a net loss of $0.06 per share for the first half of fiscal 2012.

The Company ended the quarter with $21,242 in cash and equivalents and a working capital deficit of $1.347 million. This compares to $100,961 in cash and equivalents and a working capital deficit of $1.05 million as of June 30, 2012.

Still, it should be noted that management projects that Panache will need additional capital of $1.650 million to fund operations over the next 12 months.
However, overall, the Company has funded cash needs from inception through June 30, 2012 with a series of debt and equity transactions, primarily with related parties.

Still, Panache continues its strategy of strengthening its position in the development, global sales and marketing of spirits brands. Furthermore, the Company plans to expand its operations through aggressively marketing its products and concept.

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