Aristocrat Group Corp. was incorporated in Florida on July 20, 2011 to open Prenatal-Postpartum Supercare Centers (“Supercare Centers”) in target areas across the United States. Under the original business plan, the Supercare Centers will provide women who are planning to start a family, are pregnant or have recently had a baby, with a one-stop destination offering pregnancy, childbirth and parenting educational classes, nutritional counseling health and fitness classes and training and spa services, internet shopping for women’s and infant’s products related to pregnancy though the first year of the infant’s life. The Company has not yet implemented this business plan and is unsure when the business plan will be implemented.
The Board of Directors believed that to continue to protect and increase shareholder value, it would be to the advantage, welfare and best interests of the shareholders for the Company to consider alternative corporate strategies to generate new business revenue for the Company. Thus, the Board of Directors approved adding a second business to the Company’s business plan: Luxuria Brands, a focused brand management company. The primary focus from this point forward will be on Luxuria Brands.
In connection with our Luxuria Brands business plan, on January 15, 2013, we formed Top Shelf Distributing, LLC (“Top Shelf”) as our wholly-owned subsidiary. Top Shelf will be focused on developing our distilled spirits line of business. During the three months ended October 31, 2013, we acquired inventory and began to generate modest revenues from the sales of vodka under the Luxuria Brands business line.
The new business line’s goal will be to identify and promote unique brands that have a mass-market appeal across a diverse demographic. The approach by Luxuria Brands will be to select product opportunities that have the largest audience and broad market appeal.
Luxuria Brands will initially concentrate on the distilled spirits industries, with a focus on the vodka segment. As a core direction, alcohol beverage 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.
On November 1, 2013, the Company signed a joint venture agreement with Westcoast Spirits Company, Ltd. (“WSCL”). The purpose of the joint venture is to export and distribute the Company’s distilled spirits in Canada. Under the terms of the joint venture agreement, the Company will provide funding of up to $125,000 in monthly payments of $12,500. The Company will also provide oversight for the rollout of its products in Canada. WSCL will operate the joint venture and will take all steps necessary for the import and marketing of the Company’s products in Canada. Under the terms of the joint venture agreement, the Company will receive 15% of the profit of the joint venture.
Critical Accounting Policies
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 condensed consolidated financial statements.
While we believe that the historical experience, current trends and other factors considered support the preparation of our condensed 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, 2013 on Form 10-K.
Results of Operations
Nine months ended April 30, 2014 compared to the nine months ended April 30, 2013.
Revenue
Revenue increased to $14,837 for the nine months ended April 30, 2014, compared to $0 for the nine months ended April 30, 2013 because the Company’s first began selling vodka during fiscal year 2014.
Cost of Goods Sold
Cost of goods sold increased to $9,605 for the nine months ended April 30, 2014, compared to $0 for the comparable period in 2013 due to the commencement of sales.
Gross Profit
Gross profit increased to $5,232 for the nine months ended April 30, 2014, compared to $0 for the nine months ended April 30, 2013. This was due to the launch of our product.
General and Administrative Expenses
We recognized general and administrative expenses in the amount of $697,775 and $355,731 for the nine months ended April 30, 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 increases in professional fees.
Interest Expense
Interest expense increased from $8,239 for the nine months ended April 30, 2013 to $131,614 for the nine months ended April 30, 2014. Interest expense for the nine months ended April 30, 2014 included amortization of discount on convertible notes payable in the amount of $87,395, compared to $6,866 for the comparable period of 2013. The remaining amount of interest expense is the result of the Company entering into interest-bearing convertible notes payable during fiscal 2014.
Net Loss
We incurred a net loss of $824,157 for the nine months ended April 30, 2014 as compared to $363,970 for the comparable period of 2013. The increase in the net loss was the result of the increased general and administrative expenses and interest expense discussed above.
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Three months ended April 30, 2014 compared to the three months ended April 30, 2013.
Revenue
Revenue increased to $3,801 for the three months ended April 30, 2014, compared to $0 for the three months ended April 30, 2013 due to the commencement of product sales in the 2014 fiscal year.
Cost of Goods Sold
Cost of goods sold increased to $2,473 for the three months ended April 30, 2014, compared to $0 for the comparable period in 2013 due to the commencement of product sales in the 2014 fiscal year.
Gross Profit
Gross profit increased to $1,328 for the nine months ended April 30, 2014, compared to $0 for the three months ended April 30, 2013 due to the commencement of product sales in the 2014 fiscal year.
General and Administrative Expenses
We recognized general and administrative expenses in the amount of $230,690 and $178,550 for the three months ended April 30, 2014 and ended 2013, respectively. This increase was due to costs incurred in connection with the launch of our vodka sales, increased spending on marketing and increases in professional fees.
Interest Expense
Interest expense increased from $8,239 for the three months ended April 30, 2013 to $95,108 for the nine months ended April 30, 2014. This was primarily due to the amortization of the discount on convertible notes payable, including $35,766 that was related to the conversion of these notes into common shares.
Net Loss
We incurred a net loss of $324,470 for the three months ended April 30, 2014 as compared to $186,789 for the comparable period of 2013. The increase in the net loss was the result of the increased general and administrative expenses and interest expense discussed above.
Liquidity and Capital Resources
At April 30, 2014, we had cash on hand of $49,511. The Company has negative working capital of $330,190 . Net cash used in operating activities for the nine months ended April 30, 2014 was $561,126. 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.
The Company anticipates it will require around $1,000,000 to sustain operations and implement its business plan over the next twelve months. The Company intends to seek to raise these funds through equity and debt financing; however, there is no guarantee that funds will be raised and the Company has no agreements in place as of the date of this filing for any financing.
We do not have any material commitments for capital expenditures. However, should we execute our business plan as anticipated, we would incur substantial capital expenditures and require financings in addition to what is required to fund our present operations.
Off Balance Sheet Arrangements
The Company has no off-balance sheet arrangements as of April 30, 2014.
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