UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





FORM 10-K





ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF


THE SECURITIES EXCHANGE ACT OF 1934





For the fiscal year ended September 30, 2010





Commission file number 333-156612





ENCORE BRANDS, INC.


(Exact name of registrant as specified in its charter)





Nevada
26-3597500(State or other jurisdiction of incorporation or organization)
(IRS Employer Identification No.)





502 East John Street, Carson City, NV 89706


(Address of principal executive offices)    (Zip Code)





Registrant’s telephone number, including area code: (310) 699-9937





Securities registered pursuant to Section 12(b) of the Act: None





Title Of Each Class

Name of Each Exchange

on Which Registered_________________________

___________________________





Securities registered under Section 12(g) of the Exchange Act: None.






Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes [   ]  No [X]





Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes [   ]  No [X]





Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes [X]  No [   ]





Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [   ]





Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.





Large accelerated filer [   ]
Accelerated filer [   ]Non-accelerated filer [   ]
Smaller reporting company [X](Do not check if a smaller reporting company)





Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes [   ]  No [X]





The aggregate market value of the voting and non-voting common equity held by non-affiliates was $894,624.75. computed by reference to $0.45 per share value placed on each share of common stock issued for services rendered during the three months ended March 31, 2010 of the common stock on March 31, 2010. For purposes of the above statement only, all directors, executive officers and 10% shareholders are assumed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for any other purpose.


The number of shares outstanding of registrant’s common stock, par value $.001 per share, at January 13, 2011, was 18,989,555.








Encore Brands, Inc.


Form 10-K Table of Contents








PagePART I.
4Item 1. Business.
4Item 1A.  Risk Factors.
11Item 1B. Unresolved Staff Comments.
18Item 2. Properties.
18Item 3. Legal Proceedings.
18Item 4. (Removed and Reserved)
18PART II
19Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
19Item 6. Selected Financial Data.
20Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
20Item 7A.  Quantitative and Qualitative Disclosures About Market Risk
26Item 8. Financial Statements.
26Item 9.  Changes in and Disagreements With Accountants on Accounting and Financial Disclosures.
38Item 9A(T).  Controls and Procedures.
38Item 9B.  Other Information.
38PART III
38Item 10. Directors, Executive Officers and Corporate Governance.
38Item 11. Executive Compensation.
40Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
41Item 13. Certain Relationships and Related Transactions, and Director Independence.
42Item 14. Principal Account Fees and Services.
42PART IV:
43Item 15. Exhibits, Financial Statement Schedules.
43Signatures
44


























2


Forward-Looking Statements





This Annual Report on Form 10-K contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond the Company's control, that could cause actual results to differ materially from those set forth in, or implied by, such forward-looking statements.  All statements other than statements of historical facts included in this Annual Report on Form 10-K, including the statements under Item 1 "Business" and Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" regarding the Company's business strategy, future financial position, prospects, plans and objectives of management, are forward-looking statements.





When used in this Annual Report on Form 10-K, the words "anticipate," "intend," "expect," and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words.  All forward-looking statements speak only as of the date of this Annual Report on Form 10-K.  The Company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.  Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct.  In addition to the risks and uncertainties of ordinary business operations, important factors that could cause actual results to differ materially from those set forth in, or implied, by the Company's forward-looking statements contained in this Annual Report on Form 10-K are as follows:





·
general economic conditions,·
competitive market pressures (including pricing pressures),·
customer defaults and related bad debt expense,·
any possible downgrades of the Company’s credit ratings,·
consolidation of trade customers,·
successful development of new brands and processes,·
ability to secure and maintain rights to intellectual property,·
risks pertaining to strategic acquisitions and joint ventures, including the potential financial effects and performance of such acquisitions or joint ventures, integration of acquisitions and the related confirmation or remediation of internal controls over financial reporting,·
changes related to the U.S. and international distribution structure in the Company’s Spirits business,·
ability to attract and retain qualified personnel,·
weather,·
risks associated with doing business outside the United States, including currency exchange rate risks,·
commodity and energy price volatility,·
dependence on performance of distributors and other marketing arrangements,·
the impact of excise tax increase on distilled spirits,·
potential liabilities, costs and uncertainties of litigation,·
impairment in the carrying value of goodwill or other acquired intangible assets,·
historical consolidated financial statements that may not be indicative of future conditions and results,·
interest rate fluctuations, and·
volatility of financial markets, which could affect access to capital for the Company, its customers and consumers, as well as other risks and uncertainties detailed from time to time in the Company’s Securities and Exchange Commission filings.


























3





Part I.





Item 1. Business





Company History





Encore Brands, Inc. (“we” or the “Company”) was incorporated on September 16, 2008 in the State of Nevada.  We have had limited business operations and we currently have had limited revenue and no significant assets.  We have never declared bankruptcy, have never been in receivership, and have never been involved in any legal action or proceedings.
 
 On September 18, 2008, we entered into an exclusive license agreement with Encore Brands LLC pursuant to which we were granted an exclusive, nontransferable, nonsublicensable limited right to sell distribute and market EcstasyTM Brand Liqueur in the United States and Canada. Currently our operations depend upon the license and sale of the EcstasyTM Brand Liqueur and its successor rights. On, August 12, 2010, we agreed to an amendment to the Licensing Agreement with Encore Brands, LLC, to automatically renew the licensing period until September 18, 2014. In consideration for the granting of the exclusive license, we issued Encore Brands LLC 1,500,000 shares of our common stock.
 
 On June 16, 2010, we entered into a non-binding Letter of Intent (“LOI”) with Cermex SA (“Cermex”) to enter into a Design and Development Agreement (“agreement”).  After meeting with Cermex’s management it was agreed that the mutual development of existing brands and marketing services by Encore would provide a valuable resource for their existing beer brands and a platform for the develop of new brands, to be wholly owned by Encore. In addition, Cermex would provide favorable terms on development of product and packaging for both Encore's own labels and any private label business that was created through Encore's sales efforts.
 
 On January 10, 2011, Encore Brands, Inc. entered into a Design & Development Agreement (the "The Agreement"), between Cervecceria Mexicana, S. de R.I. de C.V., a corporation formed under the laws of the Republic of Mexico (“CERMEX”), and Encore Brands, Inc., a Nevada corporation (“Encore”) for 3,000,000 shares of restricted Rule 144 shares in Encore’s common stock, vesting over the 3-year period in arrears.  CERMEX’s obligations under the Agreement are to provide the resources and assistance in the design and development of two private label beers a year, and Encore’s obligations are to manage sales, promotional activities, etc. as the owner of any registered trademarks developed and in the brokering of any of CERMEX’s existing labels.
 
 On June 16, 2010 we entered into a non-binding Letter of Intent (“LOI”) with KSB, LLC to design and develop products under the Zephyr Gin (“Zephyr”) labels, to provide marketing and sales in the US and the World. Zephyr is a premium gin brand in the US and UK with limited distribution and a demographic profile in line with the brand strategy of our initial product, Ecstasy Liqueur. After speaking with Zephyr’s management, it was agreed that a relationship with us would be mutually beneficial to both parties in the sense that it would provide more offerings for us to the same customers and more resources to Zephyr to help build their brand. Pursuant to our rights under the TTB Permit, we will act as a wholesaler and importer for Zephyr in all future transactions. We are currently working with Zephyr’s management to finalize our relationship however there can be no assurance any definitive agreement will ever materialize.
 
 On July 27, 2010, we entered into a three-year Memorandum of Understanding (“MOU”) with Pelican Brands LLC, to provide us a national sales force for our brands.


General





We are a wholesaler and importer engaged in the sale of distilled spirits to distributors of alcoholic beverages in the U.S. who sell to liquor stores, grocery stores, bars and restaurants, including those states that use a control board for distribution.





On May 27, 2010, we received our Federal Basic Permit with the Alcohol Tobacco Trade and Tax bureau (“TTB“) to conduct business as a wholesaler and importer of alcoholic beverages. With this permit, we can begin obtaining our compliance within each state to conduct business.





With a marketing focus, experience and industry relationships we plan to use our capital to build our own or acquire brands, increase distribution and drive sales.  By leveraging traditional distribution channels with effective sales and marketing techniques management expects to experience growth without being dependent on one brand to succeed. This will also make us more valuable to its distributors and not dependent on one contract manufacturer to provide products.





For our first brand, we have entered into a license agreement with Encore Brands LLC, pursuant to which Encore Brands has the limited exclusive right to sell, distribute and market EcstasyTM Brand Liqueur in the United States of America and Canada, one of the world’s first premium enhanced spirits.





The concept behind EcstasyTM Liqueur is a combination of flavored liqueur and energy drink, which is a growing taste preference among drinkers.  The combination produced is a 70-proof clear spirit with pomegranate and citrus flavors, column distilled four times from winter white wheat and yellow corn.  Exotic herbs, which are the energy-stimulating ingredients, are ginseng, guarana, taurine, and caffeine.  EcstasyTM is produced in such a way that it can be consumed straight up or be mixed with other ingredients as cocktails.





On June 16, 2010 we entered into a non-binding Letter of Intent (“LOI”) with KSB, LLC to design and develop products under the Zephyr Gin (“Zephyr”) labels, to provide marketing and sales in the US and the World.  Zephyr is a premium gin brand in the US and UK with limited distribution and a demographic profile in line with the brand strategy of our initial product, Ecstasy Liqueur.





The concept behind Zephyr Gin is an update to the old, stodgy gin image, with the design of a new gin that will appeal to the next generation of drinkers. Everything about it is new, beginning with its contemporary bottle design and two distinct flavors, including the 88 proof reserve with unique elderflower botanicals for the traditionalist and the 70 proof blue tinted elderberry flavor for the more adventurous.


4





To date, Encore Brands, Inc. has sold neither Ecstasy Liqueur nor Zephyr Gin products.  It has, however acted as a broker for the placement of 2,000 cases of Zephyr Gin.  With the TTB Permit now effective, both of theses brands will be sold under the wholesaler and importer classifications as we become compliant in each state.





Since competition among vodka drinks is largely dependent on brand differentiation and provocative marketing angles, “EcstasyTM” as a brand name may be said to have high recall ability – evoking “overwhelming bliss and emotion” and “heightened capacity for exceptional thought and experience” – and may be reflective of the drink itself.





Among all types of spirits, it seems that vodka is the type that largely invests on perfecting its packaging in order to entice prospective drinkers.  EcstasyTM is no exception, as it invests substantially on its packaging, using a designer red corked bottle made from Venetian glass.  It aims to stand out from other bottles due to its color and the prominently placed “X” which also has its own appeal.  With the provocative name and stylized design, EcstasyTM Liqueur is effective in grabbing the attention of its target customers.





Within the enhanced spirits sector, the trend of trading up is evident from the marked prices of the products including EcstasyTM.  The  spirits market is defined by the price point at which the products are sold.  All of EcstasyTM’s direct competitors have priced their 750ML bottles above US$30, which already falls within the super-premium range (ranges vary from around $10 for value brands, $20 and greater for premium brands and $30 and above for super premium brands).  These enhanced spirits have aptly positioned themselves in the high-growth price tier.  Based on vodka volume growth, the super premium range registered the highest year-on-year growth with 14.2 percent compared to other price tiers of vodka in 2007.  If pricing strategies for vodkas are also applied to energy-infused vodkas, this would mean that enhanced spirits are riding on the high-growth bandwagon, pricing their products at super-premium levels to generate high margins.  Though marketing and brand identity are integral for spirits in general, vodka sales apparently are highly-driven by the packaging, designed to grab the attention of any casual drinker, which makes these drinks highly-priced – “don’t sell the steak, sell the sizzle.”  EcstasyTM, in particular, is priced in the upper half of the super-premium level among enhanced spirits.





Enhanced spirits derive their product qualities from both the vodka and energy stimulants used.  Vodka is generated by the distillation of a fermented substance, usually potatoes and molasses, along with water and ethanol.  Energy-vodkas are usually either 80-proof or 70-proof in terms of alcoholic content, while the smoothness is determined by the distillation process.  Super-premium vodka brands, where most enhanced spirits have priced themselves at, are usually smoother and distilled more times compared to the premium brands.  For energy stimulants, the ingredients used are those commonly found in energy drinks such as caffeine, taurine, guarana, ginseng, and yerba mate.  Each energy-vodka has its own combination of ingredients, with EcstasyTM having four of the five commonly used energy stimulants.  It is expected that the combination of stimulants will have a large impact on the level of energy boosting that the drinker will experience.





Distribution for enhanced spirits is done either on-premise (restaurants, bars, nightclubs) or off-premise (liquor and convenience stores).  Most of EcstasyTM’s competitors have already reached most of the states, with some brands already establishing a large geographical presence within the U.S. and also opting to expand into the international marketplace.





We are a wholesaler of EcstasyTM, and as such, have no direct costs associated with the production of EcstasyTM, as everything is made to order by third parties, including our agreement with our distiller Distilled Resources Inc. (“DRInc”).  Even though prices are fixed over a five-year period pursuant to the terms of our agreement with DRinc, there can be costs that are passed on as a result of changes in the prices of commodities, such as corn and wheat, transportation costs, such as fuel and oil, all of which can have an positive or negative impact on our ingredient costs and in the decision as to what the retail pricing of our products should be.  These costs adjustments are consistent with industry practices and other products in our category.





We will concentrate our efforts on the top 20 consumer markets (see table below), while Pelican Brands, LLC, our national sales agent, works on getting us TTB compliant in each of the 50 states:


5








2007 Top Twenty U.S. Designated Market AreasPopulation Rank
DMA Name
Population
Households
EBI

(in Billions)
Retail Sales

(In Billions)1
New York, NY
20,845,536
7,582,327
$493.2
$329.32
Los Angeles, CA
17,763,915
5,718,533
341.5
251.23
Chicago, IL
9,699,918
3,497,608
216.2
156.34
Philadelphia, PA
7,845,519
2,969,123
175.2
131.35
San Francisco – Oakland

San Jose, CA
6,877,020
2,487,636
189.6
119.86
Dallas-Ft. Worth, TX
6,655,366
2,413,421
144.2
105.27
Boston (Manchester), MA-NH
6,188,655
2,405,584
155.2
110.78
Washington. DC

(Hagerstown, MD)
6,141,792
2,332,560
169.7
112.89
Atlanta, GA
6,141,281
2,248,964
130.4
100.210
Houston, TX
5,809,390
2,027,307
117.7
87.111
Detroit, MI
5,040,831
1,951,239
113.1
86.712
Phoenix (Prescott), AZ
4,810,101
1,765,925
98.0
75.613
Seattle-Tacoma, WA
4,569,269
1,813,147
107.3
79.214
Minneapolis – St. Paul, MN
4,414,295
1,712,382
99.0
78.515
Miami – Ft. Lauderdale, FL
4,298,231
1,570,128
84.7
62.316
Tampa – St. Petersburg (Sarasota), FL
4,226,115
1,779,818
90.6
69.917
Sacramento – Stockton Modesto, CA
4,001,780
1,407,967
77.4
61.618
Cleveland, OH
3,905,892
1,560,483
77.7
64.519
Denver, CO
3,807,412
1,480,904
89.6
67.120
Orlando – Melbourne

Daytona Beach, FL
3,559,162
1,419,628
72.4
57.1





Source:  Claritas 2007





While we will maintain an office as its corporate headquarters, its overhead will be kept low by outsourcing noncore work like maintaining compliance and holding the minimum necessary inventory and focusing on the delivery and marketing of the product.





In the United States, liquor distribution has been subject to the “three tier system” at the federal level since the repeal of prohibition.  This system requires separate licensing for manufacturers, distributors and retailers of alcohol products.  We currently do not have any formal arrangement in place with any distributors for our product. Management currently uses existing industry contacts within the “three-tier system” to offer our product.  The sale of alcohol in the US is dependent on distributors as dictated by a government mandated three-tiered system, which requires the separation of suppliers (brand owners or licensees), from distributors and retailers.  With the help of the officer’s and director’s distributor knowledge and exiting distributor relationships, we intend to obtain the best distribution partners in each state where its products are to be sold.  Even with management’s expertise and preexisting distributor relationships there can be no guarantee of acceptance of the product or consummation of distribution contracts with a given distributor in a given state.





By reinvesting capital in the growth of brand as it reaches critical mass and becomes cash flow positive, our marketing costs as a percentage of sales should decline.





We will continue looking to partner or expand our broker relationships, in addition to inside sales, in order to grow our business.  We will look to add other non-competing brands at such times as it would not jeopardize our focus, add significant overhead, yet provide incremental revenue growth.





Industry Overview





We expect long-term demand for wine and spirits to continue to grow in the U.S. and in major markets outside the U.S.  But our near-term view of the overall business environment has been tempered by the current global recession, which has decreased consumers’ disposable income and increased unemployment.  As a result, some consumers have shifted away their consumption patterns from on-premises to off-premises, with the US Distilled Spirits Council (“DISCUS”) estimating in 2009 that off-premises volume sales in the U.S. rose by nearly 3%, compared to around a 2% decline in the on-trade in the same period.  In addition, DISCUS’ CEO Peter Casey concluded in 2009, that the spirits business might not be “recession proof” but is certainly “recession resilient”.


6


The alcoholic segment, posting 1.4 percent growth, edged the 1.3 percent expansion of the refreshments or non-alcoholic market.  The alcohol industry – which sources its revenue either from off-premise (i.e. wholesale, retailers) or on-premise (i.e. restaurants, bars) sales – has three divisions, namely: beer, distilled spirits, and wine.  The emergence of premium and craft beer, the rising popularity of cocktail culture, and continuing experimentation with ‘Old and New World’ wines are its respective growth drivers. Beverage type by revenue market share is little changed from 2006 when the allocation stood at: beer (50.5 percent), spirits (33.0 percent) and wine (16.5 percent).  Although beer still seems to be the alcohol beverage of choice by most Americans, it posted the lowest volume growth rate in 2007 with 1.4 percent.  Outperforming the brewed beverage are the distilled spirits with 2.4 percent volume growth and the fermented wine with 4.0 percent.





Spirits





The spirits sector, whose products range from vodka, rum, whiskey, tequila, and bourbon – to name a few – accounted for 33.1 percent of total alcohol revenue in the U.S. for 2007.  Sales of the distilled concoction has risen 5.6 percent in 2007 to US$18.2 billion while volume grew by 2.4 percent to 181.5 million cases, and to US$18.7 in billion in sales in 2008.  The overall spirits category in the U.S. continued to grow during fiscal 2009, with U.S. industry trends, as measured by National Alcohol Beverage Control Association (“NABCA”) data, indicating a total distilled spirits volume grew 3.3% for the 12 months ending April 30, 2009.  Growth drivers are continued ‘premiumization’, solid off-premise sales, the growing cocktail culture, and steady population growth of the 21 and older demographic.  The term ‘premiumization’ describes the trading up trend wherein consumers exhibit greater preference for high-priced alcoholic beverages.  Off-premise sales versus on-premise sales of spirits show a large discrepancy – the former holds a fourfold advantage over the latter, which is suffering perhaps due to considerable product mark-ups in restaurants, bars, and other similar establishments. The strong demand for spirits prevails despite the economic slowdown mainly due to the buoyant growth of the high-end premium and super-premium product segments.  However, the value and premium spirits continue to make up the largest share in terms of volume as they account for a combined 70 percent of the segment total.





Vodka





Based on the findings of DISCUS’ “A Decade of Progress, Distilled Spirits Council 2009 Industry Review”, the top five product segments in the spirits division are: vodka, rum, cordials, Canadian whiskey, as well as bourbon and Tennessee whiskey, in that order.  Owing to vodka’s dominant role, DISCUS aptly nicknamed vodka as the ‘Spirit of the Industry’.  In 2007, vodka sales reached a spirits-leading US$4.3 billion or roughly 24 percent of total spirits segment revenue.  It also accounted for 28.5 percent of spirits industry volume with 51 million 9-liter cases.  The growth outlook for vodka is promising.  It is a versatile, highly mixable beverage making it the predominant base for the newly-emerging bar staple – cocktails.  Moreover, vodka could either be drank on-the-rocks, straight, or mixed with fruits, syrup, etc.





In the U.S. spirits market, vodka is czar.  Eight out of the Top 20 Liquor Products in the U.S. are vodka brands, which account for 39.1 percent of the list’s total sales.  The average growth of vodka (4.39 percent) outperforms that of the group average (3.84 percent).  Not surprisingly, the top spot is occupied by a vodka brand, Smirnoff.  The fact that the combined US$461.20 million revenue for 2007 of the Top 5 Vodka Brands in the U.S. make up 10.6 percent of total spirits sales further emphasizes how lucrative the product segment is in the U.S. market.  In addition, the U.S. market accounts for a majority of global vodka sales. Innovation has transformed vodka over the years, infusing the clear liquor with natural spices and fruit flavors.  Flavored versions, which have sprung up to provide taste variations, now represent 14 percent of total vodka sales.  Recently, distillers have started to diversify towards the higher-end of the price spectrum – a strategy that is paying off.  The 2007 growth of the expensive super-premium vodka topped the combined increase of the lower-tiered value, premium, and high-end segments.





Enhanced Spirits (Vodka-based)





Direct competitors of EcstasyTM are vodka-based drinks that are infused with stimulants typically present in energy drinks – whether singly or in combination – such as guarana, taurine, ginseng and caffeine.  Management believes there are already eight competing brands in the United States, including EcstasyTM, along with another brand about to enter the market of energy-infused vodkas.





Brand Profile.  Brands competing directly with EcstasyTM are vodka-based, differentiating their tastes based on particular fruit flavors such as peach, pomegranate, and citrus.  Product processes also differ between brands, in terms of the number of repeated distillations and the fermented substance used.  Alcoholic content among competitors are either 80-proof or 70-proof and because they are vodka-based, these brands can be drank straight up or mixed to produce cocktails.  The usual energy stimulants or ingredients used are caffeine, taurine, guarana, ginseng, and yerba mate.  Energy-infused vodkas started in 2004, with most brands entering the market in 2007.





Target Market.  EcstasyTM’s competitors have generally targeted the party and club drinkers, which is usually attracted to this type of drink since it allows them to be continually energized while socializing in the crowd.  Based on their marketing campaigns, some brands also intentionally carved out their market niches, such as Blue Lotus and 3 AM which set out to entice health-conscious drinkers.





7


Market Coverage.  As these brands are relatively new entrants to the spirits markets, most are concentrating on expanding their geographical reach in the United States, like EcstasyTM.  This proves to be an arduous process as each state has its own laws relating to alcoholic beverages.  Half of the brands have reached over half of the total states while some have already made inroads in other countries.





Pricing.  All of the brands have positioned their prices in the super-premium range, which sells upwards of US$30 a bottle.  This attests to the type of drinker that these brands want to attract, along with the complexity of manufacturing these types of drinks.  Comparatively, EcstasyTM will be priced in the upper half of the super-premium range.





Marketing Strategy.   EcstasyTM’s competitors have based most of their marketing points on the “energy” factor of their drinks, emphasizing how it will enable people to keep up with night activities despite alcohol consumption.  Some also emphasize added features such as Blue Lotus’ “good for the soul” tagline to emphasize all-natural ingredients, or Everglo’s “powerfully smooth” tagline to emphasize its taste.





The product itself is unique and at the forefront of the next category of growth in the spirits industry. That category being Enhanced Spirits. EcstasyTM liqueur will be premium priced at slightly higher than Kettle One and below that of Grey Goose.  This is at the lower end of the Enhanced Spirit category with many brands higher than Grey Goose.




Principal Products





License Agreement with Encore Brands LLC for EcstasyTM Brand Liqueur





On September 16, 2008, we entered into an exclusive license agreement with Encore Brands LLC pursuant to which we were granted an exclusive, nontransferable, nonsublicensable limited right to sell distribute and market EcstasyTM Brand Liqueur in the United States and Canada. Currently our operations depend upon the license and sale of the EcstasyTM Brand Liqueur and its successor rights. On, August 12, 2010, we agreed to an amendment to the Licensing Agreement with Encore Brands, LLC, to automatically renew the licensing period until September 16, 2014. In consideration for the granting of the exclusive license, we issued Encore Brands LLC 1,500,000 shares of our common stock.





Non-Binding Letter of Intent with KSB, LLC for Zephyr Gin





On June 16, 2010 we entered into a non-binding Letter of Intent (“LOI”) with KSB, LLC to design and develop products under the Zephyr Gin (“Zephyr”) labels, to provide marketing and sales in the US and the World, Zephyr is a premium gin brand in the US and UK with limited distribution and a demographic profile in line with the brand strategy of our initial product, Ecstasy Liqueur. After speaking with Zephyr’s management, it was agreed that a relationship with us would be mutually beneficial to both parties in the sense that it would provide more offerings for us to the same customers and more resources to Zephyr to help build their brand. We are currently working with Zephyr’s management to finalize our relationship however there can be no assurance any definitive agreement will ever materialize.





Non-Binding Letter of Intent with Cermex SA





On June 16, 2010, we entered into a non-binding Letter of Intent (“LOI”) with Cermex SA (“Cermex”) to enter into a Design and Development Agreement (“agreement”).  After meeting with Cermex’s management it was agreed that the mutual development of existing brands and marketing services by Encore would provide a valuable resource for their existing beer brands and a platform for the develop of new brands, to be wholly owned by Encore. In addition, Cermex would provide favorable terms on development of product and packaging for both Encore's own labels and any private label business that was created through Encore's sales efforts. We are currently working with Cermex’s management to finalize our relationship however there can be no assurance any definitive agreement will ever materialize.





Promotional Strategy





We will utilize the strength of our management team, directors and consultants as a company to focus on our brand(s) to consistently meet the needs of customers and consumers around the world.





We aim to gain brand loyalty through local advertising and promotions, sponsored events, buyer/staff and distribution incentives, and entertainment and PR hits.  We hope to attain national exposure in order to drive both awareness and sales in its present market.  At the same time, it would draw inquiries from untapped markets as well.  Our on and off-premise promotions, led by the sales management team, are expected to pay off in increased awareness and higher sales.





8


We will kick off promotional campaigns with launch parties, supported by on-premise samplings, on and off-premise giveaways, and specialty drinks and menus.  Product brochures, press kits, signage, banners, public relations, product placement, sponsorships and internet-based marketing were also utilized to maximize brand exposure and awareness.





We will also distribute in state consumer trade shows where retailers are also invited.  This allows the sales team to meet up with the retailers who are hard to get in touch with.  Advertising and promotion will also be achieved through staff training of on-premise locations; bartenders and wait-staff will be trained to fully-understand the product and market it to customers.  Incentives will then be given to them in order to motivate sales efforts.  Brand training and telemarketing, which familiarize dealers with the product, are other advertising means that the company will use.





Since public relations gimmicks are effective promotion measures, we will participate in high-profile events to create an affinity for the brand that will resonate with its target market and help build brand loyalty, and ultimately drive sales upward.  Among numerous high-profile promotional and sampling campaigns will be: the Super Bowl, Sundance Film Festival, the Oscars, L.A. and Miami Fashion Weeks, film premieres, musical performances, and gallery and studio openings.





We will separate the country into tier 1 and tier 2 markets. It is the intention of the company to achieve significant market coverage of at least 10 markets and case volume in the first 12 months of operation of 20,000 cases; ramping up to 60,000 in year 2 and 100,000 in year 3.





A tier 1 market will require approximately $600,000 in annual promotional support with tier 2 requiring $300,000.





Market Coverage





The Tobacco Trade and Tax Bureau (TTB) has approved the EcstasyTM label which is only currently registered for sale in Arizona, California, Colorado, Florida, Illinois, Kentucky, New Jersey, New York, and Wisconsin with new markets to be added. We will focus on core markets’ on-premise sales in its first year and will expand into off-premise distribution as conditions warrant.





Dealer Support





We will utilize the mandatory US three-tier alcohol distribution system, which requires a third party between producer and retailer. We will build ties with highly-capable distributors across the United States as well as services of regional distributors, utilizing management’s existing relationships.





Brand Awareness and Recall





It is management’s belief that there are thousands of Spirit brands with varying degrees of aided and unaided awareness.  We intend to utilize our experience and judgment to select brands of outstanding quality that when consumed have high degrees of customer satisfaction. It is management’s belief that these products will provide better brand recall and allow for peer to peer sharing, or “word of mouth advertising” which management considers the most effective type of advertising for its products.





The additional tenants of our brand selection process include name, packaging and product category. In the case of Ecstasy Brand Liqueur, all three tenants have been confirmed by management, the name is unique and has the connotation of good feelings associated with the brand, the packaging is strikingly beautiful and stands out on the shelf and the category is a new and relatively un-crowded compared to others such as Vodka or Tequila.





Combined with multiple points of distribution, effective consumer advertising and ground level marketing, it is the intention of management to grow brand awareness and drive trial while helping develop recall in the consumers brand selection process.





Distribution Methods





Premium spirit brands have become the darling of the alcoholic beverage industry. While beer and wine sales have been relatively flat for the past several years, the premium spirit segment has maintained high growth which analysts predict will continue for years to come as the drinking age population expands and tastes evolve.





Today’s trends continue to be primarily within the white spirits, flavors, and active or enhanced ingredients categories.  Examples can be seen in the numerous versions of overly hyped vodkas (with claims of being multiple distilled, exotic water sourced and the use of various filters, including diamond powder, mesquite charcoal, etc.,) and in the increase in varieties of tequila being produced. Our market is in the enhanced spirit category, which is still relatively untapped with only a hand full of brands available.





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While 500 times distilled, overly hyped vodkas still abound and more and more varieties of tequila are produced. The enhanced spirit category is still untapped with only a hand full of brands available.





Management believes today’s next generation of drinkers have grown up on energy drinks and functional beverages. Therefore, when they go to the bar their first instinct is to combine their common beverage with alcohol. They are not looking to drink their parents booze such as a gin and tonic, scotch or a screwdriver.  Management believes this young demographic is the hottest segment of the market place and is underserved by all of the retreads of the same old products.





Our approach is to identify a specific demographic (in this case men and women ages 21-34), and focus on that consumer. By creating awareness and generating trial we intend to build on that foothold by widening distribution to include more markets and retail placements. Utilizing relevant communications and grass roots marketing, we will make the brand resonate with that core demographic and continue to build broad brand awareness.





By creating pivotal catalysts for trial and awareness, we will leverage the distribution network to support the key markets serving this demographic and utilize additional broker support when our own inside sales people are not available.


Pelican Brands has a network of over 50 brokers in the United States. Beginning in Q4 2010 Pelican and its agents have been working to create demand and relationships in several states on Encore’s behalf for Ecstasy Liqueur.  These include, Texas, Arizona, California, Georgia and Illinois. We anticipate beginning to execute on these efforts in Q1 2011 with distribution contracts and initial product shipments as we begin implementation of our marketing strategy for the brand.


Competition





Due to the limited information in terms of sales performance by energy-infused vodkas, market position of players can just be derived from brand awareness.  Although enhanced spirits is still an emerging market in the spirits sector, strong market positions are gradually being established by the continued entrants of players into the segment and the continued geographical expansion of existing brands.





Energy-infused vodkas that have entered the market at an early stage have already garnered some recognition.  P.I.N.K. vodka has accepted awards such as the 2008 “Rising Star” Growth Brand Award (Beverage Information Group), one of Top 50 Spirits of 2007 (Wine Enthusiast Magazine), 11 Beverage Dynamics Advertising and Promotions Awards, and American Graphic Design Award for bottle design.  Blue Lotus was awarded the Gold Medal in the San Francisco World Spirits Competition 2008.  Brands in this segment have invested much to increase brand awareness and recognition, ushering press releases and drink commentaries for print media, and organizing sampling parties and sponsoring events to increase product exposure.





We may find it difficult to penetrate the market due to the presence of these more established incumbent players.  It needs to overcome recognized brand identity of and customer loyalty gained by its competition.  For this reason the name EcstasyTM which is familiar with the key demographic and memorable name is expected to transform the product into a top-of-mind brand.





Manufacturing and distribution capacity of potential rival companies may enable them to hold cost advantages over the smaller-scale operation of a company like us as we begin to compete against global, regional, and local brands.





While the industry has consolidated considerably over the last decade, the 10 largest global spirits companies control less than 15% of the total global market for spirits, and in Asia their share in less than 3%.  We believe that the overall market environment offers considerable growth opportunities for exception builders of premium brands.





Sources and Availability of Products





We currently have a five-year requirement contract with Distilled Resources Inc. (DRinc) that expires on August 31, 2015.  The requirement contract stipulates that DRinc is required to supply as much vodka or flavored vodka, liqueurs, and distilled specialty spirits to us as required, in minimum production runs of 2,000 9-liter cases or the equivalent per the terms defined in each products price sheet and to take bottled inventory within 30 days of invoice date.





DRinc is a full service beverage grade custom alcohol distillery.  The company distills neutral spirits from Idaho russet potatoes, organic grains, and Idaho winter wheat and corn for use in award winning vodkas, liqueurs, and other specialty spirits.  DRinc offers full production, blending, and bottling services for our brand as well as warehousing and consulting. The terms are for the product to be received within 30 days of the invoice date, and all shipments to distributors require Federal excise tax to be paid prior to delivery to the distributor.   As our contract is for five years, we have not sourced a second distiller of  our product, and thus rely on Distilled Resources to provide all production of EcstasyTM Liqueur.





Liquor Bottle Packaging International, Inc. (“LBI”) in New York is the supplier of glass to Encore Brands, LLC.  Their expertise is in sourcing glass from around the world, and thus can easily adjust sourcing to accommodate supply and demand.  LBI owns the molds to produce the bottles for Ecstasy Brand Liqueur, and currently warehouses approximately 50,000 bottles of various sizes and DRinc currently warehouses over 100,000 bottles of various sizes at the distillery.  Minimum shipments to the distiller are for “full truck loads” of fully decorated bottles, which average around 20,000 bottles of the 750 or 1-liter bottles.  The minimum order is for anywhere from 60,000-120,000 bottles, depending on size, with the terms being due “on order.”


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Boise Cascade, LLC is Encore Brands, LLC’s contractor for corrugated boxes and packaging and Ignite, the preferred contractor, for advertising and marketing materials. These will all be on a contract basis with no retainer agreements or binding obligations for future work.  It is our opinion that both Boise Cascade and Ignite’s products and services are at a level and quality we want for our products, but they are not proprietary and we can choose to add to or change these contractor relationships to other competitors in the market as pricing and conditions warrant.





Government and Industry Regulation





Any new legislation or regulation, or the application of laws or regulations from jurisdictions whose laws do not currently apply to our business could have a material adverse effect on our business, results of operations and financial condition. Alcohol is a controlled substance and is regulated by the federal government. As a wholesaler, Encore Brands has obtained a federal permit to distribute the brand in the US.





The Treasury Department’s Tobacco Trade and Tax Bureau (TTB) has approved the product formula and label for EcstasyTM Liqueur. It is currently considering rules to mandate standardized labeling information on beer, wine and distilled spirits and has sought public comments.





We will be subject to federal laws and regulations that relate directly or indirectly to our operations including securities laws.  We will also be subject to common business and tax rules and regulations pertaining to the operation of our business.





We are subject to all state and federal regulations regarding the distribution and sales of alcohol.





On November 17, 2010, the FDA made announcements with regards to the removal of certain caffeinated alcoholic beverages from the market.





At this time, the FDA is sending Warning Letters to four manufacturers of alcoholic malt beverages to which caffeine has been directly added as an ingredient.  Other alcoholic beverages containing added caffeine may be subject to agency action in the future if the available scientific data and information indicate that the use of caffeine in those products is not GRAS.  A manufacturer is responsible for ensuring that its products, including the ingredients of its products, are safe for their intended use and are otherwise in compliance with the law.





Encore Brands, Inc. will closely monitor the FDA’s opinions and announcements regarding this subject, and will voluntarily request or have the licensor remove/reformulate the product to remove caffeine from its formulation, if it is deemed necessary.





Research and Development Activities





Other than time spent researching our proposed business we have not spent any funds on research and development activities to date.   We do not currently plan to spend any funds on research and development activities other than to develop new brands as resources allow.





Employees





We currently have 2 employees, including our officers, and plan to hire sales staff on a commission basis as we are cleared for sales in each respective state.





Item 1A.  Risk Factors





Investing in our common stock involves a high degree of risk. Prospective investors should carefully consider the risks described below and other information contained in this Annual Report, including our financial statements and related notes before purchasing shares of our common stock. There are numerous and varied risks that may prevent us from achieving our goals. If any of these risks actually occur our business, financial condition and results of operations may be materially adversely affected. In that case, the trading price of our common stock could decline and investors in our common stock could lose all or part of their investment.





Risks associated with our Company:





Because we have limited operating history, it is difficult to evaluate our business.





We have received limited revenues from operations and have limited assets. We have yet to generate positive earnings from the sale of our products and there can be no assurance that we will ever operate profitably.  Our company has a limited operating history and must be considered in the development stage. Our success is significantly dependent on the successful building and development of our brand awareness. Our operations will be subject to all the risks inherent in the establishment of a developing enterprise and the uncertainties arising from the absence of a significant operating history. We are in the development stage and potential investors should be aware of the difficulties normally encountered by enterprises in the development stage. If we are unable to execute our plans and grow our business, either as a result of the risks identified in this section or for any other reason, this failure would have a material adverse effect on our business, prospects, financial condition and results of operations.  Risks for companies in the development stage can include, but are not limited to:


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·
lack of sufficient financing;·
insufficient distribution channels;·
lack of market acceptance for our products; and·
competition from more established and better capitalized companies.





Because of our dependence on a single product, our failure to generate revenues from this product will impair our ability to operate profitably.





We are currently dependent on one product, our EcstasyTM Liqueur, to generate revenues. While we anticipate trying to expand our product offerings as our business expands, we expect that this one product will continue to account for a large portion of our revenues for the foreseeable future. Any factors adversely affecting the pricing of, demand for, or market acceptance of EcstasyTM Liqueur, including increased competition, could cause our revenues to decline and our business and future operating results to suffer.





We currently do not have any formal agreements in place with any distributor for our product and our failure to enter into any arrangement with distributors could adversely affect our business in the future.





In the United States, liquor distribution has been subject to the “three-tier system” at the federal level since the repeal of Prohibition.  This system requires separate licensing for manufacturers, distributors and retailers of alcohol products.  We currently do not have any formal arrangement in place with any distributors for our product. Management currently uses existing industry contacts within the “three-tier system” to sell our product.  The sale of alcohol in the US is dependent on distributors as dictated by the government mandated three-tiered system, which requires the separation of suppliers (brand owners or licensees) like us from distributors and retailers.





With the help of the officer’s, director’s and outside resources distributor knowledge and existing distributor relationships, We intend to obtain the best distribution partners in each state where our products are to be sold.  As we become compliant in each state, management will use its current relationships and the relationships of its outside sales agent, Pelican Brands Inc., to establish or maintain distributor relationships for our products.





The timing and amount of capital requirements are not entirely within our control and cannot accurately be predicted and as a result, we may not be able to raise capital in time to satisfy our needs, or commence operations.





We will need to raise additional capital to implement our business plan. We have no commitments for financing, and we cannot be sure that any financing would be available in a timely manner, on terms acceptable to us, or at all. Further, any equity financing could reduce ownership of existing stockholders and any borrowed money could involve restrictions on future capital raising activities and other financial and operational matters. Additionally, even if we do raise sufficient capital and generate revenues to support our operating expenses, there can be no assurances that the revenue will be sufficient to enable us to develop our business to a level where it will generate profits and cash flows from operations.





Our independent auditors have expressed substantial doubt about our ability to continue as a going concern, which may hinder our ability to obtain future financing.





In their report dated January 12, 2011 our independent auditors stated that our financial statements for the year ended September 30, 2010 and 2009 were prepared assuming that we would continue as a going concern. Our ability to continue as a going concern is an issue raised as a result of recurring losses from operations. We continue to experience net operating losses. Our ability to continue as a going concern is subject to our ability to generate a profit and/or obtain necessary funding from outside sources, including obtaining additional funding from the sale of our securities, increasing sales or obtaining loans and grants from various financial institutions where possible. Our continued net operating losses increase the difficulty in meeting such goals and there can be no assurances that such methods will prove successful.





We are subject to the risks inherent in the creation of a new business.





We are subject to substantially all the risks inherent in the creation of a new business. As a result of its small size and capitalization and limited operating history, we are particularly susceptible to adverse effects of changing economic conditions and consumer tastes, competition, and other contingencies or events beyond the our control. It may be more difficult for us to prepare for and respond to these types of risks and the risks described elsewhere herein than for a company with an established business and operating cash flow. If we are not able to manage these risks successfully, our operations could be negatively impacted. Due to changing circumstances, we may be forced to change dramatically, or even terminate, our planned operations.


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Changes in consumer preferences and discretionary spending may have a material adverse effect on our revenue, results of operations and financial condition.





Our success depends, in part, upon the popularity of our products and our ability to organically develop new brands or acquire the licensing or distribution rights to existing brands that appeal to consumers. Shifts in consumer preferences away from our products, our inability to develop new products that appeal to consumers, or changes in our product mix that eliminate items popular with some consumers could harm our business. Also, our success depends to a significant extent on discretionary consumer spending, which is influenced by general economic conditions and the availability of discretionary income. Accordingly, we may experience declines in revenue during economic downturns or during periods of uncertainty, similar to those which followed the terrorist attacks on the United States. Any material decline in the amount of discretionary spending could have a material adverse effect on our sales, results of operations, business and financial condition.





Litigation and publicity concerning product quality, health and other issues, which can result in liabilities and also cause customers to avoid our products, which could adversely affect our results of operations, business and financial condition.





Beverage and food service businesses can be adversely affected by litigation and complaints from customers or government authorities resulting from food and beverage quality, illness, injury or other health concerns or operating issues stemming from one retail location or a limited number of retail locations. Adverse publicity about these allegations may negatively affect us, regardless of whether the allegations are true, by discouraging customers from buying our products. We could also incur significant liabilities, if a lawsuit or claim results in a decision against us, or litigation costs, regardless of the result.





Our brands have been approved by the TTB (“Alcohol and Tobacco Tax and Trade Bureau”), and as such, each ingredient in the formula, has a corresponding GRAS number by the FDA (“Food and Drug Administration”), certifying that it is recognized as GRAS (“Generally Recognized as Safe”) under sections 201(s) and 409 of the Federal Food, Drug, and Cosmetics Act.  With this approval of our formula, we are not aware of any other health risks posed by our ingredients other than those that have been published by the TTB or FDA and which are visibly disclosed on our warning labels.  These same warnings are listed on the labels of all alcoholic beverages marketed in the US, and can include:  birth defects, cancer, heart disease, etc.  Our label is clearly displayed and reads as follows: “ GOVERNMENT WARNING: (1) According to the Surgeon General, women should not drink alcoholic beverages during pregnancy because of the risk of birth defects. (2) Consumption of alcoholic beverages impairs your ability to drive a car or operate machinery, and may cause health problems.”





The food and beverage service industry has inherent operational risks that may not be adequately covered by insurance.





We currently do not maintain any insurance for losses of any kind related to our business. Any defects in our products could result in economic loss, adverse customer reaction, negative publicity, and additional expenditure to rectify the problems and/or legal proceedings instituted against us. We have not maintained any insurance policy against losses that may arise from such claims. Any litigation relating to such liability may be expensive and time consuming, and successful claims against us could result in substantial monetary liability or damage to our business reputation and disruption to our business operations.





We are currently looking to maintain insurance related to our business however we cannot assure you that we will be able to obtain and/or continue to maintain insurance with adequate coverage for liabilities or risks arising from any of our services on acceptable terms.  Even if the insurance is adequate, insurance premiums could increase significantly which could result in higher costs to us.





We may face product liability for our products.





The development, marketing and sale of our products may subject us to product liability claims. We currently do not have insurance coverage against product liability risks. Although we intend to purchase such insurance, such insurance coverage may not be adequate to satisfy any liability that may arise. Regardless of merit or eventual outcome, product liability claims may result in decreased demand for a service, injury to our reputation, and loss of revenues. As a result, regardless of whether we are insured, a product liability claim or product recall may result in losses that could be material to us.





The planned increase in the number of our customers may make our future results unpredictable.





Our future results depend on various factors, including successful selection of new markets, market acceptance of our products, consumer recognition of the quality of our products and willingness to pay our prices. In addition, as with the experience of other retail food and beverage concepts who have tried to expand nationally, we may find that the concept has limited or no appeal to customers in new markets or we may experience a decline in the popularity of our chosen markets.


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Our revenue growth rate depends primarily on our ability to satisfy relevant channels and end-customer demands, identify suppliers of our necessary ingredients and to coordinate those suppliers, all subject to many unpredictable factors.





We may not be able to identify and maintain the necessary relationships with suppliers of product and services as planned.   Delays or failures in deliveries could materially and adversely affect our growth strategy and expected results. As we supply more customers, our rate of expansion relative to the size of such customer base will decline. In addition, one of our biggest challenges is securing an adequate supply of suitable product. Competition for product is intense, and commodities costs are subject to price volatility.





To secure our supplies of product, our current requirements contract with our distiller is for 5-years that is good through August 31, 2015.  The requirement contract stipulates that the distiller is required to supply as much vodka or flavored vodka, liqueurs, and distilled specialty spirits to us as is required, in minimum production runs of 2,000 9-liter cases or the equivalent per the terms defined in each products’ price sheet.  Currently, our main ingredients are corn and wheat, commodities which are historically subject to price volatilities.  While the costs for our commodities are guaranteed under our requirements contract, there is no guarantee that we will be able to obtain price guarantees for such commodities in the future.





·
there is no guarantee that we will enter into definitive agreements with distributors and on acceptable terms;·
hiring and training qualified personnel in local markets;·
managing marketing and development costs at affordable levels;·
cost and availability of labor;·
the availability of, and our ability to obtain, adequate supplies of ingredients that meet our quality standards; and·
securing required governmental approvals in a timely manner when necessary





Our revenue and profit growth could be adversely affected if revenues received from potential end-users are less than expected.





While future revenue growth will depend substantially on our ability to expand our customer base, the level of revenue received from end users of our product will also affect our revenue growth and will continue to be an important factor affecting profit growth, in the coming years. Our ability to increase revenue between comparable quarterly or annual periods depends in part on our ability to launch new products and successfully implement initiatives to create consumer demand and increase sales to end users. It is possible tha revenues received from the end users of our products will be less than expected or that the change in comparable revenue could be negative. If this were to happen, revenue and profit growth would be adversely affected.





Our failure to manage our growth effectively could harm our business and operating results.





Our plans call for a significant increase in the number of customers. Product supply, financial and management controls and information systems may be inadequate to support our expansion. Managing our growth effectively will require us to continue to enhance these systems, procedures and controls and to hire, train and retain management and staff. We may not respond quickly enough to the changing demands that our expansion will impose on our management, employees and existing infrastructure. We also place a lot of importance on our corporate structure, which we believe will be an important contributor to our success.  The corporate structure will consist of a small management team, to maintain low overhead, with performance based compensation for sales and consultants, that is easily scalable and that gives them the ability to make decisions in the field As we grow, however, we may have difficulty maintaining this structure or adapting it sufficiently to meet the needs of our operations. Our failure to manage our growth effectively could harm our business and operating results.





New customer sales of our products may not be profitable, and revenue that we expect may not be achieved.





We expect our new customers’ to have an initial ramp-up period during which they will generate revenue and profit below the levels at which  we expect them to normalize. This is in part due to the time it takes to build a customer base in a new product, higher fixed costs relating to start-up inefficiencies that are typical of introduction of new products. Our ability to supply new customers profitably and increase average customer revenue will depend on many factors, some of which are beyond our control, including:





·
executing our vision effectively;·
initial sales performance of new product;·
competition, either from our known competitors in the beverage industry, or others entering into our chosen markets·
changes in consumer preferences and discretionary spending;·
consumer understanding and acceptance of the EcstasyTM experience;·
general economic conditions, which can affect store traffic, local labor costs and prices we pay for the ingredients, equipment and other supplies we use; and·
changes in government regulation.





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Our customers and suppliers could take actions that harm our reputation and reduce our profits.





Customers and suppliers are separate entities and are not our employees. Further, we do not exercise control over the day-to-day operations of our customers and suppliers. Any operational shortcomings of our customers and suppliers are likely to be attributed to our system-wide operations and could adversely affect our reputation and have a direct negative impact on our profits.





We lack sales, marketing and distribution capabilities and depend on third parties to market our services.





We have minimal personnel dedicated solely to sales and marketing of our services and therefore we must rely primarily upon third party distributors to market and sell our services. These third parties may not be able to market our product successfully or may not devote the time and resources to marketing our services that we require. We also rely upon third party carriers to distribute and deliver our services. As such, our deliveries are to a certain extent out of our control. If we choose to develop our own sales, marketing or distribution capabilities, we will need to build a marketing and sales force with technical expertise and with supporting distribution capabilities, which will require a substantial amount of management and financial resources that may not be available. If we or a third party are not able to adequately sell and distribute our product, our business will be materially harmed.





If we are unable to establish sufficient sales and marketing capabilities or enter into and maintain appropriate arrangements with third parties to sell, market and distribute our services, our business will be harmed.





We have limited experience as a company in the sale, marketing and distribution of our products and services. We depend upon third parties to sell our product both in the United States and internationally. To achieve commercial success, we must develop sales and marketing capabilities and enter into and maintain successful arrangements with others to sell, market and distribute our products.





If we are unable to establish and maintain adequate sales, marketing and distribution capabilities, independently or with others, we may not be able to generate product revenue and may not become profitable. If our current or future partners do not perform adequately, or we are unable to locate or retain partners, as needed, in particular geographic areas or in particular markets, our ability to achieve our expected revenue growth rate will be harmed.





We face competition in our markets from a number of large and small companies, some of which have greater financial, research and development, production and other resources than we have.





Our brands face competition from any number of companies of all sizes, whose products and services may be used as an alternative or substitute therefore. In addition we compete with several large companies in the alcohol distribution business. To the extent these companies, or new entrants into the market, offer comparable brands at lower prices, our business could be adversely affected. Our competitors can be expected to continue to improve the design and performance of their products and services and to introduce new products and services with competitive performance characteristics. There can be no assurance that we will have sufficient resources to maintain our current competitive position. See “Description of Business - Competition.”





Our business may be affected by factors outside of our control.





Our ability to increase sales, and to profitably distribute and sell our products and services, is subject to a number of risks, including changes in our business relationships with our principal distributors, competitive risks such as the entrance of additional competitors into our markets, pricing and technological competition, risks associated with the development and marketing of new products and services in order to remain competitive and risks associated with changing economic conditions and government regulation.





We may not be able to raise additional capital on acceptable terms.





Developing our business may require significant capital in the future. To meet our capital needs, we expect to rely on our cash flow from operations and potentially, third-party financing. Third-party financing may not, however, be available on terms favorable to us, or at all. Our ability to obtain additional funding will be subject to various factors, including market conditions, our operating performance, lender sentiment and our ability to incur additional debt in compliance with other contractual restrictions, such as financial covenants under our credit facility. These factors may make the timing, amount, terms and conditions of additional financings unattractive. Our inability to raise capital could impede our growth.





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Litigation could adversely affect us by distracting management, increasing our expenses or subjecting us to material money damages and other remedies.





Our customers could file complaints or lawsuits against us alleging that we are responsible for some illness or injury their customers suffered at or after a visit to their stores, or that we have problems with food quality or operations. We are also subject to a variety of other claims arising in the ordinary course of our business, including personal injury claims, contract claims and claims alleging violations of federal and state law regarding workplace and employment matters, discrimination and similar matters, and we could become subject to class action or other lawsuits related to these or different matters in the future. Regardless of whether any claims against us are valid, or whether we are ultimately held liable, claims may be expensive to defend and may divert time and money away from our operations and hurt our performance. A judgment significantly in excess of our insurance coverage for any claims could materially and adversely affect our financial condition or results of operations. Any adverse publicity resulting from these allegations may also materially and adversely affect our reputation or prospects, which in turn could adversely affect our results. The food and beverage services industry has been subject to a growing number of claims based on the nutritional content of food products they sell and disclosure and advertising practices. We may also be subject to this type of proceeding in the future and, even if not, publicity about these matters (particularly directed at convenience stores and other approved channels, the quick-service and fast-casual segments of the industry) may harm our reputation or prospects and adversely affect our results.





The need for additional financing and the uncertainty about the timing of the receipt of additional funding may inhibit our ability to implement our growth and business plan.





We will require additional debt and/or equity financing to pursue our growth strategy. Given our limited operating history and existing losses, there can be no assurance that we will be successful in obtaining additional financing. Lack of additional funding could force us to curtail substantially our growth plans or cease operations. Furthermore, the issuance by us of any additional securities pursuant to any future fundraising activities undertaken by us would dilute the ownership of existing shareholders and may reduce the price of our common stock.





Furthermore, debt financing, if available, will require payment of interest and may involve restrictive covenants that could impose limitations on our operating flexibility. Our failure to successfully obtain additional future funding may jeopardize our ability to continue our business and operations.





The failure to generate sufficient cash flows or to raise sufficient funds may require us to delay or abandon some or all of its development and expansion plans or otherwise forego market opportunities and may make it difficult for the Company to respond to competitive pressures, any of which could have a material adverse effect on the Company's business, results of operations, and financial condition.





We depend on Gareth West, our chief executive officer, and Alex McKean, our chief financial officer. The loss of one or more of these officers would delay our development or threaten our ability to implement our business plan.





Our future performance depends in significant part upon the continued service of our Chief Executive Officer, Gareth West and Chief Financial Officer, Alex McKean.  The loss of either’s services could have a material adverse effect on our business, prospects, financial condition and results of operations. We do not presently maintain key man life insurance on our officers, but may obtain such insurance at the discretion of its board of directors for such term as it may deem suitable or desirable.





Our future success also depends on our ability to attract and retain highly qualified technical, sales and managerial personnel.  Although we feel that we have established a sufficient pool of talent that has committed to enter into  contractual agreements, we also recognize the fact that competition for such personnel can be intense, and there can be no assurance that we can continue to attract, assimilate or retain highly qualified technical, sales and managerial personnel for favorable compensations in the future.





We may not be able to manage successfully our growth resulting in possible failure or flawed implementation of our business plan.





While we believe that our products can be readily scaled to accommodate large or very large volume, we cannot be certain of that belief until such scaling occurs. In addition, significant growth will require more than marketing capabilities, capabilities such as its operating and financial procedures and controls, replacing or upgrading our operational, financial and management information systems and attracting, training, motivating, managing and retaining key employees. If our executives are unable to manage growth effectively, our business, results of operations and financial condition could be materially adversely affected.





Governments may regulate or tax our activities in unexpected ways forcing modification of our business plan or threatening its successful implementation.





Any new legislation or regulation, or the application of laws or regulations from jurisdictions whose laws do not currently apply to the Company's business could have a material adverse effect on the Company's business, results of operations and financial condition. Alcohol is a controlled substance and is regulated by the federal government.


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We are controlled by current officers, directors and principal stockholders.





Our directors, executive officers and principal (5%) stockholders and their affiliates beneficially own approximately 14,001,500 shares, or approximately 86% of the outstanding shares of common stock. Accordingly, our executive officers, directors, principal stockholders and certain of their affiliates will have substantial influence on the ability to control the election of our Board of Directors of the Company and the outcome of issues submitted to our stockholders.





Risks associated with our common stock:





Our common stock trades in a limited public market. Accordingly, investors face possible volatility of share price.





Our common stock is currently quoted on the Over-the-Counter Bulletin Board under the ticker symbol OTCBB: ENCB. As of January 13, 2011, there were approximately 18,989,555 shares of Common Stock outstanding.





There can be no assurance that a trading market will be sustained in the future. Factors such as, but not limited to, technological innovations, new products, acquisitions or strategic alliances entered into by us or our competitors, government regulatory actions, patent or proprietary rights developments, and market conditions for penny stocks in general could have a material effect on the liquidity of our common stock and volatility of our stock price.





Failure to maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our business and operating results and stockholders could lose confidence in our financial reporting.





Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. If we cannot provide reliable financial reports or prevent fraud, our operating results could be harmed. Under the current SEC regulations, we are required to include a management report on internal controls over financial reporting in our annual report on Form 10-K for the year ending September 30, 2010.  Failure to achieve and maintain an effective internal control environment, regardless of whether we are required to maintain such controls, could also cause investors to lose confidence in our reported financial information, which could have a material adverse effect on our stock price. Although we are not aware of anything that would impact our ability to maintain effective internal controls, we have not obtained an independent audit of our internal controls and, as a result, we are not aware of any deficiencies which would result from such an audit. Further, at such time as we are required to comply with the internal controls requirements of the Sarbanes-Oxley Act, we may incur significant expenses in having our internal controls audited and in implementing any changes which are required.





We have not paid dividends on our common stock in the past and do not expect to pay dividends on our common stock for the foreseeable future.  Any return on investment may be limited to the value of our common stock.





No cash dividends have been paid on our common stock. We expect that any income received from operations will be devoted to our future operations and growth. We do not expect to pay cash dividends on our common stock in the near future. Payment of dividends would depend upon our profitability at the time, cash available for those dividends, and other factors as our board of directors may consider relevant. If we do not pay dividends, our common stock may be less valuable because a return on an investor’s investment will only occur if our stock price appreciates.





The requirements of being a public company may strain our resources, divert management's attention and affect our ability to attract and retain qualified board members.





We recently became a public company and subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”). Prior to October 2009, we had not operated as a public company and the requirements of these rules and regulations will likely increase our legal and financial compliance costs, make some activities more difficult, time-consuming or costly and increase demand on our systems and resources. The Exchange Act requires, among other things, that we file annual, quarterly and current reports with respect to our business and financial condition. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal controls for financial reporting. For example, Section 404 of the Sarbanes-Oxley Act requires that our management report on the effectiveness of our internal controls structure and procedures for financial reporting. Section 404 compliance may divert internal resources and will take a significant amount of time and effort to complete. If we fail to maintain compliance under Section 404, or if in the future management determines that our internal controls over financial reporting are not effective as defined under Section 404, we could be subject to sanctions or investigations by the SEC or other regulatory authorities. Furthermore, investor perceptions of our company may suffer, and this could cause a decline in the market price of our common stock. Any failure of our internal controls could have a material adverse effect on our stated results of operations and harm our reputation. If we are unable to implement these changes effectively or efficiently, it could harm our operations, financial reporting or financial results and could result in an adverse opinion on internal controls from our independent auditors. We may need to hire a number of additional employees with public accounting and disclosure experience in order to meet our ongoing obligations as a public company, which will increase costs. Our management team and other personnel will need to devote a substantial amount of time to new compliance initiatives and to meeting the obligations that are associated with being a public company, which may divert attention from other business concerns, which could have a material adverse effect on our business, financial condition and results of operations.


17


Item 1B. Unresolved Staff Comments.





Not required for smaller reporting companies.





Item 2. Properties.





Since February 2010, we have rented office space from McKean & Margerum Enterprises, Inc., an entity controlled by Alex McKean, our chief financial officer, at 1525 Montana Avenue, Suite C, Santa Monica, CA 90403, on a month-to-month basis at a rate of  $750 per month.  Either party may terminate the arrangement upon notice to the other party.





Item 3. Legal Proceedings.





From time to time we may be a defendant or plaintiff in various legal proceedings arising in the normal course of our business. We are currently not a party to any material pending legal proceedings or government actions, including any bankruptcy, receivership, or similar proceedings. In addition, management is not aware of any known litigation or liabilities involving the operators of our properties that could affect our operations. Should any liabilities incurred in the future, they will be accrued based on management’s best estimate of the potential loss. As such, there is no adverse effect on our consolidated financial position, results of operations or cash flow at this time. Furthermore, Management of the Company does not believe that there are any proceedings to which any director, officer, or affiliate of the Company, any owner of record of the beneficially or more than five percent of the common stock of the Company, or any associate of any such director, officer, affiliate of the Company, or security holder is a party adverse to the Company or has a material interest adverse to the Company.





Item 4. (Removed and Reserved)


















































18





Part II





Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.





Our common stock has been quoted on the OTC Bulletin Board under the symbol "ENCB.OB” since April 6, 2010.  The quotations reflect inter-dealer prices, without retail mark-ups, mark-downs, or commissions and may not necessarily represent actual transactions.





The closing price of our common stock on the OTC Bulletin Board on January 13, 2010 was $0.64 per share.





The following table sets forth the range of high and low sales prices as reported on the OTC Bulletin Board for the periods indicated.





Sales PriceHigh


LowYear Ended September 30, 2010

$
0.00


$
0.00Third quarter ended June 30, 2010 (beginning on April 6, 2010)

$
0.60


$
0.51Fourth quarter ended September 30, 2010

$
0.60


$
0.47





Holders.





As of September 30, 2010, an aggregate of 15,989,555 shares of our common stock were issued and outstanding and were owned by approximately 52 stockholders of record, based on information provided by our transfer agent.





Dividends.





No cash dividends have been paid on our common stock. We expect that any income received from operations will be devoted to our future operations and growth. We do not expect to pay cash dividends on our common stock in the near future. Payment of dividends would depend upon our profitability at the time, cash available for those dividends, and other factors as our board of directors may consider relevant.





Recent sales of unregistered securities.





During the last three years, we have issued unregistered securities to the persons, as described below. None of these transactions involved any underwriters, underwriting discounts or commissions, or any public offering. The sales of these securities were deemed to be exempt from the registration requirements of the Securities Act of 1933 by virtue of Section 4(2) thereof, and/or Rule 506 of Regulation D promulgated thereunder, as transactions by an issuer not involving a public offering. The recipients of securities in each such transaction represented their intention to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the certificates issued in such transactions. All purchasers of our securities were accredited or sophisticated persons and had adequate access, through employment, business or other relationships, to information about us.





Subsequent to September 30, 2008, the Company issued 489,555 common shares to 52 shareholders at a fixed rate of $0.45. None of the shareholders or their beneficial owners has had a material relationship with us other than as a shareholder at any time within the past three years.





On June 17, 2009, the Board of Directors accepted the resignation of Thomas Roth as President, CEO, and Director. The Company repurchased 14,000,000 shares of stock owned by Mr. Roth for $140, and cancelled the shares. On June 17, 2009 the Board of Directors elected Gareth West to replace Thomas Roth as President, CEO, and Director. On July 13, 2009, the Company approved the issuance of 14,000,000 shares to Gareth West. Stock-based compensation expense of $14,000 was recognized for this issuance, based on management’s determination of fair value of each share to be par value, $0.001. No active market existed for the shares at the time of issuance.





In addition, for the period beginning on October 1, 2008 and ending on September 30, 2009, we issued 468,889 shares to 18 consultants for services rendered.  The issuance of these shares were primarily attributable to professional fees, and legal and audit fees related to our public offering and ongoing compliance with our obligations under federal securities laws.  These shares were issued in reliance upon an exemption from registration provided under Section 4(2) under the Securities Act of 1933, as amended.





19


Securities Authorized for Issuance Under Equity Compensation Plans





The following table shows information with respect to each equity compensation plan under which the Company’s common stock is authorized for issuance as of the fiscal year ended September 30, 2010.





EQUITY COMPENSATION PLAN INFORMATION





Plan category

Number of securities

to be issued upon

exercise of

outstanding options,

warrants and rights


Weighted average

exercise price of

outstanding options,

warrants and rights


Number of securities

remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)(a)


(b)


(c)Equity compensation plans approved by security holders


-0-



-0-



-0-Equity compensation plans not approved by security holders


-0-



-0-



-0-Total


-0-



-0-



-0-





Item 6. Selected Financial Data.





Not Applicable





Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.





The following discussion of the results of our operations and financial condition should be read in conjunction with our financial statements and the related notes, which appear elsewhere in this Annual Report on Form 10-K. The following discussion includes forward-looking statements. For a discussion of important factors that could cause actual results to differ from results discussed in the forward-looking statements, see “Forward Looking Statements.”





The following discussion contains forward-looking statements that reflect the Company’s plans, estimates and beliefs. Actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those discussed below and elsewhere in this Annual Report on Form 10-K particularly in "Special Note Regarding Forward-Looking Statements," "Market Data" and "Risk Factors."





OVERVIEW





We have a basic permit issued by the Department of Treasury’s Alcohol and Tobacco and Trade Bureau (“TTB”) to conduct business as a wholesaler and importer of alcoholic beverages.  As such, we are engaged in the sale of distilled spirits to distributors of alcoholic beverages in the U.S. who sell to liquor stores, grocery stores, bars and restaurants, including those states that use a control board for distribution.





With a marketing focus, experience and industry relationships we plan to use our capital to build our own or acquire brands, increase distribution and drive sales.  By leveraging traditional distribution channels with effective sales and marketing techniques management expects to experience growth without being dependent on one brand to succeed. This will also make us more valuable to distributors and not dependent on one contract manufacturer to provide products.





For our first brand, we have entered into a license agreement with Encore Brands LLC, pursuant to which Encore Brands has the limited exclusive right to sell, distribute and market EcstasyTM Brand Liqueur in the United States of America and Canada, one of the world’s first premium enhanced spirits.





The concept behind EcstasyTM Liqueur is a combination of flavored liqueur and energy drink which is a growing taste preference among drinkers.  The combination produced is a 70-proof clear spirit with pomegranate and citrus flavors, column distilled four times from winter white wheat and yellow corn.  Exotic herbs, which are the energy-stimulating ingredients, are ginseng, guarana, taurine, and caffeine.  EcstasyTM is produced in such a way that it can be consumed straight up or be mixed with other ingredients as cocktails.





20


On June 16, 2010 we entered into a non-binding Letter of Intent (“LOI”) with KSB, LLC to design and develop products under the Zephyr Gin (“Zephyr”) labels, to provide marketing and sales in the US and the World.  Zephyr is a premium gin brand in the US and UK with limited distribution and a demographic profile in line with the brand strategy of our initial product, Ecstasy Liqueur.





The concept behind Zephyr Gin is an update to the old, stodgy gin image, with the design of a new gin that will appeal to the next generation of drinkers. Everything about it is new, beginning with its contemporary bottle design and two distinct flavors, including the 88 proof reserve with unique elderflower botanicals for the traditionalist and the 70 proof blue tinted elderberry flavor for the more adventurous.





To date, we have not received any revenues from the sale of either Ecstasy Liqueur or Zephyr Gin products.  However, we have acted as a broker for the placement of 2,000 cases of Zephyr into Sabemos, a national beverage broker, for which we received compensation in the amount of $20,000.  Since we now have our TTB basic permit, we will begin to sell both of these brands as we become TTB compliant in each state.





Shortly after inception, we filed a registration statement on Form S-1 pursuant to which we registered 20,000,000 shares of our common stock to be sold by us to qualified investors at $0.45 per share (the “Financing”).  In the Financing, we sold an aggregate total of 20,666 shares (“Shares”) to 34 subscribers at a price of $0.45 per share for total consideration of $9,300 and issued 468,889 restricted shares to 18 consultants for services rendered in separate unregistered transactions.  The issuance of these shares were primarily attributable to professional, legal and audit fees related to our public offering and ongoing compliance with our obligations under federal securities laws.  The proceeds from our public offering were used to pay for start-up costs and the related fees associated with registering our securities, our ongoing compliance requirement under federal securities laws and to apply for various licenses and permits with governmental agencies related to our future operations.


Results of Operations Fiscal Year 2010 as compared to Fiscal Year 2009
 
 Revenue
 
 Revenues in fiscal 2010 increased by 100% to $20,000 from the fiscal 2009 level of $0.  We generated limited revenues to cover operations from consulting services based on brokering 3rd party products and providing advisory services in our capacity as a sales and marketing company.. Based on prior history, we will continue to have insufficient revenue to satisfy current and recurring liabilities as we continue development activities.
 
 Gross margin
 
 Total gross margin in 2010 was $18,750 or 93.75% of total revenue as compared to $0 or 0% in 2009.  The primary reason for the increase was in the company beginning to broker 3rd-party products and the costs associated with preparing the sale of Ecstasy to the US and India marketplace yet to be reflected in operating results.
 
 Selling expense
 
 None at this time.
 
 General and administrative expenses
 
 General and administrative expense in fiscal 2010 increased to $425,529 form $284,342 in fiscal 2009, an increase of $141,187, or 50%.  The increase in these costs were due primarily to the accrual of officer salaries and in the costs associated with audit and filing fees, both legal and accounting.  Distribution network costs are not included in the Company's selling, general and administrative expenses, but are included in cost of goods sold.
 
 The Company expenses advertising costs as incurred, shown or distributed.
 
 Net Loss
 
 Net loss for fiscal 2010 was $406,779 as compared to $284,342 for fiscal 2009,   This net loss was primarily attributable to professional fees for services rendered, various legal and audit fees related to operations and accrued salaries payable. 
 Results of Operations for the period from September 16, 2008 (inception) through September 30, 2010
 
 Revenue
 
 For the period beginning September 16, 2008 through September 30, 2010, we earned revenues of $20,000 from consulting services based on brokering 3rd party products and providing advisory services in our capacity as a sales and marketing company.


21





Gross margin





Total gross margin from inception through September 30, 2010 was $18,750 or 93.75% of total revenue.  The primary reason for the increase was in the company beginning to broker 3rd-party products and the costs associated with preparing the sale of Ecstasy to US and the India marketplace yet to be reflected in operating results.





General and administrative expenses





General and administrative costs from inception to date were $723,871, arising mostly from stock-based compensation, officer salary accruals, accounting and audit fees, legal fees and filing fees.





Net Loss





We incurred a net loss of $705,121 for the period from inception through September 30, 2010, due to limited revenues and general and administrative costs as described above.


Liquidity and Capital Resources
 
 Shortly after inception, we filed a registration statement on Form S-1 pursuant to which we registered 20,000,000 shares of our common stock to be sold by us to qualified investors at $0.45 per share (the “Financing”).  In the Financing, we sold an aggregate total of 20,666 shares (“Shares”) to 34 subscribers at a price of $0.45 per share for total consideration of $9,300.  In addition we issued 468,889 shares to 18 consultants for services rendered since inception.  The issuance of these shares were primarily attributable to professional fees, and legal and audit fees related to our public offering and ongoing compliance with our obligations under federal securities laws.  The proceeds from our public offering were used to pay for start-up costs and the related fees associated with registering our securities, our ongoing compliance requirement under federal securities laws and to apply for various licenses and permits [with governmental agencies] related to our future operations.
   As of September 30, 2010, we had negative working capital of $400,611. Our net loss was ($406,779) for the fiscal year ended September 30, 2010.





Net cash used in operating activities was approximately ($78,485) for the year ended September 30, 2010, compared to ($19,543) for 2009. The increase in cash used in operating activities is primarily attributable to amounts paid for accounting and legal services, and corporate compliance fees.





Net cash provided by financing activities during the fiscal year ended September 30, 2010 was approximately $78,308 as compared to $19,720 for the corresponding period in 2009.  This increase was due to collection of subscription receivables, new loans, and loans from shareholders. The shareholder loans bear interest at 3.25%, are unsecured and due on demand.





On December 18, 2009, the Company entered into a $50,000 Bridge Loan and Investment Agreement (the “Note”). The Note is unsecured, bears interest at 10% per annum, and matured on March 31, 2010. The maturity date was subsequently extended to December 31, 2010, and is in default.  Upon maturity, all accrued but unpaid interest shall be due and payable.  The loan is convertible into shares of our common stock at a conversion price equal to a 15% discount to the ten-day volume weighted average price per share of the common stock prior to the date of conversion.  In no circumstances can the loan be converted if the conversion price is less than $0.30 per share.





On September 16, 2010, Encore Brands, Inc. entered into a $18,718 Loan Agreement (the "Loan Agreement"), which is filed as by and between Global Premium Brands, Inc., a Nevada corporation (the “Lender”), and Encore Brands, Inc., a Nevada corporation (“Encore”) and is secured by pending purchase orders with ACME Spiritz in India, and current inventory, if any.  Currently, the note is in default due to the 1-quarter delay in the ACME order.





We have recognized limited revenues from our operations. As a result, our current cash position is not sufficient to fund our cash requirements during the next twelve months, including operations and capital expenditures.





Our future financial results will depend primarily on (1) our ability to fully implement our business plan and (2) our ability to develop our brand awareness. We cannot assure that we will be successful in any of these activities will be at a level allowing for profitable production.





We estimate that we will need approximately $9,000,000 to fund our operations over the next twelve months.  Depending on the timing and amount of our ability to raise capital, we expect to accomplish the foregoing over the subsequent twelve months through the following milestones:





1.
We hope to hire a marketing focused team to create significant sales of unique non-competing brands on and off premise in the U.S. market place. The team will consist of contract service providers on a performance based compensation plan to be scaled by region and the number of brands we manage.  Our marketing plan includes partnering with traditional and online media, attracting celebrity brand ambassadors and producing unique ad campaigns and promotions for each brand. Product placement and event sponsorship will also be used to create awareness and drive sales. This will be an immediate need for us and will be ongoing from the commencement of operations.2.
Since distributor support is critical, we will use management’s existing relationships to continue to build ties with highly-capable distributors across the United States.  With the approval of our TTB permit, as we begin to introduce our products into each state and become tax compliant, we have to decide on which distributor to use for that particular state.3.
We intend to identify a key market demographic and focus on that consumer till reaching an awareness and mass level to move to a wider distribution presence including retail. Utilizing relevant communications and grass roots marketing, Encore will make the brand resonate in the consumers mind and be a part of their behavior. By creating pivotal catalysts for trial and awareness, Encore will leverage the distribution network to support the key markets serving this demographic and utilize additional broker support when Encore’s own inside sales people are not available. This will be an immediate need of the Company and will be ongoing from the commencement of operations.




22


Our funding requirements will depend on numerous factors, including:





·
Executing our vision effectively;·
Initial sales performance of new products;·
Competition, either from known competitors in the beverage industry, or others entering into our chosen markets;·
Changes in consumer preferences and discretionary spending;·
Consumer understanding and acceptance of the EcstasyTM experience;·
General economic conditions, which can affect store traffic, local labor costs and prices we pay for the ingredients, equipment and other supplies we use; and·
Changes in government regulation.





As noted above, we believe that we do not have sufficient liquidity to satisfy our cash requirements for the next twelve months, which will require us to raise additional external funds through the sale of additional equity or debt securities.  Currently, we have no plans in place for additional capital. In any event, we expect that unless our sales increase significantly, we will need to raise additional funds in over the next 12 months to finance the costs of establishing the corporate infrastructure and related expenses, as well as sales and marketing expenses to support our introduction of our brands. The sale of additional equity securities will result in additional dilution to our shareholders. Sale of debt securities could involve substantial operational and financial covenants that might inhibit our ability to follow our business plan. Additional financing may not be available in amounts or on terms acceptable to us or at all.  If we are unable to obtain additional financing, we may be required to reduce the scope of, delay or eliminate some or all of our planned research, development and commercialization activities, which could harm our financial conditions and operating results.





Off-Balance Sheet Arrangements





There are no 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.





Inflation





We do not believe our business and operations have been materially affected by inflation.





Critical Accounting Policies





Critical accounting policies are those that management believes are both most important to the portrayal of the Company’s financial condition and results, and require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Judgments and uncertainties affecting the application of those policies may result in materially different amounts being reported under different conditions or using different assumptions.





Encore Brands, Inc. considers its policies on management’s use of estimates, stock-based compensation, and development stage financials to be the most critical in understanding the judgments that are involved in preparing its consolidated financial statements.





Management’s Use of Estimates





The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.





Revenue Recognition





Sales will be recognized when title passes to the customer, which is generally when the product is shipped or services are provided, assuming no significant Company obligations remain and the collection of relevant receivables is probable.  Amounts billed to customers for shipping and handling will be classified as sales.  Sales will reflect reductions attributable to consideration given to customers in various customer incentive programs, including pricing discounts on single transactions, volume discounts, promotional and advertising allowances, coupons, and rebates.





Product Warranty





We currently do not offer a warranty for our goods.


23


Cost of Goods Sold





The types of costs included in cost of product sold will be glass, labeling, packaging materials, finished goods, support and overheads, and freight and warehouse costs (including distribution network costs).  Distribution network costs will include inbound freight charges and outbound shipping and handling costs, purchasing and receiving costs, inspection costs, warehousing and internal transfer costs.  When new product is ordered, the company incurs the purchase of bottles and packaging related expenses in order to supply these materials to the distillery.





Shipping and Handling





Shipping and handling for product purchases will be included in cost of goods sold. Shipping and handling cost incurred for shipping of finished goods to customers will be included in selling expense. To date, the Company has not recorded any product purchases or shipping and handling costs of finished products to customers.





Selling, General and Administrative Expenses





The types of costs included in selling, general and administrative expenses consist predominately of advertising and non-manufacturing administrative and overhead costs.  Distribution network costs are not included in the Company's selling, general and administrative expenses, but will be included in cost of goods sold as described above.





The Company expenses advertising costs as incurred.





Accounts Receivable and Allowance for Doubtful Accounts





The majority of the Company’s accounts receivable will arise from sales of products under typical industry trade terms. Trade accounts receivable will be stated at cash due from customers less allowances for doubtful accounts.  Past due amounts will be determined based on established terms and charged-off when deemed uncollectible.





The Company will record an allowance for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. The allowance will be based on management’s assessment of the business environment, customers’ financial condition, accounts receivable aging and historical collection expense. Changes in any of these items may impact the level of future write-offs. As of September 30, 2010 and 2009, the Company has had limited sales, and as such no reserve was required. The Company's sales in 2010 were from one customer.





Cash and Cash Equivalents





Cash and cash equivalents include time deposits, certificates of deposit, and all highly liquid debt instruments with original purchase maturities of three months or less. As of September 30, 2010 we had cash and cash equivalents the amount of $0. The Company's sales were to one customer.





Inventory





Inventories will be valued at the lower of cost or market.  The cost will be determined by the first-in, first-out (FIFO) method and inventories are reviewed for excess quantities and obsolescence.





Costs will include customs duty (where applicable), and all costs associated with bringing the inventory to a condition for sale.  These costs include importation, handling, storage and transportation costs, and exclude rebates received from suppliers, which are reflected as reductions to closing inventory.  Inventories will be comprised primarily of beer, wine, spirits, packaging materials and non-alcoholic beverages.





Depreciation and Amortization





Depreciation will be provided over the estimated useful lives of the assets (up to 40 years for buildings, 5 to 20 years for machinery and plant equipment, 3 to 5 years for office equipment and computers and 2.5 to 7 years for vehicles) or the remaining terms of the leases, whichever is shorter, using the straight-line method for financial reporting purposes and accelerated methods for tax purposes.





Amortization is provided on the Company’s identified amortizable intangible assets recorded as a result of the license acquisition (see Note 2 for further information).


24


Income Taxes





The Company accounts for income taxes under ASC 740, “Income Taxes.”  ASC 740 requires an asset and liability approach for financial reporting for income taxes.  Under ASC 740, deferred taxes are provided for the estimated income tax effect of temporary differences between the carrying values of assets and liabilities for financial reporting and tax purposes at the enacted rates at which these differences are expected to reverse.





Long-Lived Assets





In accordance with the ASC 360, “Property, Plant, and Equipment”, the Company evaluate whenever events or changes in circumstances indicate carrying amount may not be recoverable. The Company evaluates the realizability of its long-lived assets based on cash flow expectations for the related assets. Any write-downs are treated as permanent reductions in the carrying amount of the assets.





Advertising Expense





The Company expenses advertising costs as incurred.





Earnings Per Share





In accordance with ASC 260, "Earnings Per Share", the basic net loss per common share is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding. Diluted net loss per common share is computed similar to basic net loss per common share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. At September 30, 2010, diluted net loss per share is equivalent to basic net loss per share as there were no dilutive securities outstanding.





Stock-Based Compensation





Stock based compensation expense is recorded in accordance with ASC Topic 718, “Compensation – Stock Compensation”, for stock and stock options awarded in return for services rendered. The expense is measured at the grant-date fair value of the award and recognized as compensation expense on a straight-line basis over the service period, which is the vesting period. The Company estimates forfeitures that it expects will occur and records expense based upon the number of awards expected to vest.





Fair Value of Financial Instruments





The Company's financial instruments consist of cash, accounts payable and accrued expenses, shareholder loans, convertible notes payable and note payable. Unless otherwise noted, it is management's opinion that the Company is not exposed to significant interest, currency or credit risks arising from these financial instruments. Because of the short maturity of such assets and liabilities the fair value of these financial instruments approximate their carrying values, unless otherwise noted.





Derivative Instruments





The Company’s note payable contains terms with constitute a derivative liability under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 815 and require bifurcation from the host instrument.  As required by FASB ASC 815, these instruments are required to be measured at fair value in its financial statements.  Changes in the fair value of the derivative liabilities from period to period are charged to derivative income (expense) as incurred. Since inception, the fair value of the derivative has been estimated to be zero.





Development Stage Company





The Company is considered a development stage company. In a development stage company, management devotes most of its activities to preparing the business for operations. The ability of the Company to emerge from the development stage with respect to any planned principal business activity is dependent upon its successful efforts to obtain additional equity financing and/or attain profitable operations. There is no guarantee that the Company will be able to obtain any equity financing or sell any of its products at a profit. There is, therefore, doubt regarding the Company’s ability to continue as a going concern.


25


Recent Accounting Pronouncements





Effective September 16, 2008, we adopted ASC 820, “Fair Value Measurements and Disclosures,” with respect to recurring financial assets and liabilities. We adopted ASC 820 on October 1, 2009, as it relates to nonrecurring fair value measurement requirements for nonfinancial assets and liabilities. ASC 820 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. The adoption of ASC 820 did not have a material impact on our results of operations or financial condition.





ITEM 7A.  QUANTATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK





Not Applicable





Item 8. Financial Statements.








































26


Report of Independent Registered Public Accounting Firm








To the Board of Directors of Encore Brands, Inc.


(A Development Stage Company)


Carson City, Nevada





We have audited the accompanying balance sheets of Encore Brands, Inc. (the “Company”) as of September 30, 2010 and 2009, and the related statements of operations, stockholders' equity (deficit), and cash flows for the years then ended and for the period from September 16, 2008 (Inception) to September 30, 2010. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.





We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion.  An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.





In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Encore Brands, Inc. as of September 30, 2010 and 2009, and the results of its operations and its cash flows for the years then ended and for the period from September 16, 2008 (Inception) to September 30, 2010, in conformity with accounting principles generally accepted in the United States of America.





As discussed in Note 1 to the financial statements, the Company's absence of significant revenues, recurring losses from operations, and its need for additional financing in order to fund its projected loss in 2011 raise substantial doubt about its ability to continue as a going concern. The 2010 financial statements do not include any adjustments that might result from the outcome of this uncertainty.








/s/ LBB & Associates Ltd., LLP





Houston, Texas


January 12, 2011


























27





ENCORE BRANDS, INC.


(A Development Stage Company)


BALANCE SHEETS











September 30,


September 30,Assets

2010


2009Current assets:Cash and cash equivalents

$
-


$
177Accounts receivable


20,000



-Prepaid expense


14,548



-Total current assets


34,548



177Intangible assets, net


500



1,000Total Assets

$
35,048


$
1,177Liabilities and Stockholders’ DeficitAccounts payable and accrued expenses

$
341,915


$
39,299Stockholder advances


21,954



12,360Convertible note payable and accrued interest


52,507



-Note payable and accrued interest


18,783



-Total liabilities


435,159



51,659Commitments and contingenciesStockholders’ Deficit:Common stock, $.001 par value, 75,000,000 shares authorized,

15,989,555 issued and outstanding September 30, 2010 and 2009,

respectively


15,990



15,990Paid-in capital


289,920



233,670Subscription Receivable


(900
)


(1,800
)Deficit accumulated during the development stage


(705,121
)


(298,342
)Total stockholders’ deficit


(400,111
)


(50,482
)Total Liabilities and Stockholders’ Deficit

$
35,048


$
1,177














See Notes to the Financial Statements





28





ENCORE BRANDS, INC.


(A Development Stage Company)


STATEMENTS OF OPERATIONS





Year Ended


Year Ended


September 16, 2008 (date of inception) toSeptember 30, 2010


September 30, 2009


September 30, 2010Revenue

$
20,000


$
-


$
20,000Cost of Goods Sold


1,250



-



1,250Gross Margin


18,750



-



18,750Operating Expenses:General and administrative


425,529



284,342



723,871Operating Loss


406,779



284,342



705,121Net Loss

$
(406,779
)

$
(284,342
)

$
(705,121
)Net loss per share:Basic and Diluted

$
(0.03
)

$
(0.02
)Weighted average shares outstanding:


15,989,555



15,982,146















See Notes to the Financial Statements





29


ENCORE BRANDS, INC.


(A Development Stage Company)


STATEMENTS OF CASH FLOWS





Year Ended September 30, 2010


Year Ended September 30, 2009


September 16, 2008, (inception) to September 30, 2010Cash flows from operating activitiesNet loss

$
(406,779
)

$
(284,342
)

$
(705,121
)Adjustments to reconcile net loss to net cash used in operating activitiesDepreciation and amortization


500



500



1,000Common stock issued for services


56,250



225,000



295,250Changes in operating assets and liabilitiesAccounts receivable


(20,000
)


--



(20,000
)Prepaid expense


(14,548
)


--



(14,548
)Accounts payable and accrued expenses


302,616



39,299



341,915Interest accrual


3,476



--



3,476Net cash used in operating activities


(78,485
)


(19,543
)


(98,028
)Cash flows from financing activitiesProceeds from issuance of common stock


900



7,500



8,400Proceeds from notes payable


68,718



--



68,718Proceeds from stockholder advance, net


8,690



12,360



21,050Repurchase and cancellation of common stock


-



(140
)


(140
)Net cash provided by financing activities


78,308



19,720



98,028Net increase (decrease) in cash and cash equivalents


(177
)


177



--Cash and cash equivalents, beginning of period


177



--



--Cash and cash equivalents, end of period

$
-


$
177


$
--Supplemental disclosure of cash flow information:Income taxes paid

$
--


$
--


$
--Interest paid

$
1,425


$
--


$
1,425Non-cash transactions:Common stock issued for license rights

$
--


$
--


$
1,500Common stock issued for subscription receivable

$
--


$
1,800


$
900










See Notes to the Financial Statements





30





ENCORE BRANDS, INC.


(A Development Stage Company)


Statements of Stockholders’ Equity (Deficit)


For the Period from September 16, 2008 to September 30, 2010








DeficitAccumulatedCommon Stock


Paid-in


Subscription


in the DevelopmentShares


Amount


Capital


Receivable


Stage


TotalBalance, September 16, 2008


-


$
-


$
-


$
-


$
-


$
-Net loss


















(14,000
)


(14,000
)Common Stock issued to founder for services


14,000,000



14,000



-



-



-



14,000Common Stock issued for license


1,500,000



1,500



-



-



-



1,500Balance, September 30, 2008


15,500,000



15,500



-



-



(14,000
)


1,500Repurchase and cancellation of stock


(14,000,000
)


(14,000
)


13,860



-



-



(140
)Issuance of stock to officers


14,000,000



14,000



-



-



-



14,000Common stock for cash


16,666



17



7,483



-



-



7,500Common stock issued   for subscription receivable


4,000



4



1,796



(1,800
)


-



-Common stock issued   for services


468,889



469



210,531



-



-



211,000Net loss


-



-



-



-



(284,342
)


(284,342
)Balance, September 30, 2009


15,989,555



15,990



233,670



(1,800)



(298,342
)


(50,482
)Net Loss


-



-



-



-



(406,779
)


(406,779
)Subscriptions Paid


-



-



-



900



-



900Common stock issued for services


-



-



56,250



-



-



56,250Balance, September 30, 2010


15,989,555


$
15,990


$
289,920


$
(900)


$
(705,121
)

$
(400,111
)


















See Notes to the Financial Statements





31





ENCORE BRANDS, INC.


(A Development Stage Company)


Notes to Financial Statements


September 30, 2010








Note 1 Nature of Business and Significant Accounting Policies





Encore Brands, Inc. (the "Company") is a wholesale supplier of alcoholic beverages located in Carson City, Nevada. It currently has the right and exclusive license to distribute Ecstasy Brand Liqueur in the United States and Canada. The concept behind Ecstasy Liqueur is a combination of flavored liqueur and energy drink that is a growing taste preference among drinkers. The Company is a wholesale supplier of alcoholic beverages. We intend to utilize a small marketing focused team with decades of experience in brand building to create significant sales of unique non-competing brands on and off premise in the U.S. market place.




Encore Brands, Inc. was incorporated in the State of Nevada on September 16, 2008. These financial statements have been prepared in accordance with generally accepted accounting principles applicable to a going concern, which assumes that the Company will be able to meet its obligations and continue its operations for its next fiscal year. As of September 30, 2010, the Company had not yet achieved profitable operations and has limited cash, which will not be sufficient to sustain operations over the next fiscal year, all of which raise substantial doubt about the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern is dependent upon its ability to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. Management has no formal plan in place to address this concern but considers that the Company will be able to obtain additional funds from equity financing; however there is no assurance of additional funding being available.





Management’s Use of Estimates





The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.





Revenue Recognition





Sales will be recognized when title passes to the customer, which is generally when the product is shipped or services are provided, assuming no significant Company obligations remain and the collection of relevant receivables is probable.  Amounts billed to customers for shipping and handling will be classified as sales.  Sales will reflect reductions attributable to consideration given to customers in various customer incentive programs, including pricing discounts on single transactions, volume discounts, promotional and advertising allowances, coupons, and rebates.





Product Warranty





We currently do not offer a warranty for our goods.





Cost of Goods Sold





The types of costs included in cost of product sold will be glass, labeling, packaging materials, finished goods, support and overheads, and freight and warehouse costs (including distribution network costs).  Distribution network costs will include inbound freight charges and outbound shipping and handling costs, purchasing and receiving costs, inspection costs, warehousing and internal transfer costs.  When new product is ordered, the company incurs the purchase of bottles and packaging related expenses in order to supply these materials to the distillery.





Shipping and Handling





Shipping and handling for product purchases will be included in cost of goods sold. Shipping and handling cost incurred for shipping of finished goods to customers will be included in selling expense. To date, the Company has not recorded any product purchases or shipping and handling costs of finished products to customers.


32





Selling, General and Administrative Expenses





The types of costs included in selling, general and administrative expenses consist predominately of advertising and non-manufacturing administrative and overhead costs.  Distribution network costs are not included in the Company's selling, general and administrative expenses, but will be included in cost of goods sold as described above.





The Company expenses advertising costs as incurred.





Accounts Receivable and Allowance for Doubtful Accounts





The majority of the Company’s accounts receivable will arise from sales of products under typical industry trade terms. Trade accounts receivable will be stated at cash due from customers less allowances for doubtful accounts.  Past due amounts will be determined based on established terms and charged-off when deemed uncollectible.





The Company will record an allowance for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments.  The allowance will be based on management’s assessment of the business environment, customers’ financial condition, accounts receivable aging and historical collection expense.  Changes in any of these items may impact the level of future write-offs.  As of September 30, 2010 and 2009, the Company has had limited sales, and as such no reserve was required. The Company's sales in 2010 were from one customer.





Cash and Cash Equivalents





Cash and cash equivalents include time deposits, certificates of deposit, and all highly liquid debt instruments with original purchase maturities of three months or less. As of September 30, 2010 we had cash and cash equivalents the amount of $0.





Inventory





Inventories will be valued at the lower of cost or market.  The cost will be determined by the first-in, first-out (FIFO) method and inventories are reviewed for excess quantities and obsolescence.





Costs will include customs duty (where applicable), and all costs associated with bringing the inventory to a condition for sale.  These costs include importation, handling, storage and transportation costs, and exclude rebates received from suppliers, which are reflected as reductions to closing inventory.  Inventories will be comprised primarily of beer, wine, spirits, packaging materials and non-alcoholic beverages.





Depreciation and Amortization





Depreciation will be provided over the estimated useful lives of the assets (up to 40 years for buildings, 5 to 20 years for machinery and plant equipment, 3 to 5 years for office equipment and computers and 2.5 to 7 years for vehicles) or the remaining terms of the leases, whichever is shorter, using the straight-line method for financial reporting purposes and accelerated methods for tax purposes.





Amortization is provided on the Company’s identified amortizable intangible assets recorded as a result of the license acquisition (see Note 2 for further information).





Income Taxes





The Company accounts for income taxes under ASC 740, “Income Taxes.”  ASC 740 requires an asset and liability approach for financial reporting for income taxes.  Under ASC 740, deferred taxes are provided for the estimated income tax effect of temporary differences between the carrying values of assets and liabilities for financial reporting and tax purposes at the enacted rates at which these differences are expected to reverse.





Long-Lived Assets





In accordance with the ASC 360, “Property, Plant, and Equipment”, the Company evaluate whenever events or changes in circumstances indicate carrying amount may not be recoverable. The Company evaluates the realizability of its long-lived assets based on cash flow expectations for the related assets. Any write-downs are treated as permanent reductions in the carrying amount of the assets.





33


Advertising Expense





The Company expenses advertising costs as incurred.





Earnings Per Share





In accordance with ASC 260, "Earnings Per Share", the basic net loss per common share is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding. Diluted net loss per common share is computed similar to basic net loss per common share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. At September 30, 2010, diluted net loss per share is equivalent to basic net loss per share as there were no dilutive securities outstanding.





Stock-Based Compensation





Stock based compensation expense is recorded in accordance with ASC Topic 718, “Compensation – Stock Compensation”, for stock and stock options awarded in return for services rendered. The expense is measured at the grant-date fair value of the award and recognized as compensation expense on a straight-line basis over the service period, which is the vesting period. The Company estimates forfeitures that it expects will occur and records expense based upon the number of awards expected to vest.





Fair Value of Financial Instruments





The Company's financial instruments consist of cash, accounts payable and accrued expenses, shareholder loans, convertible notes payable and note payable. Unless otherwise noted, it is management's opinion that the Company is not exposed to significant interest, currency or credit risks arising from these financial instruments. Because of the short maturity of such assets and liabilities the fair value of these financial instruments approximate their carrying values, unless otherwise noted.


Derivative Instruments





The Company’s note payable contains terms with constitute a derivative liability under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 815 and require bifurcation from the host instrument.  As required by FASB ASC 815, these instruments are required to be measured at fair value in its financial statements.  Changes in the fair value of the derivative liabilities from period to period are charged to derivative income (expense) as incurred. Since inception, the fair value of the derivative has been estimated to be zero.





Development Stage Company





The Company is considered a development stage company. In a development stage company, management devotes most of its activities to preparing the business for operations. The ability of the Company to emerge from the development stage with respect to any planned principal business activity is dependent upon its successful efforts to obtain additional equity financing and/or attain profitable operations. There is no guarantee that the Company will be able to obtain any equity financing or sell any of its products at a profit. There is, therefore, doubt regarding the Company’s ability to continue as a going concern.





Recent Accounting Pronouncements





Effective September 16, 2008, we adopted ASC 820, “Fair Value Measurements and Disclosures,” with respect to recurring financial assets and liabilities. We adopted ASC 820 on October 1, 2009, as it relates to nonrecurring fair value measurement requirements for nonfinancial assets and liabilities. ASC 820 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. The adoption of ASC 820 did not have a material impact on our results of operations or financial condition.


34





Note 2.  Intangible Assets





On September 16, 2008, the Company agreed to issue 1,500,000 shares at $.001 par of its common stock to Encore Brands LLC in exchange for the exclusive sales and distribution licensing rights to Ecstasy Brand Liqueur in the United States and Canada for a 36 month period commencing September 18, 2008.  This intangible asset is summarized in the table below. There was no active market for our shares at the time of the exchange, and we deemed par value to be the best measurement of fair value at the time of the exchange.





Gross


Accumulated Amortization


NetLicense Rights


1,500



1,000



500$
1,500


$
1,000


$
500





The estimated amortization for the next year will be $500.





Note 3.  Lease Rental Obligations





Currently the company does not have any lease obligations.





Note 4.  Long-Term Debt and Notes Payable





As of September 30, 2010 and September 30, 2009 amounts outstanding on Notes Payable were $71,290 and $0, respectively.





On December 18, 2009, Encore Brands, Inc. entered into a $50,000 Bridge Loan and Investment Agreement (the "Bridge Loan Agreement"), which is filed as by and between Peter Staddon, an individual (the “Lender”), and Encore Brands, Inc., a Nevada corporation (“Encore”).  Encore’s obligations under the Bridge Loan Agreement include:  (1) the issuance of a Promissory Note, (2) a financing and documentation fee (“Financing Fee”) to the Lender, and (3) the issuance of a 55,555 Common Stock Purchase Warrant to acquire shares of common stock at a price of $0.45 per share for two years. The loan is unsecured, bears interest at 10% per annum, and matured on March 31, 2010 at which time all unpaid principal and accrued interest is due.  As of September 30, 2010, the Company had paid $1,425 of interest.  The notes maturity was extended to December 31, 2010, and is currently in default.





The loan is convertible into shares of the Company’s stock at a conversion price of a 15% discount to the ten-day volume weighted average price per share of the stock. If there is no market for the stock, the conversion price shall be determined by the Board of Directors. In no circumstances can the loan be converted if the conversion price will be less than $0.30 per share.





All shares of stock issuable under the warrants and the loan conversion are provided registration rights. There are no penalties to the Company for non-registration of these shares.





Management determined that the conversion option in the note payable was a derivative liability as defined by ASC 815, and required bifurcation as separate financial instrument due to the variable conversion terms. However, as the Company’s stock has not traded significantly in an open market, the value of the derivative was determined to be immaterial.





On September 16, 2010, Encore Brands, Inc. entered into a $18,718 Loan Agreement (the "Loan Agreement"), which is filed as by and between Global Premium Brands, Inc., a Nevada corporation (the “Lender”), and Encore Brands, Inc., a Nevada corporation (“Encore”) and is secured by pending purchase orders with ACME Spiritz in India, and current inventory, if any.  Currently, the note is in default due to the 1-quarter delay in the ACME order.





35


Note 5. Income Taxes





The Company follows Accounting Standards Codification 740 "Income Taxes." Deferred income taxes reflect the net effect of (a) temporary difference between carrying amounts of assets and liabilities for financial purposes and the amounts used for income tax reporting purposes, and (b) net operating loss carry-forwards. No net provision for refundable Federal income tax has been made in the accompanying statement of loss because no recoverable taxes were paid previously. Similarly, no deferred tax asset attributable to the net operating loss carry-forward has been recognized, as it is not deemed likely to be realized.





The cumulative tax effect at the expected rate of 34% of significant items comprising our net deferred tax amount is as follows:





September 30, 2010


September 30, 2009Income tax benefit attributable to:Net operating loss

$
138,000


$
97,000Less stock based compensation


-



(77,000
)Less change in valuation allowance


138,000



(20,000
)Net refundable amount

$
-


$
-





The cumulative tax effect at the expected rate of 34% of significant items comprising our net deferred tax amount is as follows:





September 30, 2010

September 30, 2009Deferred tax asset attributable to:Net operating loss carryover

$
163,000


$
25,000Valuation allowance


(163,000
)


(25,000
)Net deferred tax asset

$
-


$
-





At September 30, 2010, the Company had an unused net operating loss carry-forward approximating $466,000 that is available to offset future taxable income; the loss carry-forward will start to expire in 2028.





Note 6. Commitments and Contingencies





The Company currently has no contingent liabilities for existing or potential claims, lawsuits and other proceedings.  We accrue liabilities when it is probable that future costs will be incurred and these costs can be reasonably estimated.  Accruals are based on developments to date, our estimates of the outcomes of these matters and our experience in contesting, litigating and settling other matters.  As the scope of the liabilities becomes better defined, there may be changes in the estimates of future costs.





Note 7. Related-Party Transactions





During the twelve months ended September 30, 2010, the Company loaned a total of $5,000 to its Chief Executive Officer, which was then recorded as salary expense during the same period.





During the twelve months ended September 30, 2010, the Company received $10,000 of advances from shareholders. These advances are unsecured, bear interest at 3.25% and have no specific repayment date. The balance owed to the shareholders was $21,954 and $12,360 as of September 30, 2010 and September 30, 2009. The Company repaid $1,310 of advances to the shareholder during the twelve months ended September 30, 2010.





During the twelve months ended September 30, 2010, the Company agreed to pay $750 to its Chief Financial Officer for the use of office space. As of September 30, 2010, $4,500 was paid and $2,250 accrued. Each officer also receives $12,500 per month as salary. No amounts were paid during the period, and expense of $287,500 was accrued for as of September 30, 2010.





Note 8. Capital Stock





As of the period ended September 30, 2010 the company had 75,000,000 million authorized and 15,989,555 shares outstanding for the years ending September 30, 2010 and 2009, respectively.


36


On June 17, 2009, the Board of Directors accepted the resignation of Thomas Roth as President, CEO, and Director. The Company repurchased 14,000,000 shares of stock owned by Mr. Roth for $140, and cancelled the shares. On June 17, 2009 the Board of Directors elected Gareth West to replace Thomas Roth as President, CEO, and Director. On July 13, 2009, the Company approved the issuance of 14,000,000 shares to Gareth West. Stock-based compensation expense of $14,000 was recognized for this issuance, based on management’s determination of fair value of each share to be par value, $0.001. No active market existed for the shares at the time of issuance.





During 2009, the Company issued 20,666 shares at $0.45 per share for cash proceeds of $7,500 and a subscription receivable of $1,800. The Company also issued 468,889 shares at $0.45 per share to consultants for services valued at $211,000. $900 of the subscription was collected in 2010.





On May 7, 2010, the Company entered into an agreement with Sichenzia Ross Friedman Ference LLP, to provide legal representation in connection with SEC matters.  The terms of the agreement require the issuance of 125,000 shares of common stock and a monthly retainer of $3,500. As of September 30, 2010, these shares have yet to be issued. The fair value of these shares was $56,250.





On June 17, 2010 the Company entered into a two-year agreement with Heerdink Advisory Services, LLC to provide Securities and Investment Advisory Services in order to solicit and obtain financings for a completion fee of 8% and warrants equal to 8% of the shares purchased in the financing, contingent upon the completion of Encore’s Form S-1 becoming effective.





On June 21, 2010 the Company entered into an two-year agreement with Vista Partners to act as a capital market advisor. Under terms of the agreement, the Company is to make the following payments:


•  Issuance of 750,000 shares of common stock and $10,000 due upon the effective date of the agreement.


•  Issuance of 500,000 shares of common stock due upon the 7th month of agreement and monthly payments of $7,500 for the following six months


•  Issuance of 500,000 shares of common stock due upon the 13th month of agreement and monthly payments of $10,000 for the following six months


•  Issuance of 500,000 shares of common stock due upon the 19th month of agreement and monthly payments of $12,500 for the following six months.





On August 12, 2010, both parties amended the agreement to change the effective date of the agreement to be contingent upon the completion of Encore’s Form S-1 becoming effective. As of September 30, 2010, no shares have been issued or recognized and no payments have been made.





On July 27, 2010, the Company entered into a three-year and three-year rolling MOU with Pelican Brands, LLC to act as its National Sales and Marketing Agent for the U.S. market.  The terms of the agreement in year one include a minimum cases sold requirement of 8,000 9-liter cases, sales commissions of 12% and a monthly management fee of $8,000, increasing to $16,000 per month in year two and $20,000 per month in year 3.





Note 9. Subsequent Events





On October 1, 2010 Encore engaged the services of Christopher Risdon as a consultant to help represent, establish and create sales of the Company’s products and brokered products both on and off premises for a monthly fee of $2,000, and 6,000 shares of stock per month. No shares have been issued to date.




On December 20, 2010 Encore Brands and Worldwide Beverage Imports, LLC entered into a three year agreement that Encore shall be engaged by WWBI to provide certain services in relation to WWBI’s development, promotion and sales of its products.  These services shall be provided as long as the marketing agreement contract between Encore and WWBI exits or is maintained between the two parties.  Encore shall assist WWBI in the development, promotion and brokering of WWBI brands including, but not limited to Agave 99 Tequila in the United States, Sales and Marketing and Consulting.





On January 10, 2011, Encore Brands, Inc. entered into a Design & Development Agreement (the "The Agreement"), between Cervecceria Mexicana, S. de R.I. de C.V., a corporation formed under the laws of the Republic of Mexico (“CERMEX”), and the Company for 3,000,000 shares of restricted Rule 144 shares in Encore’s common stock, vesting over the 3-year period in arrears.  CERMEX’s obligations under the Agreement are to provide the resources and assistance in the design and development of two private label beers a year, and Encore’s obligations are to manage sales, promotional activities, etc. as the owner of any registered trademarks developed and in the brokering of any of CERMEX’s existing labels. These shares were issued subsequent to year end.





37


Item 9.  Changes in and Disagreements With Accountants on Accounting and Financial Disclosures.





None.





Item 9A.  Controls and Procedures.





Evaluation of Disclosure Controls and Procedures.





As of September 30, 2010, our principal executive officer and principal financial officer evaluated the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended). This evaluation of the disclosure controls and procedures included controls and procedures designed to ensure that information required to be disclosed by the Company in its reports that it files or submits under the Act is recorded, processed, summarized and reported within the time periods specified in the Security and Exchange Commission’s rules and forms. Such disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Act is accumulated and communicated to the Company's management, including its principal executive and principal financial officers, to allow timely decisions regarding required disclosure. Based on this evaluation, the Company's principal executive officer and principal financial officer concluded that the Company's disclosure controls and procedures were effective as of September 30, 2010.





Management’s Report on Internal Control over Financial Reporting





Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Under the supervision and with the participation of our management, which consists of our Chief Executive Officer and our Chief Financial Officer, we conducted an evaluation of the effectiveness of internal control over financial reporting based on criteria established in the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), as supplemented by the COSO publication Internal Control over Financial Reporting – Guidance for Smaller Public Companies. Based on their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our internal control over financial reporting was not effective as of September 30, 2010.





This annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to such attestation pursuant to rules of the Securities and Exchange Commission that permit us to provide only management’s report in this annual report.





Changes in Internal Control over Financial Reporting





No changes in the Company's internal control over financial reporting have come to management's attention during the Company's last fiscal quarter that have materially affected, or are likely to materially affect, the Company's internal control over financial reporting.





Item 9B.  Other Information.





None.





Part III





Item 10. Directors, Executive Officers and Corporate Governance.





The following table sets forth the names, ages, and positions of the Company’s executive officers and directors.





Name

Age

Positions and Offices HeldGareth West


39

Chief Executive Officer and DirectorAlex G. McKean


46

Chief Financial OfficerEric Barlund


43

DirectorMurray Williams


40

Director





The following summarizes the occupation and business experience for the Company’s officers, directors, and key employees.  Executive officers are elected annually by the Company’s Board of Directors. Each executive officer holds his office until he resigns, is removed by the Board, or his successor is elected and qualified. Directors are elected annually by the Company’s shareholders at the annual meeting. Each director holds his office until his successor is elected and qualified or his earlier resignation or removal.


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Biographies





Gareth West – Chief Executive Officer and Director.  Mr. West has been our chief executive officer and director since June 2009.  Since 1999 Mr. West has been involved in the entertainment and production business, primarily functioning as an independent film producer, as well as producing through the Syndicate LLC   As a producer, Mr. West has enjoyed success, producing five movies, including “Pitfighter”, a martial arts action movie, starring Steven Bauer (“Scarface”, “Traffic”), which was released in June 2005 by 20th Century Fox Home Entertainment;  “Chasing Ghosts” 2005, a thriller starring Michael Madsen (“Kill Bill”); “Unbeatable Harold” 2006, stars Dylan McDermott, Gladys Knight and Nicole DeHuff; “Ghost Game”, being distributed by American World Pictures and “Cult” 2007, starring “Hustle & Flow’s” Taryn Manning.  Beginning in 1995, Mr. West commenced his involvement with The Wine Bank, U.K. that he helped found.   As a founder, Mr. West was active in the company as Sales and Marketing Director before leaving in 2001.  In the role of Sales and Marketing Director he was instrumental in building the companies turnover from $1 to $25 million.  During his tenure at The Wine Bank, Gareth developed many innovative award winning new brands including Simply and the Body & Soul range. Mr. West was selected as a director based on his leadership and ideas to build a business from the ground up. His concept of licensing brands and marketing them in the US is not new, but having successfully done this in the past his knowledge and relationships are key to creating value for shareholders.





Alex G. McKean - Chief Financial Officer.   Mr. McKean has been our chief financial officer since October 2009.  Previous to that, he acted as an independent management consultant under his own firm, McKean Financial Consulting as well as an independent contractor with Robert Half International and Ajilon Finance for clients such as: Charles Drew University, First California Bank, American Apparel, Color Spot Nurseries, and International Aluminum, providing services in accounting, regulatory filings, compliance, M&A and valuations. Prior to establishing his own firm, during 2004-2007 Mr. McKean was with Parson Consulting working in such areas as: strategy, financial modeling, SEC filings, process management and Sarbanes Oxley. Major clients included: Citigroup, Arvin Meritor, KeyEnergy, Ameriquest, and Ecolab. Mr. McKean has held positions as a Controller and VP of Finance at 24:7 Film from 2002-2204, VP of Finance at InternetStudios.com from 2000-2002, Director of FP&A/SVP at Franchise Mortgage Acceptance Company from 1998-2000, as Corporate Accounting Manager/Treasurer of Polygram Filmed Entertainment from 1996-1998 and Assistant Treasurer/Controller for State Street Bank from 1989-1996. Mr. McKean holds an International MBA from Thunderbird's School of Global Management and undergraduate degrees in Finance and Political Science from Trinity University.





Eric Barlund - Director.   Mr. Barlund has been our director since October 2008.  Currently, Mr. Barlund is Vice President and Sales Manager for Titos Vodka.   From 2005 until 2008 Mr. Barlund was actively developing and managing Ecstasy Liquor,   Mr. Barlund conducted business as a sole proprietor under the name Spirited Solutions while involved developing the Ecstasy Liqueur Brand for Encore Brands LLC in managing its national sales efforts and distributor relationships.  From 2000 until 2004, Mr. Barlund was Vice President central region of Nolet Spirits USA, Ketel One Vodka. From 1998 to 2000 Mr. Barlund was regional manager of Ketel One in 9 Midwest states with gross annual sales of $66 million. From 1989 to 1998 Mr. Barlund was district manager for Judge & Dolph LTD, a midwest distributor representing a large spirit portfolio including Allied Domecq, Sidney Frank, Grant and Sons, Barton Brands, Diageo and Nolet Spirits. Mr. Barlund has a BA in Communications and English from Indiana University.  Mr. Barlund was selected as a director based on his being a highly respected senior level professional in the spirits industry with nearly 20 years of experience. His integrity, insight and guidance are valued components as we conduct our business of marketing our products and growing sales. From distributor management, to sales programming and brand building.





Murray Williams – Director. Mr. Williams has been our director since October 2008.  Mr. Williams has been Chief Financial Officer, Treasurer and Secretary of GTX Corp., a personal location solutions company (GTXO.OB) since March 14, 2008.   From February 2007 until March 2008, Mr. Williams was an independent business and financial consultant to individuals and development stage companies.    From June 2005 to February 2007, Mr. Williams was the Chief Financial Officer and director of Interactive Television Networks, Inc. ("ITVN"), a public company and a leading provider of Internet Protocol Television hardware, programming software and interactive networks. Prior to joining ITVN, from September 2001, Mr. Williams was a consultant and investor in numerous companies, including ITVN.  In January 1998, Mr. Williams was one of the founding members of Buy.com, Inc.  Mr. Williams developed the finance, legal, business development and human resource departments of Buy.com and last served as its Senior Vice President of Global Business Development until August 2001.  Prior to joining Buy.com, from January 1993 to January 1998, Mr. Williams was employed with KPMG Peat Marwick, LLP and last served as a manager in their assurance practice.  Mr. Williams managed a team of over 20 professionals specializing in financial services with an emphasis on public offerings, private financings and mergers/acquisitions. Mr. Williams also serves on the board of directors of Beyond Commerce, Inc., a public company that operates a social Web site and an internet advertising business.  Mr. Williams is a CPA and received degrees in both Accounting and Real Estate from the University of Wisconsin-Madison. Mr. Williams was selected as a director based on his professional experience as executive officer and board member of publicly listed companies. His knowledge is invaluable to the financial decisions necessary to operate the company and to meet the compliance requirements of the SEC and FINRA.





Family Relationships





None.


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Involvement in Certain Legal Proceedings





To our knowledge, during the last ten years, none of our directors, executive officers (including those of our subsidiaries), promoters or control persons have:





·
Had a bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time.·
Been convicted in a criminal proceeding or been subject to a pending criminal proceeding, excluding traffic violations and other minor offenses.·
Been subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities.·
Been found by a court of competent jurisdiction (in a civil action), the SEC, or the Commodities Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated.·
Been the subject to, or a party to, any sanction or order, not subsequently reverse, suspended or vacated, of any self-regulatory organization, any registered entity, or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.





Board Committees; Corporate Governance





The Board of Directors acts as the Audit Committee and the Board has no separate committees. The Company does not currently have an audit committee. We expect our Board of Directors to appoint an audit committee, a nominating committee and a compensation committee and to adopt charters relative to each such committee. We intend to appoint such persons to committees of the Board of Directors as are expected to be required to meet the corporate governance requirements imposed by a national securities exchange.





The Company does not have an audit committee financial expert.





Code of Ethics





We have not adopted a Code of Business Conduct and Ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions because of the small number of persons involved in the management of the company.





Item 11. Executive Compensation.





Summary Compensation Table





The following table shows the compensation awarded or paid to, or earned by the officers and directors of Encore Brands, Inc. for the years ended September 30, 2010, 2009, respectively.





Name and Principal Position
Year

Salary

($)

Bonus

($)

Stock

Awards

($)

Option

Awards

($)

Non-Equity Incentive Plan Compensation ($)

Non-Qualified Deferred Compensation Earnings

($)

All Other Compensation

($)

Totals

($)Gareth West,

Chief Executive Officer, Director
2010


150,000

-

$
-

-


-

-


-

-2009


-

-

$
14,000

-


-

-


-

-Alex McKean, CFO
2010


137,500Tom Roth, Former CEO (1)
2009


-

-


-

-


-

-


-

-





(1)
Mr. Roth resigned as chief executive officer on June 17, 2009.


40





Executive salaries were not paid in 2008 and 2009.  Beginning in 2010, all salaries are accrued, but not paid at a rate of $150,000 per executive.





Outstanding Equity Awards at Fiscal Year-End





None.





Employment Agreements





None.





Director Compensation





For the year ended September 30, 2010 we did not pay any director fees.  We accrued $30k in compensation for our two outside directors for their work performed through the fiscal year ended September 30, 2009 for services performed during the company’s Board of Director’s meetings and for being available for industry and professional consultation related to the formation and strategic plan of marketing the Ecstasy Brand.   None of our directors receive a fee for attending each board of directors meeting or meeting of a committee of the board of directors. All directors will be reimbursed for their reasonable out-of-pocket expenses incurred in connection with attending board of director and committee meetings.





Director CompensationName
Fees Earned

or Paid in

Cash

($)
Stock

Awards

($)
Option

Awards

($)
Non-Equity Incentive

Plan Compensation

($)
Change in Pension

Value and Nonqualified

Deferred Compensation

Earnings

($)

All Other

Compensation

($)


Total

($)Murray Williams







15,000



15,000Eric Barlund







15,000



15,000





Item12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.





The following table sets forth information regarding the beneficial ownership of our common stock as of January 13, 2011, by (a) each person who is known by us to beneficially own 5% or more of our common stock, (b) each of our directors and executive officers, and (c) all of our directors and executive officers as a group.





Name (1)

Number of Shares

Beneficially Owned


Percentage of Shares

Beneficially Owned (2)Gareth West


14,000,000



73.72
%Alex McKean


0



*Eric Barlund


1,000



*Murray Williams


500



*All directors and executive officers as a group (4 persons )


14,001,500



73.72
%5% ShareholdersCerveceria Mexicana, S. de R.I. de C.V.


3,000,000



15.79Encore Brands, LLC (3)


1,500,000



7.89
%


* Less than 1%


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(1)
The address of each person is c/o Encore Brands, Inc., 502 East John Street, Carson City, Nevada 89706, unless otherwise indicated herein.(2)
The calculation in this column is based upon 18,989,555 shares of common stock outstanding on January 13, 2011. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to the subject securities. Shares of common stock that are currently exercisable or exercisable within 60 days of January 13, 2011 are deemed to be beneficially owned by the person holding such securities for the purpose of computing the percentage beneficial ownership of such person, but are not treated as outstanding for the purpose of computing the percentage beneficial ownership of any other person.(3)
David Kaufman has sole voting and dispositive power over the shares held by Encore Brands, LLC.





Item 13. Certain Relationships and Related Transactions, and Director Independence.





On September 16, 2008, we entered into an exclusive license agreement with Encore Brands LLC pursuant to which we were granted an exclusive, nontransferable, nonsublicensable limited right to sell distribute and market EcstasyTM Brand Liqueur in the United States and Canada. Currently our operations depend wholly on the license and sale of the EcstasyTM Brand Liqueur and its successor rights. The current license is good through September 16, 2014 and is automatically renewable for another three years.  In consideration for the granting of the exclusive license, we issued Encore Brands LLC 1,500,000 shares of our common stock.   The relationship between Encore Brands, Inc. and Encore Brands LLC is not as a related party, but as the single supplier for our first brand offering, and thus are vested in the normal dealings of the brands in our course of business.  The shares issued to the company for the purchase of the license are under the 10% threshold of an affiliated entity and to-date no officers are common between the two companies.





We rent office space from McKean & Margerum Enterprises, Inc., an entity controlled by Alex McKean, our chief financial officer, at 1525 Montana Avenue, Suite C, Santa Monica, CA 90403, on a month-to-month basis at a rate of $750 per month.  Either party may terminate the arrangement upon notice to the other party. This agreement was entered into in February 2010.





On June 17, 2009, the Board of Directors accepted the resignation of Thomas Roth as President, CEO, and Director. The Company repurchased 14,000,000 shares of stock owned by Mr. Roth for $140, and cancelled the shares.





On June 17, 2009 the Board of Directors elected Gareth West to replace Thomas Roth as President, CEO, and Director. On July 13, 2009, the Company approved the issuance of 14,000,000 shares to Gareth West. Stock-based compensation expense of $14,000 was recognized for this issuance, based on management’s determination of fair value of each share to be par value, $0.001. No active market existed for the shares at the time of issuance and as such it was determined that the par value of our common stock was a reasonable fair value given the early stage of our development.





The Company has received loans from shareholders during 2010. The balance of these loans was $21,954 and $12,360 as of September 30, 2010 and 2009, respectively. The loans bear interest at 3.25%, are unsecured and due on demand.





Item 14. Principal Accountant Fees and Services.





The following is a summary of fees for professional services rendered by LBB & Associates LTD., LLP, (“LBB”), our independent registered public accounting firm, for the years ended September 30, 2010 and 2009 as follows:





Year ended September 30,2010


2009Audit fees

$
14,725


$
10,585Audit related fees


7,190



4,390Tax fees


-0-



-0-All other fees


-0-



-0-Total

$
21,915


$
14,975





Audit fees.   Audit fees represent fees for professional services performed by LBB for the audit of our annual financial statements and the review of our quarterly financial statements, as well as services that are normally provided in connection with statutory and regulatory filings or engagements.





Audit-related fees.  Audit-related fees represent fees for assurance and related services performed by LBB that are reasonably related to the performance of the audit or review of our financial statements. These services include the review of our registration statement of Form S-1 and communications with SEC regarding 10-K and 10-Q forms filed in 2010.





42


Tax Fees. There were no other fees paid to LBB.





All other fees.  There were no other fees paid to LBB.





Part IV:





Item15. Exhibits, Financial Statement Schedules.





(1)
Financial Statements





See Index to Consolidated Financial Statements on Page F-1





(2)
Financial Statement Schedules





All financial statement schedules are omitted because they are not applicable, not required under the instructions or all the information required is set forth in the financial statements or notes thereto.





(3) Exhibits





Exhibit Number

Description3.1

Articles of Incorporation of Encore Brands, Inc. (herein incorporated by reference to Exhibit 3.1 from the Company’s Registration Statement on Form S-1 filed with the Securities and Exchange Commission on January 7, 2009).3.2

Bylaws of Encore Brands, Inc. (herein incorporated by reference to Exhibit 3.2 from the Company’s Registration Statement on Form S-1 filed with the Securities and Exchange Commission on January 7, 2009).4.1

Promissory Note with Peter Staddon, dated December 18, 2009 (herein incorporated by reference to Exhibit 10.2 from the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on December 23, 2009).10.1

Licensing Agreement, dated September 18, 2008 by and between Encore Brands Inc. and Encore Brands LLC (herein incorporated by reference to Exhibit 99.2 from the Company’s Registration Statement on Form S-1/A filed with the Securities and Exchange Commission on February 20, 2009).10.3

Loan Agreement, by and among Encore Brands, Inc., and Peter Staddon, dated December 18, 2009 (herein incorporated by reference to Exhibit 10.1 from the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on December 23, 2009).10.4

Securities Purchase Agreement by and among the Registrant and Peter Staddon, dated December 18, 2009 (herein incorporated by reference to Exhibit 10.3 from the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on December 23, 2009).10.5

Agreement, dated June 17, 2010 by and between Encore Brands Inc. and Heerdink Advisory Services LLC (herein incorporated by reference to Exhibit 10.5 from the Company’s Registration Statement on Form S-1 filed with the Securities and Exchange Commission on November 12, 2010).10.6

Agreement, dated June 21, 2010 by and between Encore Brands Inc. and Vista Partners LLC (herein incorporated by reference to Exhibit 10.6 from the Company’s Registration Statement on Form S-1 filed with the Securities and Exchange Commission on November 12, 2010).10.7

Amendment to License Agreement, dated August 12, 2010 between Encore Brands, Inc. and Encore Brands LLC (herein incorporated by reference to Exhibit 10.7 from the Company’s Registration Statement on Form S-1 filed with the Securities and Exchange Commission on November 12, 2010).10.8

Requirements Contract dated September 1, 2010, by and between Encore Brands, Inc. and Distilled Resources, Inc.*31.1

Certification as Adopted Pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002 by Chief Executive Officer.31.2

Certification as Adopted Pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002 by Chief Financial Officer.32.1

Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Chief Executive Officer and Chief Financial Officer.





* to be filed by amendment


43








SIGNATURES





Pursuant to the requirements of Section 13 or 15(d) 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.





ENCORE BRANDS, INC.Dated: January 13, 2011
By:
/s/ Gareth WestName:
Gareth WestTitle:
Chief Executive Officer (Principal Executive Officer) and Director





Dated: January 13, 2011
By:
/s/ Alex McKeanName:
Alex McKeanTitle:
Chief Financial Officer (Principal Financial and Accounting Officer)








Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.








SIGNATURE

TITLE

DATE/s/ Gareth West

Gareth West

Chief Executive Officer and Director

(Principal Executive Officer)

January 13, 2011/s/ Alex McKean

Alex McKean

Chief Financial Officer

(Principal Financial and Accounting Officer)

January 13, 2011/s/ Eric Barlund

Eric Barlund

Director

January 13, 2011/s/ Murray Williams

Murray Williams

Director

January 13, 2011



































44