UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 10-Q



S	QUARTERLY REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES 	EXCHANGE ACT OF 1934



For the Quarterly Period Ended June 30,
2012



[ ] 	TRANSITION REPORT UNDER SECTION
13 OR 15(d) OF THE SECURITIES 	EXCHANGE ACT OF 1934



For the Transition
Period From ____to _____



Commission File Number: 000-52670



PANACHE BEVERAGE INC.

(Exact name of small business issuer as specified
in its charter)





|Florida                         | 20-2089854                       
|------------------------------- | ---------------------------------
|(State or other jurisdiction of | (IRS Employer Identification No.)
|incorporation or organization)  |                                  





40 W. 23rdStreet, 2nd
Floor, New York, NY 10010

(Address of principal executive offices)



(347) 436-8383

(Issuer's telephone number)





Indicate by
check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during
the past 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 S	No [ ]



Indicate by
check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding
12 months (or such shorter period that the registrant was required to submit and post such files).

Yes [x]	No [ ]





Indicate by
check mark if disclosure of delinquent filers pursuant to Item 405 if Regulation S-K (229.405 of this Chapter) is not contained
herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy of information statements
incorporated by reference in Part III of this Form 10-Q or any amendments to this Form 10-Q.

Yes [ ]	No S



Indicate by
check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting
company” in Rule 12b-2 of the Exchange Act.



|Large accelerated filer   | £                                              
|------------------------- | -----------------------------------------------
|Non-accelerated filer     | £ (Do not check if a smaller reporting company)
|Accelerated filer         | £                                              
|Smaller reporting company | S                                              



Indicate by
check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act).

Yes [ ] 	No S



Indicate by
check mark if the registrant is not required to file reports pursuant to Section 12, 13 or 15(d) of the Securities Exchange Act
of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

Yes [ ]	No [ ]



Number of shares
of common stock, par value $.001, outstanding as of August 10, 2012: 26,382,891





CAUTIONARY STATEMENT REGARDING FORWARD LOOKING
INFORMATION



The discussion
contained in this 10-Q under the Securities Exchange Act of 1934, as amended, contains forward-looking statements that involve
risks and uncertainties. The issuer's actual results could differ significantly from those discussed herein. These include statements
about our expectations, beliefs, intentions or strategies for the future, which we indicate by words or phrases such as "anticipate,"
"expect," "intend," "plan," "will," "we believe," "the Company believes,"
"management believes" and similar language, including those set forth in the discussions under "Notes to Consolidated
Financial Statements" and "Management's Discussion and Analysis or Plan of Operation" as well as those discussed
elsewhere in this Form 10-Q. We base our forward-looking statements on information currently available to us, and we assume no
obligation to update them. Statements contained in this Form 10-Q that are not historical facts are forward-looking statements
that are subject to the "safe harbor" created by the Private Securities Litigation Reform Act of 1995.







(1)


Table of Contents










| | TABLE OF CONTENTS             | 
| | ----------------------------- | 
| |                               | 
| | PART I. FINANCIAL INFORMATION | 





|                                                                                              | 
|--------------------------------------------------------------------------------------------- | 
|ITEM 1. FINANCIAL STATEMENTS                                                                  | 
|                                                                                              | 
|ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 
|                                                                                              | 
|ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                            | 
|                                                                                              | 
|ITEM 4. CONTROLS AND PROCEDURES                                                               | 
|                                                                                              | 
|PART II. OTHER INFORMATION                                                                    | 
|                                                                                              | 
|ITEM 1. LEGAL PROCEEDINGS                                                                     | 
|                                                                                              | 
|ITEM 1A. RISK FACTORS                                                                         | 
|                                                                                              | 
|ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS                           | 
|                                                                                              | 
|ITEM 3. DEFAULTS UPON SENIOR SECURITIES                                                       | 
|                                                                                              | 
|ITEM 4. MINE SAFETY DISCLOSURES                                                               | 
|                                                                                              | 
|ITEM 5. OTHER INFORMATION                                                                     | 
|                                                                                              | 
|ITEM 6. EXHIBITS                                                                              | 
|                                                                                              | 
|SIGNATURES                                                                                    | 
|                                                                                              | 
|INDEX TO EXHIBITS                                                                             | 





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Table of Contents








|PANACHE BEVERAGE, INC.                                                                                                                                                                                                                                                             
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|CONSOLIDATED BALANCE SHEETS -
    (Unaudited)                                                                                                                                                                                                                                      
|                                                                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                                                                   
|ASSETS                                                                                                                                                                                                                                                                             
|Current Assets                                                                                                                                                                                                                                                                     
|Cash and cash equivalents                                                                                                                                                                                                                                                          
|Accounts receivable – net                                                                                                                                                                                                                                                          
|Inventory                                                                                                                                                                                                                                                                          
|Prepaid expenses and other
    current assets                                                                                                                                                                                                                                      
|Total Current Assets                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                   
|Property and Equipment - net                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                   
|TOTAL ASSETS                                                                                                                                                                                                                                                                       
|                                                                                                                                                                                                                                                                                   
|LIABILITIES AND EQUITY (DEFICIT)                                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                                                                   
|Current Liabilities                                                                                                                                                                                                                                                                
|Accounts payable                                                                                                                                                                                                                                                                   
|Due to factor                                                                                                                                                                                                                                                                      
|Notes payable                                                                                                                                                                                                                                                                      
|Loans payable – related parties                                                                                                                                                                                                                                                    
|Consulting fees payable – related party                                                                                                                                                                                                                                            
|Accrued interest                                                                                                                                                                                                                                                                   
|Other current liabilities                                                                                                                                                                                                                                                          
|Total Current Liabilities                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                   
|Long term debt                                                                                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                   
|Total Liabilities                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                   
|Equity (Deficit)                                                                                                                                                                                                                                                                   
|Common stock, par value $0.001; 200,000,000
    and 200,000,000     shares authorized as of June 30, 2012 and December 31,     
    2011, respectively; 26,332,891 and 25,107,891 shares     issued and outstanding as of June 30, 2012 and December
        31, 2011, respectively
|Additional paid in capital                                                                                                                                                                                                                                                         
|Additional paid in capital - warrants                                                                                                                                                                                                                                              
|Treasury stock, at cost, 50,000 and 0 shares
    as of June 30, 2012     and December 31, 2011, respectively                                                                                                                                                                       
|Retained (deficit)                                                                                                                                                                                                                                                                 
|Total stockholders' deficit                                                                                                                                                                                                                                                        
|Non-controlling interests                                                                                                                                                                                                                                                          
|Total Equity (Deficit)                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                                                   
|TOTAL LIABILITIES AND
    EQUITY (DEFICIT)                                                                                                                                                                                                                                         







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|PANACHE BEVERAGE, INC.                                                       
|-----------------------------------------------------------------------------
|CONSOLIDATED STATEMENTS OF OPERATIONS 
    - (Unaudited)                     
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|REVENUES - NET                                                               
|                                                                             
|COST OF GOODS SOLD                                                           
|                                                                             
|GROSS PROFIT                                                                 
|                                                                             
|OPERATING EXPENSES                                                           
|Advertising and promotion                                                    
|Consulting                                                                   
|Professional fees                                                            
|General and administrative                                                   
|TOTAL OPERATING EXPENSES                                                     
|                                                                             
|LOSS FROM OPERATIONS                                                         
|                                                                             
|OTHER EXPENSE                                                                
|Interest expense                                                             
|                                                                             
|LOSS FROM OPERATIONS AND BEFORE NON-CONTROLLING
    INTERESTS                
|                                                                             
|LESS: LOSS ATTRIBUTABLE
    TO NON-CONTROLLING INTERESTS                     
|                                                                             
|LOSS BEFORE PROVISION FOR
     INCOME TAXES                                  
|                                                                             
|PROVISION FOR INCOME TAXES                                                   
|                                                                             
|NET LOSS ATTRIBUTABLE
    TO         PANACHE BEVERAGE, INC.                  
|                                                                             
|BASIC AND DILUTED RESULTS PER SHARE OF COMMON
    STOCK:                     
|                                                                             
|LOSS PER SHARE
    ATTRIBUTABLE TO PANACHE BEVERAGE, INC.:  BASIC AND DILUTED
|                                                                             
|WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
    BASIC AND DILUTED         











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|PANACHE BEVERAGE,
    INC.                                                              
|----------------------------------------------------------------------------------------
|CONSOLIDATED
    STATEMENTS OF CASH FLOWS - (Unaudited)                                 
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|CASH FLOWS FROM OPERATING ACTIVITIES                                                    
|Net (loss) income for the period                                                        
|Adjustments to Reconcile Net (Loss) Income to
    Net Cash Used in Operating Activities:
|Non-controlling interest                                                                
|Depreciation                                                                            
|Bad debt expense                                                                        
|Stock issued for services rendered                                                      
|Advertising expense from capital contribution                                           
|Stock-based compensation                                                                
|Changes in assets and liabilities:                                                      
|Accounts receivable                                                                     
|Inventory                                                                               
|Prepaid expenses                                                                        
|Accounts payable                                                                        
|Consulting fees payable – related party                                                 
|Accrued interest                                                                        
|Other current liabilities                                                               
|CASH FLOWS USED IN OPERATING
    ACTIVITIES                                             
|                                                                                        
|CASH FLOWS FROM INVESTING ACTIVITIES                                                    
|Purchase of property and
    equipment                                                  
|CASH FLOWS USED IN INVESTING
    ACTIVITIES                                             
|                                                                                        
|CASH FLOWS FROM FINANCING ACTIVITIES                                                    
|Proceeds from notes payable                                                             
|Repayments of notes payable                                                             
|Proceeds from loans payable – related
    parties                                       
|Repayments of loans payable – related
    parties                                       
|Net increase in due to factor                                                           
|Contributions from non-controlling interests                                            
|Proceeds from issuance of stock and warrants                                            
|Repurchase of treasury stock                                                            
|                                                                                        
|CASH FLOWS PROVIDED BY
    FINANCING ACTIVITIES                                         
|                                                                                        
|NET INCREASE (DECREASE) IN CASH                                                         
|Cash, beginning of period                                                               
|Cash, end of period                                                                     
|                                                                                        
|SUPPLEMENTAL CASH FLOW INFORMATION:                                                     
|Cash paid for interest                                                                  
|                                                                                        
|NONCASH INVESTING AND FINANCING ACTIVITIES                                              
|Stock issued for services
    rendered                                                  
|Capital contribution
    – Advertising services                                         







(5)


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ITEM 1. FINANCIAL STATEMENTS





PANACHE
BEVERAGE, INC.



CONSOLIDATED FINANCIAL STATEMENTS



TABLE OF CONTENTS









|                                                                                                            | Page #
|----------------------------------------------------------------------------------------------------------- | ------
|                                                                                                            |       
|Consolidated Balance Sheets as of June 30, 2012 and December 31, 2011 (unaudited)                           | 3     
|                                                                                                            |       
|Consolidated Statements of Operations for the three and six months ended June 30, 2012 and 2011 (unaudited) | 4     
|                                                                                                            |       
|Consolidated Statement of Cash Flows for the three and six months ended June 30, 2012 and
    2011          | 5     
|                                                                                                            |       
|Notes to Consolidated Financial Statements (unaudited)                                                      | 7 - 11
|                                                                                                            |       







(6)


Table of Contents






NOTE 1 – SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES



Nature
of operations



Panache Beverage Inc. (the “Company”)
was incorporated in the State of Florida on December 28, 2004 under the name as Biometrix International Inc. On May 30, 2007, the
Company changed its name to BMX Development Corp. On September 6, 2011, the Company filed an Articles of Amendment to the Articles
of Incorporation with the Florida Secretary of State to change its name to Panache Beverage Inc. and believed the new name would
more accurately reflect its business after a stock exchange transaction with Panache LLC, a New York Limited Liability Company.



On August 19, 2011, the
Company completed a stock exchange transaction with Panache LLC (“Panache”).  Panache was organized as a
limited liability company in the State of New York on February 9, 2010. Panache is an alcoholic beverage company specializing in
development, global sales and marketing of spirits brands, and currently owns 65.5% ownership of Wodka LLC (“Wodka”),
a New York Limited Liability Company organized on August 14, 2009. Upon its organization, Panache assumed ownership of Wodka from
a related party. Wodka imports vodka under the brand name Wodka for wholesale distribution to retailers located throughout the
United States and internationally.



The stock exchange transaction involved two
simultaneous transactions:



The majority shareholder of the Company delivered
2,560,000 shares of the Company’s common stock to the Panache Members in exchange for total payments of $125,000 in cash
and;



The Company issued to the Panache Members an
amount equal to 17,440,000 new investment shares of common stock of the Company pursuant to Rule 144 under the Securities Act of
1933, as amended, in exchange for one hundred percent (100%) of the issued and outstanding membership interest units of Panache
from the Panache Members.



Alibi NYC, LLC (“Alibi”) was organized
as a limited liability company in the State of New York on May 17, 2007 and remained dormant until it conducted its first business
operations during the first quarter of 2012. Effective January 1, 2012, the members of Alibi transferred their interests to Panache
Beverage, Inc. and Alibi became a 100% owned subsidiary of Panache Beverage, Inc. Alibi markets and distributes Alibi American
Whiskey.



Basis of consolidation



The consolidated financial
statements include the accounts of Panache Beverage, Inc., Panache LLC, Wodka LLC and Alibi NYC, LLC (collectively, the “Company”).
All material intercompany transactions have been eliminated.



Basis of presentation



The accompanying unaudited consolidated financial
statements have been prepared in accordance with both generally accepted accounting principles for interim financial information,
and the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete financial statements. The accompanying unaudited consolidated
financial statements reflect all adjustments (consisting of normal recurring accruals) that are, in the opinion of management,
considered necessary for a fair presentation of the results for the interim periods presented. Interim results are not necessarily
indicative of results to be expected for a full year.







The unaudited consolidated financial statements
and related disclosures have been prepared with the presumption that users of the interim financial information have read or have
access to the Company’s annual audited consolidated financial statements for the preceding fiscal year. The financial statements
of the Company are presented in US dollars.



Accounting basis



The Company uses the accrual basis of accounting
and generally accepted accounting principles in the United States of America (“US GAAP”). The Company has adopted a
December 31 fiscal year end. Certain reclassifications were made to the 2011 financial statements presentation in order to conform
to the 2012 presentation. Such reclassifications had no effect on reported income.



Revenue recognition



We recognize revenue when title and risk of
loss pass to the customer, typically when the product is shipped. Some sales contracts contain customer acceptance provisions that
grant a right of return. Under these provisions, customers can return products that are not merchantable and fit and suitable for
their intended use, are not of the same premium quality as products currently in existence, or are defectively packaged, bottled
or labeled. Customers may also return any product that does not comply with all applicable laws and regulations. We record revenue
net of the estimated cost of sales returns and allowances. Gross revenue was reduced due to sales returns and allowances by $425
and $42 during the three months ended June 30, 2012 and 2011, respectively and $30,325 and $16,152 during the six months ended
June 30, 2012 and 2011, respectively.



Sales discounts were $0 and $24,910 for the
three months ended June 30, 2012 and 2011 and $22,266 and $28,180 for the six months ended June 30, 2012 and 2011.



From time to time the Company provides incentives
to its customers in the form of free product. The costs associated with producing this product is included as an expense in costs
of goods sold. No revenue is recognized with respect to such product giveaways. The Company gave away product costing $1,440 during
the three and six months ended June 30, 2012 and $1,493 during the three and six months ended June 30, 2011.



Advertising



Advertising costs are expensed as incurred
and aggregated $240,326 and $505,330 for the three months ended June 30, 2012 and 2011, respectively and $527,101 and $1,002,246
for the six months ended June 30, 2012 and 2011, respectively.



Wodka receives advertising services in the
form of out of home media space from a related party who holds a non-controlling interest in Wodka. The Company recorded advertising
expense and capital contributions from non-controlling interests of $75,371 and $466,770 in relation to this arrangement for the
three months ended June 30, 2012 and 2011, respectively and $257,944 and $905,655 in relation to this arrangement for the six months
ended June 30, 2012 and 2011, respectively.





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NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES – (Continued)



Other Significant Accounting Policies



Other significant accounting policies are set
forth in Note 1 of the audited financial statements included in the Company’s 2011 Annual Report on Form 10-K and remain
unchanged as of June 30, 2012.



Use of estimates



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



Recently issued accounting standards





The Company has reviewed all recently issued,
but not yet effective, accounting pronouncements and does not believe the future adoption of any such pronouncements may be expected
to cause a material impact on its consolidated financial condition or the consolidated results of its operations.







NOTE 2
– ACCOUNTS RECEIVABLE



The Company grants customers standard credit
terms as governed by the terms specified in the contracts. Our major customers receive payment credit terms that range between
60 and 65 days.



The Company evaluates the need of an allowance
for doubtful accounts based on specifically identified amounts that management believes to be uncollectible. If actual collections
experience changes, revisions to the allowance may be required. Based on management review of outstanding balances, no allowance
for doubtful accounts was recorded as of June 30, 2012 and 2011.



Bad debt expense was $0 for the three months
ended June 30, 2012 and 2011. Bad debt expense was $0 and $2,026 for the six months ended June 30, 2012 and 2011.



NOTE 3 – PREPAID EXPENSES



The Company has entered into various agreements
with consultants whereby the Company issues common stock in exchange for consulting services. The Company values the common stock
and the consulting services based on the closing price of its common stock on the date of the agreement or the negotiated value
of the consulting services. The Company recognized $151,653 and $0 of professional fee expense in relation to these agreements
for the three months ended June 30, 2012 and 2011, respectively and $320,529 and $0 of professional fee expense in relation to
these agreements for the six months ended June 30, 2012 and 2011. Prepaid expenses relating to these agreements were $54,683 and
$101,563 as of June 30, 2012 and December 31, 2011, respectively.



NOTE
4 – FACTORING AGREEMENT



On June 10, 2011, the Company entered into
a purchase and sale factoring agreement with a commercial factor whereby the Company sells certain accounts receivable to the factor.
Under the terms of the agreement, the factor may, in its sole discretion, make advances to the Company of amounts representing
up to 70% of the net amount of eligible accounts receivable up to a maximum of $1,000,000. On





September 22, 2011, the factor increased the
advance to 75% of eligible accounts receivable. On March 19, 2012, the factor reduced the advance to 70% of eligible accounts receivable.
The factor's purchase of the eligible accounts receivable includes a discount fee which is deducted from the face value of each
collection. The Discount Fee is based on the number of days outstanding from the date of purchase. The Discount Fee is 2.50% if
paid within 40 days, 3.34% if paid within 50 days, 4.18% if paid within 60 days, 5.00% if paid within 60 days, 5.84% if paid within
70 days, 6.68% if paid within 80 days, 7.50% if paid within 90 days and 2.0% for each 15 day period until the account is paid.
Based on this arrangement, the Company is liable to the factor if the accounts receivable is not collected, and therefore the Company
has accounted for cash received on factored receivables as a liability.



On December 22, 2011, the Company entered into
a separate purchase and sale factoring agreement with a different commercial factor whereby the Company sells certain accounts
receivable to the factor. Under the terms of this agreement, the factor makes advances to the Company of amounts representing up
to 90% of certain accounts receivable. The factor purchases the accounts receivable at a $500 discount plus monthly compounded
interest of 2% of the factored amount for the period the factored accounts receivable remain outstanding. Based on this arrangement,
the Company is liable to the factor if the accounts receivable is not collected, and therefore the Company has accounted for cash
received on factored receivables as a liability.



The combined balance due to the factors as
of June 30, 2012 and December 31, 2011 was $385,333 and $317,293, respectively. Factor expense charged to operations for the three
months ended June 30, 2012 and 2011 amounted to $31,284 and $3,846, respectively and for the six months ended June 30, 2012 and
2011 amounted to $57,663 and $3,846, respectively.







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NOTE 5 – LOANS PAYABLE – RELATED
PARTIES



The Company had an outstanding loan payable
to its chief executive officer, majority shareholder and former member of Panache LLC in the amount of $245,000 as of June 30,
2012 and December 31, 2011. The loan balance includes $110,275 that was transferred into Wodka from a related entity as a deemed
distribution. The loan is unsecured, and non-interest bearing. In order to induce a new member to purchase a membership interest,
the related party agreed that the loan would not be repaid without unanimous Board approval. In addition, the loan would not become
due and payable until all of the equity interests of Wodka, or substantially all of the assets of Wodka are sold to an unrelated
third party.



The Company also has an additional outstanding
amount due to its chief executive officer due to the Company’s repurchase of 50,000 treasury shares on June 1, 2012 for $50,000.
As of June 30, 2012, the remaining balance was $41,807.



The Company had additional loans payable to
related parties totaling $134,629 and $113,629 at June 30, 2012 and December 31, 2011, respectively. The loans are unsecured and
non-interest bearing with no stated payment terms. Proceeds from the loans were used to fund operations.





NOTE 6 – OTHER CURRENT LIABILITIES



Other current liabilities consisted of the
following:



|                                       |  | June 30,   2012 |         | December 31,  2011
|-------------------------------------- |  | --------------- | ------- | ------------------
|                                       |  |                 |         |                   
|Commissions payable                    |  | $               | 171,778 |                   
|Excise taxes payable                   |  |                 | 77,034  |                   
|Accrued salaries                       |  |                 | 57,498  |                   
|Accrued expenses and other liabilities |  |                 | 117,184 |                   
|Total other current liabilities        |  | $               | 423,494 |                   



NOTE 7 – LONG TERM DEBT



The Company assumed an unsecured promissory
note agreement with an individual lender in the amount of $128,500 at an annual interest rate of 24%, due upon the mutual agreement
of the parties. The loan was transferred into Wodka from a related entity as a deemed distribution. The Company borrowed an additional
$55,000 from this individual lender under the same terms. The additional proceeds were used to fund operations. The balance of
this loan was $183,500 as of June 30, 2012 and December 31, 2011. The loan is personally guaranteed by a related party.



On January 1,
2012, the Company engaged this individual lender to provide business advisory services in exchange for 100,000 shares of common
stock.



NOTE 8
– RELATED PARTY TRANSACTIONS



As noted above, the Company
recorded unsecured, non-interest bearing loans totaling $245,000 to a related party in 2009. The loan consists of $110,275 transferred
in from a related entity as a deemed distribution, plus cash loans of $134,725 for operations. The loan balance of $245,000 was
outstanding as of June 30, 2012 and December 31, 2011.



The Company also has an additional outstanding
amount due to its chief executive officer due to the Company’s repurchase of 50,000 treasury shares on June 1, 2012 for $50,000.
As of June 30, 2012, the remaining balance was $41,807.





In addition, the Company
received various loans from related parties to fund operations. The related party loans totaled $134,629 and $113,629 at June 30,
2012 and December 31, 2011, respectively, and are unsecured and non-interest bearing with no stated payment terms.



The Company owes consulting fees totaling $0
and $2,705, at June 30, 2012 and December 31 2011, respectively, to a member under a consulting agreement dated October 1, 2009.
Consulting fee expense related to this agreement totaled $0 and $41,180 for the three months ended June 30, 2012 and 2011, respectively
and $60,000 for the six months ended June 30, 2012 and 2011.



As noted above, Wodka receives advertising
services in the form of out of home media space from a related party who holds a non-controlling interest in Wodka. The Company
recorded advertising expense and capital contributions from non-controlling interests of $75,371 and $257,944 in relation to this
arrangement for the three and six months ended June 30, 2012. The Company recorded advertising expense and a reduction of prepaid
expenses from prior year capital contributions from non-controlling interests of $466,770 and $905,655 in relation to this arrangement
for the three and six months ended June 30, 2011.





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Table of Contents




NOTE 9 – COMMITMENTS AND CONTINGENCIES



The Company has a pending settlement with Incubrands
Spirits Group (“Incubrands”) in connection with an equity agreement (the “Agreement”), dated April 30,
2007. Pursuant to the Agreement, Incubrands claimed commission fees of $191,778 incurred during the agreement period with a predecessor
of the Company. Panache assumed this liability upon Panache’s creation in February 2010 and recorded $162,309 as a deemed
distribution, since the liability was transferred from a related entity. The balance as of June 30, 2012 and December 31, 2011
was $171,778.



The Company rents furnished office space on
a month-to-month basis. Rent expense was $3,240 and $3,000 for the three months ended June 30, 2012 and 2011, respectively and
$6,320 and $5,825 for the six months ended June 30, 2012 and 2011, respectively.



NOTE 10 – STOCKHOLDERS’ DEFICIT



In the second quarter of 2012, the Company
issued 290,000 shares of common stock and 181,250 stock warrants for cash proceeds of $362,500. In the first six months of 2012,
the Company issued 570,000 shares of common stock and 461,250 stock warrants for cash proceeds of $682,500. The Company used the
Black Scholes model to bifurcate the value of the stock warrants from the common stock. The following weighted average assumptions
were used in the Black Scholes calculation:



|                             | Three months ended June 30, 2012 | Six months ended June 30, 2012                                          
|---------------------------- | -------------------------------- | ------------------------------------------------------------------------
|Risk free rate               |                                  | 0.2%                                                                    
|Expected dividend yield      |                                  | 0.0%                                                                    
|Expected volatility          |                                  | 74%                                                                     
|Expected life of options     |                                  | 1.55
                                                              years
|Exercise price               | $                                | 2.00                                                                    
|Stock price on issuance date | $                                | 1.41                                                                    



For shares and warrants
issued in the second quarter of 2012, the Company determined the value of the common stock was $314,376 and the value of the stock
warrants was $48,124 at issuance. For shares and warrants issued during the six months of 2012, the Company determined the value
of the common stock was $567,450 and the value of the stock warrants was $115,050 at issuance.

On March 1, 2012, the
Company modified 845,000 existing warrants to extend the expiration date. The Company used the Black Scholes model to determine
the increase in value of the warrants caused by this modification. Based on this calculation, the Company determined that the
modification increased the value of the warrants by $148,395 and therefore increased Common Stock – Warrants and decreased
Additional Paid in Capital by $148,395.

The following table shows
the warrant activity for the six months ended June 30, 2012:

|Warrants | Number of Warrants                |  | Weighted
                                                                                                                                                                                                                                                        Average Exercise Price |           | Weighted Average Remaining Term |  | Aggregate
                                                                                                                                                                                                                                             Intrinsic Value
|-------- | --------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------- | ------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|         | Outstanding as of January 1, 2012 |  |                                                                                                                                                                                                                                                                                         | 1,373,500 |                                 |  |                                                                                                                                                                                                                                                                       
|         | Issued                            |  |                                                                                                                                                                                                                                                                                         | 461,250   |                                 |  |                                                                                                                                                                                                                                                                       
|         | Exercised                         |  |                                                                                                                                                                                                                                                                                         | (210,000) |                                 |  |                                                                                                                                                                                                                                                                       
|         | Expired                           |  |                                                                                                                                                                                                                                                                                         | (438,500) |                                 |  |                                                                                                                                                                                                                                                                       
|         | Outstanding of June 30, 2012      |  |                                                                                                                                                                                                                                                                                         | 1,186,250 |                                 |  | $                                                                                                                                                                                                                                                                     
|         |                                   |  |                                                                                                                                                                                                                                                                                         |           |                                 |  |                                                                                                                                                                                                                                                                       



As noted above
in Note 7 - Long Term Debt, the Company engaged an individual on January 1, 2012 to provide business advisory services through
June 30, 2012 in exchange for 100,000 shares of common stock. The Company valued the common stock at $100,000, which is the value
of the services provided. The Company recognized $50,000 and $100,000 of professional fee expense during the three and six months
ended June 30, 2012.

On January 1, 2012, the
Company engaged a marketing firm to provide business advisory services from January 1, 2012 to June 30, 2012 in exchange for 100,000
shares of common stock. The Company valued the common stock at $100,000, which was the value of the services provided. The Company
recognized $50,000 and $100,000 of professional fee expense during the three and six months ended June 30, 2012.

The Company also issued
20,000 shares of common stock to an accounting firm to provide accounting and advisory services. The Company valued the common
stock at $20,000, which was the value of the accounting services provided. The Company used these services in the second quarter
of 2012 and accordingly recognized $0 and $20,000 of professional fee expense for the three and six months ended June 30, 2012.

On April 1, 2012, the
Company engaged a consulting firm to provide business advisory services from April 1, 2012 to June 30, 2012 in exchange for 150,000
shares of common stock. The Company valued the common stock at $150,000, which was the value of the services provided. The Company
recognized $150,000 of professional fee expense during the three and six months ended June 30, 2012.

On May 30, 2012, the
Company engaged a marketing firm to provide business advisory services from May 30, 2012 to May 30, 2013 in exchange for 20,000
shares of common stock. The Company valued the common stock at $25,000, which was the value of the services provided. The Company
recognized $2,083 of professional fee expense during the three and six months ended June 30, 2012.

The Company recognized $7,650 and $56,900 of
compensation expense for the three and six months ended June 30, 2012 in relation to the grants of 35,000 shares of common stock
to employees as stock-based compensation. The shares immediately vested and the fair value of this stock issuance was determined
by the closing price of the common stock on the grant date.





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NOTE 11 – NON-CONTROLLING INTERESTS



As of June 30, 2012 and December 31 2011, the
non-controlling interests balance was $(272,061) and $(123,696), respectively, due to minority members owning 34.5% of the membership
interests of Wodka.



Profits and losses are allocated to the members
of Wodka in accordance with Wodka’s Limited Liability Company Agreement (the “Agreement”). Profits are allocated
first to members in the amounts and proportions necessary to bring the members’ respective capital account balances in proportion
to their percentage ownership interests and thereafter to the members pro rata in accordance with their percentage ownership interests.
The Agreement allocates losses first to the members in an amount equal to the positive balances in their Capital Accounts until
the balances in such accounts are reduced to zero and thereafter to the members pro rata in accordance with their respective percentage
ownerships interests.



For the three months ended June 30, 2012 and
2011, $69,219 and $16,333 respectively, of Wodka’s net loss was allocated to Panache and $111,830 and $621,794, respectively,
was allocated to noncontrolling interests.



For the six months ended June 30, 2012 and
2011, 281,678 and $16,333, respectively, of Wodka’s net loss was allocated to Panache and $406,309 and $1,221,025, respectively,
was allocated to noncontrolling interests.



NOTE 12 – CONCENTRATIONS AND RISK



Major customers



The Company had two customers representing
approximately 96% of revenues for the three months ended June 30, 2012. These customers represented approximately 96% of the receivables
outstanding as of June 30, 2012.



The Company had two customers representing
approximately 93% of revenues for the three months ended June 30, 2011. This customer represented approximately 97% of the receivables
outstanding as of June 30, 2011.



The Company had two customers representing
approximately 96% of revenues for the six months ended June 30, 2012. These customers represented approximately 96% of the receivables
outstanding as of June 30, 2012.



The Company had one customer representing approximately
76% of revenues for the six months ended June 30, 2011. This customer represented approximately 77% of the receivables outstanding
as of June 30, 2011.



Major suppliers



The Company had one supplier represent approximately
96% of purchases for the three months ended June 30, 2012. This supplier represented approximately 60% of the payables outstanding
as of June 30, 2012.



The Company had one supplier representing approximately
93% of purchases for the three months ended June 30, 2011. This supplier represented approximately 54% of the payables outstanding
as of June 30, 2011.





The Company had one supplier represent approximately
89% of purchases for the six months ended June 30, 2012. This supplier represented approximately 60% of the payables outstanding
as of June 30, 2012.



The Company had one supplier representing approximately
91% of purchases for the six months ended June 30, 2011. This supplier represented approximately 54% of the payables outstanding
as of June 30, 2011.



Credit risk



Financial instruments that potentially subject
the Company to significant concentrations of credit risk consist principally of cash and trade accounts receivable. The Company
places its cash with commercial banking institutions. At times, such cash may be in excess of the Federal Deposit Insurance Corporation’s
insurance limit. From time to time the Company may also hold cash in accounts with foreign financial institutions. The Company
regularly assesses the risk associated with its foreign cash portfolio. The Company performs ongoing credit evaluations of its
customers’ financial condition, but does not require collateral to support such receivables.



NOTE 13 – LOSS PER SHARE



Basic net loss per share is computed using
the weighted average number of common shares outstanding during the three and six months ended June 30, 2012, respectively.  There
was no dilutive earning per share due to net losses during the periods.



The following table sets forth the computation
of basic net loss per share for the periods indicated:



|                                                         |  | Three months ended June 30, |            | Six months ended June 30,
|-------------------------------------------------------- |  | --------------------------- | ---------- | -------------------------
|                                                         |  | 2012                        |            | 2011                     
|Numerator:                                               |  |                             |            |                          
|Net (loss) income attributable to Panache Beverage, Inc. |  | $                           | (760,038)  |                          
|                                                         |  |                             |            |                          
|Denominator:                                             |  |                             |            |                          
|Weighted average shares             outstanding          |  |                             | 26,332,891 |                          
|                                                         |  |                             |            |                          
|Basic net (loss) income per share                        |  | $                           | (0.03)     |                          



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NOTE 14 – GOING CONCERN



These consolidated financial statements have
been prepared assuming that Company will continue as a going concern, which contemplates the realization of assets and the discharge
of liabilities in the normal course of business for the foreseeable future.



As of June 30, 2012, the Company had an accumulated
deficit of $1,518,190. Management has taken certain actions and continues to implement changes designed to improve the Company’s
financial results and operating cash flows. The actions involve certain cost-saving initiatives and growing strategies, including
(a) reductions in operating expenses; and (b) expansion of the business model into new markets. Management believes that these
actions will enable the Company to improve future profitability and cash flow in its continuing operations through June 30, 2013.
As a result, the financial statements do not include any adjustments to reflect the possible future effects on the recoverability
and classification of assets or the amounts and classification of liabilities that may result from the outcome of the Company’s
ability to continue as a going concern.



NOTE 15 – SUBSEQUENT EVENTS



The Company has evaluated subsequent events
through August 13, 2012, the date on which these financial statements were available to be issued.





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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION



The following information should be read in
conjunction with our financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and well as
our most recent Annual Report on Form 10-K. This discussion and analysis contains forward-looking statements that involve risks,
uncertainties and assumptions, which could cause actual results to differ materially from management’s expectations. Please
see “CAUTIONARY STATEMENT REGARDING FORWARD LOOKING INFORMATION”



We use the terms “Panache,” “the
Company,” “we,” “us,” and “our” to refer to Panache Beverage Inc., its subsidiaries and
predecessors, unless indicated otherwise.



Business Overview



Panache Beverages, Inc. is an alcoholic beverage
company specializing in the development, global sales and marketing of spirits brands. The Company's expertise lies in the strategic
development and aggressive early growth of its brands establishing its assets as viable and attractive acquisition candidates for
the major global spirits companies. Panache intends to build its brands as individual acquisition candidates while continuing to
develop its pipeline of new brands into the Panache portfolio. Panache's existing portfolio contains three brands:



Wodka Vodka (www.welovewodka.com)



Wodka is triple distilled and charcoal filtered
earning it a 90 point rating by the Beverage Testing Institute – a first for any brand available for under $10. Wodka was
developed as an egalitarian brand – coming from the position that consumers shouldn’t have to pay $30 for a bottle
of quality vodka. This position was authentic – the brand was discovered by Panache while walking through Polmos Bialystock
distillery in Eastern Poland – Wodka Vodka, a relic from Poland's communist era, was government owned/issued vodka. Wodka
stands tall in the exploding category of ‘quality for value’ spirit brands. It is uniquely positioned in the category
as fun, quirky, aloof – all attributes which have been embraced by trade and consumers making Wodka a true “brand”
very quickly.



Alchemia Infused Vodka (www.alchemiainfusions.com)



Alchemia is a premium, traditional Polish vodka
that is naturally infused with select raw ingredients and made in the “Spiritus Vini”, or “Spirit of Wine”.
The spirit is available in three varieties: Chocolate, Ginger, and Wild Cherry. Alchemia’s infusions are a fresh escape for
consumers who have been offered very little from a spirits world rife with the artificially flavored vodkas presently taking up
store shelves and back bars. Alchemia has found a strategic niche in the exploding culinary world and is being favored by celebrity
chefs and their restaurants. Cherry received a 94 PTS by Wine Enthusiast and was named a Top 50 Spirit for 2011, whereas Chocolate
received a 92 by The Tasting Panel.



Alibi American Whiskey (www.alibiamerica.com)



Showing its propensity to stir up a little
controversy, Panache is finishing test marketing for its latest creation, Alibi American Whiskey. Alibi has been developed to exploit
a gap in the exploding brown spirits category – the need for an edgy, cool, premium Whiskey that appeals to the younger generation
of legal age drinkers. While we could focus on the fact that Alibi is affordable premium Whiskey, distilled from Rye, aged four
years in new American oak barrel — we think that's rather mundane. Alibi is an elixir for the flawed human spirit in all
of us, a tonic for sin and an excuse for vulnerability. We created the spirit because we know mankind needs an out, a way to feel
better about those poor decisions that will invariably be made. Everyone needs an Alibi.



History



The Company was incorporated in Florida effective
December 28, 2004 and provided motorcycle repair services to customers located in and around the Charlotte, North Carolina area.
Subsequent to the Plan of Exchange executed on August 19, 2011, the Company has continued operations of Panache, an alcoholic beverage
company specializing in the development and global sales and marketing of spirits brands, and no longer be engaged in the business
of motor cycle repair services.



Panache was formed in November 2004 by James
Dale as the import company of record for the premium vodka, 42 BELOW NZ. At that time, 42 BELOW was a publicly traded company but
lack of traction in the most important liquor markets in the world, including the United States. Panache provided the marketing
solution for 42 BELOW, and it became a brand available in 19 strategically selected states and was over-performing in top tier
image accounts a year later. By mid-2005 42 BELOW was a major player in the business and was being noticed in the United States
by major suppliers.



After noticing that 42 BELOW has replaced Grey
Goose in numerous key accounts, Bacardi added 42 BELOW to a list of top threats to Grey Goose in the US. Shortly thereafter 42
BELOW was formally approached for global acquisition. At this stage Panache was responsible for over 50% of the total annual cases
sold globally and was among the key driving factors in the success of the brand. These agreements were purchased as part of the
settlement and purchase of the 42 BELOW Public Company in December 2006.



During this time Panache was developing its
current pipeline brands Alchemia Vodka and Alibi Bourbon with an eye toward developing a value brand, which became Wodka.



Today, Panache has developed a unique set of
wholesale and retail relationships as well as sales and marketing infrastructure and proprietary partnerships enabling it to successfully
develop, roll out and exit its brands.



Operational Highlights for the three months
ended June 30, 2012



Panache continued its expansion into foreign
markets by tapping O.B.H. Wine and Spirits Inc. as an exclusive partner to represent Wodka and Alchemia brands in Canada. Panache
and O.B.H are in the process of securing approval from the Legal Control Board of Ontario to sell and market the brands throughout
all provinces and territories of Canada.



Wodka Vodka has been accepted as a core range
product for LMG Bottlemart Group, which represents 12% of total Australian packaged liquor market and comprises over 2,000 members
throughout the country. The acceptance of Wodka by LMG Bottlemart is an endorsement of the brand’s strategy, marketing, and
pricing.



Alibi American Whiskey has received its Certificate
of Label Approval from Alcohol and Tobacco Tax and Trade Bureau. The approval paves the way for Panache to roll out this highly
anticipated brand in the third quarter of this year.



Panache added five distributors and expanded
into three states in the second quarter of 2012. Our brands are now available in 30 states across the United States.





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Results of Operations for the Three and
Six Months Ended June 30, 2012 and 2011



Revenues



Revenues were $671,041 and $398,512 for the
three months ended June 30, 2012 and 2011, respectively, an increase of 68%. Revenues were $1,039,524 and $831,692 for the six
months ended June 30, 2012 and 2011, respectively, an increase of 25%. We generate our revenues from sales of distilled spirits.
The revenues are recognized when persuasive evidence of a sale exists, transfer of title has occurred, the selling price is fixed
or determinable and collectability is reasonably assured. Our sales arrangements are not subject to warranty. Gross revenue was
reduced due to sales returns and allowances by $425 and $42 during the three months ended June 30, 2012 and 2011, respectively
and $30,325 and $16,152 during the six months ended June 30, 2012 and 2011, respectively.

The increase in revenue
during the three and six months ended June 30, 2012 compared to the same period in 2011 was primarily due to the implementation
of our marketing strategies in new markets and growth in existing markets. Specifically, sales in international markets have increased
substantially.

Cost of Goods Sold



Cost of goods sold included expenses directly
related to selling our products. Product delivery, broker fees and direct labor would be examples of cost of goods sold items.
Cost of goods sold was $438,211, or 65% of revenue, and $387,771, or approximately 97% of revenue, during the three months ended
June 30, 2012 and 2011, respectively. Cost of goods sold was $696,340, or approximately 67% of revenue, and $647,452, or approximately
78% of revenue, during the six months ended June 30, 2012 and 2011, respectively.



The decrease in costs of goods sold as a percentage
of revenue during the three and six month periods ended June 30, 2012 in comparison to the same periods in 2011 is mostly due increased
efficiencies in operations and higher gross profit on international sales, which accounted for a higher percentage of sales in
2012.



Expenses



Operating expenses were $1,092,607 and $700,997
for the three months ended June 30, 2012 and 2011, respectively and $2,322,219 and $1,387,487 for the six months ended June 30,
2012 and 2011, respectively.



The increase in operating expenses during the
three and six month ended June 30, 2012 compared to the three and six months ended June 30, 2011 was the result of Panache becoming
a public company and its rapid growth. As a new public company Panache incurred substantial accounting and legal expenses, as well
as financial consulting, research, and investor relations expenditures. However, substantial portion of these fees were paid in
stock of Panache Beverage Inc. to alleviate pressure on cash reserves.



As part of its expansion and growth
efforts, the Company has hired new employees and incurred higher employee compensation, executive recruiting, insurance, and
travel and entertainment expenses in the first half of 2012.



Net Loss



The Company’s net loss for stockholders
was $760,038 and $102,576 for the three months ended June 30, 2012 and 2011, respectively and $1,595,877 and $16,336 for the six
months ended June 30, 2012 and 2011, respectively. The change in net loss during the three and six months ended June 30, 2012 was
attributable to higher operating expenses and less loss allocated to non-controlling interests.



There can be no assurance that we will achieve
or maintain profitability, or that any revenue growth will take place in the future.



Liquidity and Capital Resources



Cash flows used in operating activities were
$1,198,630 and $326,231 for the six months ended June 30, 2012 and 2011, respectively. Negative cash flows from operations for
the six months ended June 30, 2012 were due primarily to the net loss of $1,595,877 and the loss allocated to non-controlling interests
of $406,309 offset by non-cash advertising of $257,944 and stock issued for services and compensation of $451,900. Negative cash
flows from operations for the six months ended June 30, 2011 were due primarily to the net loss of $16,336 and the loss allocated
to non-controlling interests of $1,221,025 offset by non-cash advertising of $905,655.



Cash flows used in investing activities in
both 2012 and 2011 were due to the purchase of equipment.



Cash flows provided by financing activities
were $1,075,848 and $306,915 during the six months ended June 30, 2012 and 2011, respectively. Positive cash flows from financing
activities during the six months ended June 30, 2012 were due primarily to proceeds of $972,500 from sales of common stock. Positive
cash flows from financing activities during six months ended June 30, 2011 were due primarily to net proceeds from loans payable
to related parties of $117,405 and net increase in due to factor of $161,588.



We project that we will need additional capital
of $1,650,000 to fund operations over the next 12 months.



Overall, we have funded our cash needs from
inception through June 30, 2012 with a series of debt and equity transactions, primarily with related parties. If we are unable
to receive additional cash from our related parties, we may need to rely on financing from outside sources through debt or equity
transactions. Our related parties are under no legal obligation to provide us with capital infusions. Failure to obtain such financing
could have a material adverse effect on operations and financial condition.



We had cash of $21,242 on hand as of June 30,
2012. Currently, we may not be able to sustain our capital needs because we do not have enough cash to fund our operations for
the next three months. This is based on current negative cash flows from operating activities and net losses during the periods.
We will then need to obtain additional capital through equity or debt financing to sustain operations for an additional year. Our
current level of operations would require capital of approximately $1,650,000 per year. Modifications to our business plans may
require additional capital for us to operate. For example, if we are unable to raise additional capital in the future we may need
to curtail our number of product offers or limit our marketing efforts to the most profitable geographical areas. This may result
in lower revenues and market share for us. In addition, there can be no assurance that additional capital will be available to
us when needed or available on terms favorable to us.



On a long-term basis, liquidity is dependent
on continuation and expansion of operations, receipt of revenues, and additional infusions of capital and debt financing. Our current
capital and revenues are insufficient to fund such expansion. If we choose to launch such an expansion campaign, we will require
substantially more capital. The funds raised from this offering will also be used to market our products and services as well as
expand operations and contribute to working capital. However, there can be no assurance that we will be able to obtain additional
equity or debt financing in the future, if at all. If we are unable to raise additional capital, our growth potential will be adversely
affected and we will have to significantly modify our plans. For example, if we unable to raise sufficient capital to develop our
business plan, we may need to:



|· | Curtail new product launches                                                             
|- | -----------------------------------------------------------------------------------------
|· | Limit our future marketing efforts to areas that we believe would be the most profitable.

Demand for the products and services will be
dependent on, among other things, market acceptance of our products, our brands’ recognition, distilled spirits market in
general, and general economic conditions, which are cyclical in nature. Inasmuch as a major portion of our activities is the receipt
of revenues from the sales of our products, our business operations may be adversely affected by our competitors and prolonged
recession periods.



Our success will be dependent upon implementing
our plan of operations and the risks associated with our business plans. We specialize in development, global sales and marketing
of spirits brands. We plan to strengthen our position in these markets. We also plan to expand our operations through aggressively
marketing our products and our concept.





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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK



The information to be reported under this item
is not required of smaller reporting companies.



ITEM 4. CONTROLS AND PROCEDURES.



Disclosure controls and procedures are controls
and other procedures that are designed to ensure that information required to be disclosed in company reports filed or submitted
under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported, within
the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that information required to be disclosed in company reports
filed under the Exchange Act is accumulated and communicated to management, including the Company’s Chief Executive Officer
and its Principal Accounting Officer (the “Certifying Officers”), as appropriate to allow timely decisions regarding
required disclosure.



As required by Rules 13a-15 and 15d-15 under
the Exchange Act, the Certifying Officers carried out an evaluation of the effectiveness of the design and operation of the Company’s
disclosure controls and procedures as of June 30, 2012. Their evaluation was carried out with the participation of other members
of the Company’s management. Based on an evaluation conducted by the Certifying Officers, of the effectiveness of the design
and operation of our disclosure controls and procedures, as required by Exchange Act Rule 13a-15(e), the Certifying Officers concluded
that our disclosure controls and procedures were effective as of June 30, 2012 to provide reasonable assurance that information
required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized
and reported, within the time periods specified in the applicable rules and forms, and that it is accumulated and communicated
to our management, including the Certifying Officers, as appropriate to allow timely decisions regarding required disclosure.





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Table of Contents






PART II. OTHER INFORMATION



ITEM 1.      LEGAL PROCEEDINGS



None.



ITEM 1A. RISK FACTORS



The information to be reported under this item
is not required of smaller reporting companies.



ITEM 2.      UNREGISTERED SALES OF EQUITY
SECURITIES AND USE OF PROCEEDS



On February 22, 2012, the Company issued 100,000
shares of common stock to an individual in exchange for business advisory services to be provided from January 1, 2012 to June
30, 2012. The Company valued the common stock at $100,000, which is the value of the services provided. The Company recognized
$50,000 and $100,000 of professional fee expenses during the three and six months ended June 30, 2012.



On February 22, 2012, the Company issued 100,000
shares of common stock to ADL Marketing in exchange for business advisory services to be provided from January 1, 2012 to June
30, 2012. The Company valued the common stock at $100,000, which is the value of the services provided. The Company recognized
$50,000 and $100,000 of professional fee expenses during the three and six months ended June 30, 2012.

On February 22, 2012,
the Company issued 20,000 shares of common stock to Rudney Solomon Cohen and Felzer, PC to provide accounting and advisory services.
The Company valued the common stock at $20,000, which was the value of the accounting services provided. The Company used these
services in the first quarter of 2012. The Company recognized $0 and $20,000 of professional fee expense for the six and three
months ended June 30, 2012.

On March 2, 2012, the Company issued 100,000 shares of common stock
in accordance with the exercise of a common stock warrant. The Company received $125,000 of proceeds in relation to this transaction.



On March 19, 2012, the Company issued 120,000
shares of common stock in accordance with the exercise of a common stock warrant. The Company received $150,000 of proceeds in
relation to this transaction.

On April 18, 2012, the
Company issued 150,000 shares of common stock to Steeltown Consulting Group, LLC and various affiliates in exchange for business
advisory services to be provided from April 1, 2012 to June 30, 2012. The Company valued the common stock at $150,000, which was
the value of the services provided. The Company recognized $150,000 of professional fee expense during the three and six months
ended June 30, 2012.

On May 29, 2012, the Company issued 120,000
shares of common stock in accordance with the exercise of a common stock warrant. The Company received $150,000 of proceeds in
relation to this transaction.

On May 30, 2012, the
Company engaged a marketing firm to provide business advisory services from May 30, 2012 to May 30, 2013 in exchange for 20,000
shares of common stock. The Company valued the common stock at $25,000, which was the value of the services provided. The Company
recognized $2,083 of professional fee expense during the three and six months ended June 30, 2012.



The Board of Directors approved the following stock issuances in
2012:



| | Date              |  |  |  | Number of Shares |  |  |   | Cash
                                                                                    Investment | 
| | ----------------- |  |  |  | ---------------- |  |  | - | --------------------------------------------------------------------------------------------------- | 
| |                   |  |  |  |                  |  |  |   |                                                                                                     | 
| | January 30, 2012  |  |  |  | 40,000           |  |  | $ | 40,000                                                                                              | 
| | February 14, 2012 |  |  |  | 50,000           |  |  |   | 50,000                                                                                              | 
| | February 21, 2012 |  |  |  | 20,000           |  |  |   | 20,000                                                                                              | 
| | February 27, 2012 |  |  |  | 10,000           |  |  |   | 10,000                                                                                              | 
| | February 27, 2012 |  |  |  | 80,000           |  |  |   | 100,000                                                                                             | 
| | March 13, 2012    |  |  |  | 80,000           |  |  |   | 100,000                                                                                             | 
| | April 26, 2012    |  |  |  | 40,000           |  |  |   | 50,000                                                                                              | 
| | April 26, 2012    |  |  |  | 40,000           |  |  |   | 50,000                                                                                              | 
| | May 9, 2012       |  |  |  | 20,000           |  |  |   | 25,000                                                                                              | 
| | May 14, 2012      |  |  |  | 10,000           |  |  |   | 12,500                                                                                              | 
| | May 14, 2012      |  |  |  | 10,000           |  |  |   | 12,500                                                                                              | 
| | May 15, 2012      |  |  |  | 10,000           |  |  |   | 12,500                                                                                              | 
| | May 15, 2012      |  |  |  | 40,000           |  |  |   | 50,000                                                                                              | 
| | May 30, 2012      |  |  |  | 20,000           |  |  |   | 25,000                                                                                              | 
| | May 30, 2012      |  |  |  | 100,000          |  |  |   | 125,000                                                                                             | 
| |                   |  |  |  | 570,000          |  |  | $ | 682,500                                                                                             | 
| |                   |  |  |  |                  |  |  |   |                                                                                                     | 



ITEM 3.      DEFAULTS UPON SENIOR SECURITIES



None.



ITEM 4.      MINE
SAFETY DISCLOSURES



None.



ITEM 5.      OTHER INFORMATION



None.



ITEM 6. EXHIBITS





INDEX TO EXHIBITS



|Exhibit No. |  | Description                                                                                                                
|----------- |  | ---------------------------------------------------------------------------------------------------------------------------
|            |  |                                                                                                                            
|31.1        |  | Certification of Chief Executive Officer                                                                                   
|            |  |                                                                                                                            
|31.2        |  | Certification of Acting Principal Accounting Officer                                                                       
|            |  |                                                                                                                            
|32.1        |  | Statement required by 18 U.S.C. Section 1350, as adopted pursuant
        to section 906 of the Sarbanes-Oxley Act of 2002.
|32.2        |  | Statement required by 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002         







Reports on Form 8-K



| | 1. | On January
                                                           11, 2012, we filed an amendment to the current report on Form 8-K/A
                                                           to amend the Form 8-K we filed on August 24, 2011.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 2. | On April
                                                           11, 2012, we filed an amendment to the current report on Form 8-K/A
                                                           to amend the Form 8-K we filed on August 24, 2011.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 3. | On July
                                                           2, 2012, we filed a current report on Form 8-K to announce the resignation
                                                           and election of members of the Board of Directors.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





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Table of Contents








SIGNATURES



Pursuant to the requirements
of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned,
there unto duly authorized.





|                      | PANACHE BEVERAGE INC.                     
|--------------------- | ------------------------------------------
|                      |                                           
|Date: August 20, 2012 | By:                                       
|                      | James Dale
        Chief Executive Officer