UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the Quarterly Period Ended: September 30, 2016

Commission File Number: 333-205398

Vodka Brands, Corp

(Exact name of registrant as specified in its charter)

    Vodka Brands, Corp

554 33^rd Street

Pittsburgh, PA 15201

 (Address of principal executive offices)(Zip Code)

 Tel: (412) 681-7777

 (Registrant’s telephone number, including area code)

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 periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check-mark whether the registrant has submitted electronically and posted on its corporate Web-site, 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 for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

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

(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 Exchange Act). Yes ☐ No ☒

1

As of September 30, 2016, we had 12,271,300 shares of common stock, $0.00 par value, issued and outstanding respectively.

TABLE OF CONTENTS

PART I—FINANCIAL INFORMATION

2

PART I—FINANCIAL INFORMATION

Item 1. Unaudited Condensed Financial Statements

INDEX TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

Unaudited Condensed Balance Sheets as of September 30, 2016 and December 31, 2015

F-2

Unaudited Condensed Statements of Operations for the three and nine months ended

September 30, 2016 and 2015

F-3

Unaudited Condensed Statement of Changes in Stockholders' Equity for the nine months

ended September 30, 2016

F-4

Unaudited Condensed Statements of Cash Flows for the nine months ended September 30, 2016 and 2015

F-5

Unaudited Notes to Condensed Financial Statements

F-6

F-1

F-2

F-3

F-4

F-5

VODKA BRANDS CORP

NOTES TO CONDENSED FINANCIAL STATEMENTS

(unaudited)

Note 1 – Interim Condensed Financial Statements

The accompanying unaudited interim condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim information and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for reporting on Form 10-Q. Accordingly, certain information and footnote disclosures required for complete financial statements are not included herein. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary for the fair presentation of the financial information for the interim periods reported have been made. Results of operations for the three months and nine months ended September 30, 2016 are not necessarily indicative of the results for the year ending December 31, 2016 or any period thereafter. These unaudited interim condensed financial statements should be read in conjunction with the audited financial statements and related notes included in our annual report on Form 10-K for the fiscal year ended December 31, 2015, filed with the SEC on April 14, 2016.

Note 2 - Organization and Business

Vodka Brands Corp (the “Company”) was incorporated on April 17, 2014 (Inception) as a Pennsylvania corporation with a year-end of December 31. The Company is primarily engaged in the import and distribution of alcoholic beverages. From Inception to date, the Company imported its alcoholic beverages through a related party. The Company obtained its own import license in April 2015. The Company distributes in the United States. Its products are primarily sold to wholesale distributors as well as state alcohol beverage control agencies.

Note 3 - Going Concern

These accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America applicable to a going concern, which assumes that the Company will be able to realize its assets and discharge its liabilities in the normal course of business. For the nine months ended September 30, 2016, the Company had a net loss of $183,924. As of September 30, 2016 and December 31, 2015, the Company has an accumulated deficit of $493,350 and 309,426, respectively.

Due to the start-up nature of the Company, the Company expects to incur additional operating losses in the immediate future. Given the operating loss and expected future operating losses, the Company’s ability to realize its assets and discharge its liabilities depends on its ability to generate cash from capital financing and generate future profitable operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

The Company is planning on obtaining additional financing through the issuance of equity or debt. To the extent that the funds generated from any private placements, public offerings and/or bank financing are insufficient, the Company will have to raise additional working capital through other channels.

Note 4 - Summary of Significant Accounting Policies

Basis of Presentation

These financial statements are presented in U.S. dollars and are prepared in accordance with U.S. GAAP.

Use of Estimates

The preparation of financial statements in conformity with U.S. 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 revenues and expenses during the reporting period.  The Company's significant accounting policies are those that are both most important to the Company's financial condition and results of operations and require the most difficult, subjective or complex judgments on the part of management in their application, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Because of the uncertainty of factors surrounding the estimates or judgments used in the preparation of the financial statements, actual results may materially vary from these estimates. Significant estimates include the allowance for doubtful accounts and inventory reserves.

F-6

Revenue Recognition

The Company recognizes revenue when the customer takes ownership of the applicable goods and assumes risk of loss, collection of the relevant receivable is probable, persuasive evidence of a sale exists and the sales price is fixed or determinable. For the Company, title passes when delivery has occurred. Provisions for rebates to customers are provided for in the same period the related sales are recorded. We account for rebates as a reduction of revenue and accrue for the estimated potential rebates. We recognized a reduction to revenue of $450 and $1,140 during the three and nine months ended September 30, 2016, respectively. At September 30, 2016 and December 31, 2015, $325 and $0 were accrued for customer programs.

Concentrations of Credit Risk

Financial instruments that subject the Company to concentrations of credit risk consist primarily of cash, accounts receivable, accounts payable, and accrued expenses and approximate their fair value due to the short maturities of those instruments.

Cash

The Company maintains its cash in non-interest bearing accounts at various banking institutions that are insured by the Federal Deposit Insurance Company up to $250,000.  The Company’s deposits may, from time to time, exceed the $250,000 limit; however, management believes that there is no unusual risk present, as the Company places its cash with financial institutions which management considers being of high quality.

Accounts Receivable

The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the Company’s existing accounts receivable. The Company determines the allowance based on management’s experience. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is remote. The allowance for doubtful accounts was $0 as of September 30, 2016 and December 31, 2015. The Company does not have any off-balance-sheet credit exposure related to its customers. Collections on accounts receivable previously written off are included in income as received.

Inventory

Inventories are stated at the lower of cost, as determined on a weighted average basis, or market. Costs of inventories include purchase and related costs incurred in bringing the products to their present location and condition. Market value is determined by reference to selling prices after the balance sheet date or to management’s estimates based on prevailing market conditions. Management writes down the inventories to market value if they are below cost. Management regularly evaluates the composition of the Company’s inventories to identify slow-moving and obsolete inventories to determine if a valuation allowance is required. The valuation allowance for slow-moving and obsolete inventory was $0 as of September 30, 2016 and December 31, 2015.

Short-term advance – related party

The Company has advanced cash payments to a contractor for future service obligations. The Company recognizes the advance as an expense upon the completion of the service obligations. The Company expects the services to be rendered within one year.

Property, plant and equipment

Property, plant and equipment, are stated at cost less depreciation and amortization. Cost represents the purchase price of the asset and other costs incurred to bring the asset into its existing use. Maintenance, repairs and betterments, including replacement of minor items, are charged to expense; major additions to physical properties are capitalized.

Depreciation of property, plant and equipment is calculated based on cost, less their estimated residual value, if any, using the straight-line method over their estimated useful lives.

F-7

Trademarks

Trademarks represent the trade names contributed by the founder through his wholly owned company Trademark Holdings, LLC. The four trademarks are Blue Diamond, Diamond Girl, Blue Crystal and White Crystal. Trademarks are initially measured at the carryover basis of the founder. Amortization of the trademarks is calculated based upon cost using a straight-line method over their estimated useful lives from registration and are stated at a historical cost.

Impairment of Long-Lived Assets

In accordance with Financial Accounting Standards Board (“FASB”) ASC 360, Long-Lived Assets, such as property, plant and equipment and intangibles are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. The Company determined that there was no impairment at September 30, 2016 and December 31, 2015.

Advertising and Promotional Costs

The Company expenses advertising and promotional costs as incurred or the first time the advertising or promotion takes place, whichever is earlier, in accordance with the FASB ASC 720, Other Expenses.

Research and Development Costs

The Company charges research and development costs to expense when incurred in accordance with the FASB ASC 730, Research and Development. Research and development costs were the following:

Income Taxes

The Company accounts for income taxes in accordance with FASB ASC 740, Income Taxes, (ASC 740) which requires that deferred tax assets and liabilities be recognized for future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases.  In addition, ASC 740 requires recognition of future tax benefits, such as carry forwards, to the extent that realization of such benefits is more likely than not and that a valuation allowance be provided when it is more likely than not that some portion of the deferred tax asset will not be realized.

The Company has an accumulated deficit and a loss from operations.  Realization of the net deferred tax asset is dependent upon taxable income, if any, the amount and timing of which are uncertain. Accordingly, the net deferred asset has been offset by a full valuation allowance.

The Company accounts for income taxes in interim periods in accordance with FASB ASC 740-270, Income Taxes - Interim Reporting. The Company has determined an estimated annual effective tax rate which will be revised, if necessary, as of the end of each successive interim period during the Company’s fiscal year to its best current estimate. The estimated annual effective tax rate is applied to the year-to-date ordinary income (or loss) at the end of the interim period.

F-8

Basic and Diluted Loss per Share

The Company reports loss per share in accordance with FASB ASC 260, Earnings per share. The Company’s basic earnings per share are computed using the weighted average number of shares outstanding for the periods presented. Diluted earnings per share are computed based on the assumption that any dilutive options or warrants were converted or exercised. Dilution is computed by applying the treasury stock method.  Under this method, the Company’s outstanding stock warrants are assumed to be exercised, and funds thus obtained were assumed to be used to purchase common stock at the average market price during the period. There were no dilutive instruments outstanding during the three and nine months ended September 30, 2016 and 2015.

Comprehensive Income

Net loss is the Company’s only component of comprehensive income or loss for the three and nine months ended September 30, 2016 and 2015.

Stock-Based Compensation

The Company accounts for stock-based compensation using the fair value provisions of ASC 718, Compensation — Stock Compensation that requires the recognition of compensation expense, using a fair-value based method, for costs related to all stock-based payments including stock options and restricted stock. This topic requires companies to estimate the fair value of the stock-based awards on the date of grant for options are issued to employees and directors. The Company uses a Black-Scholes valuation model as the most appropriate valuation method for pricing these options. Awards for consultants are accounted for under ASC 505-50, Equity Based Payments to Non-Employees. Any compensation expense related to consultants is marked-to-market over the applicable vesting period as they vest. There are customary limitations on the sale or transfer of the stock.

The fair value of the common stock for compensation was the following:

Related Parties

Parties are considered to be related to the Company if the parties, directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. The Company discloses all related party transactions.

All transactions shall be recorded at fair value of the goods or services exchanged. Property purchased from a related party is recorded at the cost to the related party and any payment to or on behalf of the related party in excess of the cost is reflected as a distribution to related party.

F-9

Recent Accounting Pronouncements

In May 2016, the FASB issued ASU 2016-12, Narrow-Scope Improvements and Practical Expedients, makes certain targeted amendments to Topic 606, Revenue from Contracts with Customers, which includes: assessing collectability, presenting sales taxes and other similar taxes collected from customers, noncash consideration, contract modifications at transition, completed contracts at transition, and disclosing the accounting change in the period of adoption. The effective date and transition requirements for ASU 2016-12 are the same as the effective date and transition requirements of ASU 2014-09 (Topic 606).  The Company is currently in the process of evaluating the impact of adoption of the ASU on its financial statements.

In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The amendments are intended to improve the accounting for employee share-based payments and affect all organizations that issue share-based payment awards to their employees. Several aspects of the accounting for share-based payment award transactions are simplified, including: (a) income tax consequences; (b) classification of awards as either equity or liabilities; and (c) classification on the statement of cash flows. For public companies, the amendments are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. For private companies, the amendments are effective for annual periods beginning after December 15, 2017, and interim periods within annual periods beginning after December 15, 2018. Early adoption is permitted for any organization in any interim or annual period. We are currently assessing the impact that this standard will have on our financial position and results of operations.

In August 2014, FASB issued ASU No. 2014-15, Presentation of Financial Statements— Going Concern (Subtopic 205-40). This standard is intended to define management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. The amendments contained in this ASU apply to all companies and not-for-profit organizations. The amendments are effective for the annual period ending after December 15, 2016, and for annual and interim periods thereafter. Early application is permitted. We are currently evaluating what impact, if any, the adoption will have to the presentation of our financial statements and related disclosures, but do not expect it to have a material impact on our financial position, results of operations, or cash flows.

In May 2014, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (ASU 2014-09), which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP. In July 2015, the FASB finalized a one year delay in the effective date of this standard, which will now be effective for the Company on January 1, 2018, however early adoption is permitted any time after the original effective date, which for us is January 1, 2017. We are evaluating the effect that ASU 2014-09 will have on our financial statements and related disclosures, but do not expect it to have a material impact on our financial position, results of operations, or cash flows.

The Company believes that there were no other accounting standards recently issued that had or are expected to have a material impact on our financial position or results of operations.

Reclassification

Certain reclassifications have been made to prior year amounts to conform with the current year presentation.

Note 5 - Common Stock

The Articles of Incorporation authorized Vodka Brands Corp to issue 100,000,000 shares of common stock with no par value.  

Each share of our common stock entitles the holder to one (1) vote, either in person or by proxy, at meetings of shareholders. The shareholders are not permitted to vote their shares cumulatively.  Accordingly, the holders of more than fifty percent (50%) of the total voting rights on matters presented to our common stockholders can elect all of our directors and, in such event, the holders of the remaining minority shares will not be able to elect any such directors.  The vote of the holders of a majority of the holders entitled to vote on matters submitted to our common stockholders including of our preferred stock described below is sufficient to authorize, affirm, ratify, or consent to such act or action, except as otherwise provided by law.

From January 2016 through September 2016, 437,967 shares of the Company’s common stock were issued for cash of $131,391 at $0.30 per share.

F-10

From January 2016 through September 2016, 10,000 shares of common stock were issued for consultant services pertaining to a contract cancellation agreement. These 10,000 shares were valued at $0.30 per share.

The common shares issued for services and rents during the periods were immediately vested upon issuance.

On March 7, 2015 the Company entered into an employment agreement with its Chief Executive Officer (“CEO”). Under the terms of the agreement, the CEO will earn 36,000 shares of common stock for his services annually. The agreement is effective April 1, 2015. From January 2016 through September 2016, 27,000 shares of common stock were issued as compensation. These 27,000 shares were valued at $8,100 of compensation at $0.30 per share.

Note 6 - Related Party Transactions

On April 20, 2014 the Company purchased its entire inventory from Beverage Brands, Inc. (“BBI”) which is wholly owned by the CEO, in the amount of $25,502. This amount represents the cost of the inventory to BBI.

In addition, BBI paid third parties for storage and administrative services on behalf of the Company. These amounts were charged to cost of sales. During the three and nine month period ended September 30, 2016, fees paid on behalf of the Company were $750 and $2,250.  During the three and nine month period ended September 30, 2015, fees paid on behalf of the Company were $750 and $2,482. At September 30, 2016 and December 31, 2015, the Company owed BBI $8,843 and $5,201, respectively, and is included in accounts payable – related party.

Effective March 9, 2016, the Company entered into a promissory note with its CEO. The original principal balance was $1,100 and reflected in the loan payable related party. The promissory note is due on demand and bears interest at 3% annually. During the three months ended September 30, 2016 an additional $5,347 was advanced from the CEO and $900 was repaid by the Company.

During the three months ended September 30, 2016, the Company paid $3,300 of operating expenses on behalf of BBI. This amount was excluded from the statements of operations and is included in accounts receivable – related party at September 30, 2016.

Effective April 28, 2015 the Company executed a consulting agreement with a consultant who is an affiliate with BBI. The Company compensates $1,000 per month to the consultant and requires a minimum of fifty hours of services per month. The agreement may terminate, at any time, by written notice of the Company. At September 30, 2016 and December 31, 2015, the Company advanced this consultant $23,810 and $3,350, respectively, for future services which are expected to be performed within one year. The total fees incurred related to this consultant were $3,000 and $9,000 for the three and nine months ended September 30, 2016. The total fees incurred related to this consultant were $4,000 and $10,300 for the three and nine months ended September 30, 2015.  The fees are included in consulting fees. See Note 9.

See additional transactions with related parties in Note 5 and Note 8.

Note 7 - Concentrations

The Company’s revenues include three major customers, the Commonwealth of Pennsylvania, the Mississippi Department of Revenue, and a distributor in Tennessee, which account for 100% of revenues for the three and nine months ended September 30, 2016 and 2015. Outstanding accounts receivable from these customers amounted to the following:

The Company imports and distributes alcoholic beverages from one supplier which accounted for 100% of the Company’s purchases for the three and nine months ended September 30, 2015. The Company had no purchases for the three and nine months ended September 30, 2016. All purchases require prepayment terms.  Accounts payable to this vendor amounted to $0 as of September 30, 2016 and December 31, 2015.

F-11

Note 8 - Commitments and Contingencies

Control by principal stockholder/officer

The CEO owns beneficially and in the aggregate, the majority of the common shares of the Company. Accordingly, the CEO has the ability to control the approval of most corporate actions, including approving significant expenses, increasing the authorized capital stock and the dissolution, merger or sale of the Company's assets.

Reliance on other parties and related parties

The Company currently is primarily engaged in the business of importing and distributing alcoholic beverages in the United States. However, from Inception through March 2015, the Company did not have a permit to import and distribute alcoholic beverages in the United States, nor did it have a permit to distribute alcoholic beverages within the United States.

The Company contracted with BBI, to import alcoholic beverages from Europe to the U.S. under BBI’s federal importing permit. Once imported, the inventory is stored in a bonded warehouse operated by a third party licensed by the federal government.

When the Company sells alcoholic beverages to the Pennsylvania Liquor Control Board it uses a third party who has an alcoholic beverage sale permit in the U.S., to enter into purchase orders with the customer. The third party would not transact with the Company until the federal importing permit was obtained. Therefore, BBI acted as a conduit between the Company and the third party. There were no fees or expenses paid to or retained by BBI with regards to this arrangement. The third party collects from the Pennsylvania Liquor Control Board in a BBI account.

In April 2015, the Company obtained its own federal importing permit.

When the Company sells alcoholic beverages to its customer, the Mississippi Department of Revenue, the alcoholic beverages are sent to a bailment warehouse, operated by the Mississippi Department of Revenue. The Company maintains ownership of the alcoholic beverages while in the bailment warehouse, without fee, until final withdraw by the Mississippi Department of Revenue. At September 30, 2016 and December 31, 2015, $2,784 and $1,470 of excise taxes are included in inventory.

When the alcoholic beverage leaves the bonded warehouse, the Company retains a third party as a customer broker to process the paper work with United States Customs and advance the federal tax payment for the alcoholic beverage sold. Payment of the tax is due before the product leaves the bonded warehouse.

Note 9 – Operating Expenses

Selling expenses consisted of the following:

F-12

General and administrative expenses consisted of the following:

Note 10 – Property, plant and equipment

The net book value related to this property, plant and equipment was the following:  

Depreciation of the assets are as follows:

The estimated useful lives of the assets are as follows:

Office equipment and furniture     3-5 years

Note 11 – Trademarks

The net book value related to these trademarks was the following:

F-13

Amortization expense related to these trademarks was the following:

The Company did not incur costs to renew or extend the term of the trademarks during the periods ending March 31, 2016 and December 31, 2015. The future cash flows of the Company are significantly affected by the Company’s ability to renew the trademarks with the United States Patent and Trademark Office.  

The estimated useful lives of the assets are as follows:

Trademarks    10 years

The estimated amortization expense is as follows:

Note 12 - Subsequent Events

Subsequent events have been evaluated through November 25, 2016 which is the date the financial statements were available to be issued. Management did not identify any events requiring recording or disclosure in the accompanying financial statements.

F-14

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following is management’s discussion and analysis of the financial condition and results of operations of Vodka Brands Corp (“Vodka Brands”, the “Company”, “we”, and “our”) for three and nine months ended September 30, 2016, compared to the three and nine months ended September 30, 2015. The following information should be read in conjunction with the financial statements for the year ended December 31, 2015 and notes thereto appearing elsewhere in this Annual Report on Form 10-K filed with the SEC on April 14, 2016. Our financial statements are stated in United States Dollars and are prepared in accordance with United States Generally Accepted Accounting Principles.

Our Business

We began operations on April 17, 2014 (Inception) and operate within the alcoholic spirit industry. Through our operations we oversee the manufacturing of our Blue Diamond Vodka and sell our product in the United States with hopes of expanding internationally. We have a federal permit to import alcoholic beverages. Currently, our customers include the Pennsylvania Liquor Control Board the Alcoholic Beverage Control of Mississippi and a distributor in Tennessee. We are also licensed in West Virginia.  We had our first purchase order for the State of Tennessee during the period ended June 30, 2016. We plan to continue to develop our trademarked name “Blue Diamond” brand as well as our other trademarked brands.

Our cash on hand as of  September 30, 2016, was $22,816

.

RESULTS OF OPERATIONS

Sales

We generated sales of $12,065  and $33,597 for the three and nine months ended September 30, 2016 and $10,946 and $30,026 for the three and nine months ended September 30, 2015.  The increase is due primarily to the higher order volumes. During the three months ended September 30, 2016, we sold 947 bottles versus 852 bottles sold during the three months ended September 30, 2015

The most significant variable in product cost in the future is expected to be currency exchange rates between the Euro and the US Dollar. Our European suppliers invoice in Euros. We do not believe that inflation had any material impact on us during the three months ended September 30, 2016 and 2015.

We recognize revenue when four basic criteria have been met: (1) persuasive evidence of an arrangement exists; (2) shipment has occurred; (3) the fee is fixed or determinable; and (4) collection is reasonably assured.

With the introduction of Blue Diamond Vodka as a shelf item in the State of Pennsylvania two years ago, our sales are primarily to the Pennsylvania Liquor Control Board and can be found in roughly forty five of their stores. If we were to lose this customer, our operations would be materially impacted. However, we have the possibility to increase the number of stores in Pennsylvania, and much greater potential nationally, and internationally.  To this end, we continued to generate sales to the Mississippi Department of Revenue during the nine months ended September 30, 2016. Our product is sold in approximately forty stores in Mississippi.

In January 2016, we began issuing customer incentives on our Blue Diamond Vodka through the use of mail-in rebate coupons. Revenues for the three months ended March 31, 2016 were reduced by estimated rebate costs of $415 and revenues for the three months ended June 30, 2016 were reduced by estimated rebate costs of $275. Revenues for the three months ended September 30, 3016 were reduced by estimated rebate costs of $450.

Cost of Goods Sold

Our cost of sales were $9,361 and $26,941 for the three and nine months ended September 30, 2016 compared to $7,222 and $19,472 for the three and nine months ended September 30, 2015. The increase in our cost of sales was primarily due to higher order volumes, freight costs and distribution outlets.

3

Gross profit

We expect to be able to maintain a gross profit margin over 25% on our product.  For the three and nine months ended September 30, 2016 and 2015 our gross profit margin was 22%, 20%, 34%  and 35%, respectively. We expect that our 2016 profit margin will remain in line with our aforementioned expectations, however we have flexibility to adjust prices if necessary to gain market share. We implemented a $5.00 mail-in rebate in the first quarter of 2016 to increase sales. The mail-in rebate and higher purchase and freight costs decreased our gross profit percentage for the three and nine months ended September 30, 2016. Further, we offered our Blue Diamond Vodka at a reduced price to gain market access in Tennessee contributing to the reduction in our gross profit margin.

Selling, general administrative and other expenses (SG&A)

Our most significant selling costs are promotional and advertising expenses as we continue to develop brand recognition. The most significant general and administrative costs were legal and accounting expenses.

The market for spirits and vodka is large.  We have the potential to expand sales dramatically. This will be determined in large part by our success in attracting distributors. Although, we believe the market is large, we are uncertain if our product will obtain significant demand. Additionally, we are uncertain with regards to industry trends or events that will materially impact our operational condition whether beneficial or detrimental.

Net loss

We incurred a net loss of $51,532 and $183,924 for the three and nine months ended September 30, 2016, and $48,975 and $120,411, for the three and nine months ended September 30, 2015.

We expect we will require additional capital to meet our long term operating requirements. We expect to raise additional capital through the sale of equity or possibly debt financing.

Our financial statements have been prepared assuming that we will continue as a going concern and, accordingly, do not include adjustments relating to the recoverability and realization of assets and classification of liabilities that might be necessary should we be unable to continue in operation.

Deferred Tax Asset and Valuation Allowance

We recorded a deferred tax asset, but recorded a full valuation allowance against this asset as it is uncertain if we will be able to realize any of this benefit.

Related Parties

During the period April 17, 2014 (Inception) through December 31, 2014, we purchased all of our inventory from Beverage Brands, Inc. (“BBI”), a wholly owned company of our CEO. The purchase price was recorded at the price BBI paid for the product from a third party manufacturer. Additionally, BBI acted as a conduit with a third party to facilitate sales to the Pennsylvania Liquor Control Board as we did not have our federal import license. We obtained our federal import license in April of 2015. There were no fees or expenses paid to or retained by BBI with regards to this arrangement.

During April 2014, Trademark Holdings, LLC, a wholly owned company of our CEO, contributed the trademarks Blue Diamond, Diamond Girl, Blue Crystal and White Crystal. We recorded the trademarks at carryover basis and will continue to amortize these trademarks in accordance with their useful life from the date of registration.

LIQUIDITY AND CAPITAL RESOURCES

As of September 30, 2016, our current assets were $117,875 and our current liabilities were $56,203 and as of December 31, 2015 our current assets were $142,964 and our current liabilities were $40,084.

As of September 30, 2016 our stockholders’ equity was $62,406 and as of December 31, 2015 our stockholders’ equity was $103,839.   

At September 30, 2016 and December 31, 2015, we had 12,271,300 and 11,796,333 common shares outstanding, respectively.

4

Cash Flows from Operating Activities

We have not generated positive cash flows from operating activities. For the nine months ended September 30, 2016, net cash used in operating activities was $149,567 and for the nine months ended September 30, 2015 net cash used in operating activities was $194,370.  The change was primarily a result in the purchase of our second production of Blue Diamond Vodka in February 2015.

Cash Flows from Financing Activities

We have financed our operations primarily from the issuance of shares of our common stock.  For the nine months ended September 30, 2016, net cash provided by financing activity was $136,938 and for the nine months ended September 30, 2015 net cash provided by financing activities was $94,500 received from proceeds from issuance of our common stock to investors.

PLAN OF OPERATION AND FUNDING

Operations

Our overriding objective is to produce high quality vodka products with recognizable brand names and to expand distribution nationally and internationally.   We plan to increase sales of our Blue Diamond Vodka brand and to develop our other brand names.  Increase in sales of our existing brand can be achieved through the improvement in product packaging which has been ongoing, promotional activities, and forming relationships with distributors.  We can develop one or more of our other brand names in the next six to twelve months.  An important component of success will be to add an individual to our management team who has industry experience and relationships with national and international distributors.

Product development

Our Blue Diamond Vodka bottle is produced in France and shipped to Northern Europe to complete production.  Current production of Blue Diamond Vodka includes some noticeable improvements in product packaging.  For example, the bottle closure utilizes an up-scale synthetic cork with logo embossed on the top.  A PVC capsule with logo complements the long neck bottle.  There is a clear portion surrounding the diamond in martini glass design on the frosted bottle and other slight modifications.  These modest but noticeable changes give our product a cleaner, more professional and appealing appearance.  We anticipate further development of other brands within six to twelve months.

In the fourth quarter 2016, we began production of vodka under our Diamond Girl trademark.

Funding

We expect that working capital requirements will continue to be funded through a combination of our existing funds and further issuances of securities. Our working capital requirements are expected to increase in line with the growth of our business.

We paid for the second production run of 1,229 cases of Blue Diamond Vodka in February 2015 and we received the product in September 2015. Existing working capital and anticipated cash flow are expected to be adequate to fund our operations over the next three months. We have no lines of credit or other bank financing arrangements. Generally, we have financed operations to date through the proceeds of the sale of our common stock to investors.   In connection with our business plan, management anticipates additional increases in operating expenses and capital expenditures relating to: (i) developmental expenses associated with a start-up business and (ii) marketing expenses. We intend to finance these expenses with further issuances of equity or debt securities. Thereafter, we expect we will need to raise additional capital and generate revenues to meet long-term operating requirements. Additional issuances of equity or convertible debt securities will result in dilution to our current shareholders. Further, such securities might have rights, preferences or privileges senior to our common stock. Additional financing may not be available upon acceptable terms, or at all. If adequate funds are not available or are not available on acceptable terms, we may not be able to take advantage of prospective new business endeavors or opportunities, which could significantly and materially restrict our business operations.

Material Commitments

As of the date of this Quarterly Report, we do not have any material commitments.

Purchase of Significant Equipment

We do not intend to purchase any significant equipment during the next twelve months.

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Off-Balance Sheet Arrangements

As of the date of this Quarterly Report, we do not have any 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 are material to investors.

Going Concern

The report of the independent registered public accounting firm accompanying our annual report for the year ended December 31, 2015 financial statements contains an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern. The financial statements have been prepared "assuming that we will continue as a going concern," which contemplates that we will realize our assets and satisfy our liabilities and commitments in the ordinary course of business.

Item 3.    Quantitative and Qualitative Disclosures About Market Risk

Smaller reporting companies are not required to provide the information required by this item.

Item 4.    Controls and Procedures

Evaluation of Disclosure Controls and Procedures 

Pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (“Exchange Act”), the Company carried out an evaluation, with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Company’s CEO and CFO concluded that the Company’s disclosure controls and procedures were not effective to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company's annual or interim financial statements will not be prevented or detected on a timely basis.

The design of the internal controls over the segregation of duties and financial reporting close process constitute a material weakness. Specifically, we do not have a formal written process to perform monthly close procedures nor a detailed review of such information. Further, our transactions are initiated and processed by a single individual. Accordingly, the lack of these controls results in the possibility that a material misstatement could occur and would not be prevented or detected on a timely basis. 

Changes in Internal Control Over Financial Reporting

There have been no changes in the Company’s internal controls over financial reporting during the three month period ending September 30, 2016, or in other factors that could significantly affect these controls, that materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

From time to time, the Company may become involved in litigation relating to claims arising out of its operations in the normal course of business.  To the best of our knowledge, no governmental authority is contemplating any proceeding to which we are a party or to which any of our properties is subject, which would reasonably be likely to have a material adverse effect on the Company.

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PART II:  OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, the Company may become involved in litigation relating to claims arising out of its operations in the normal course of business.  To the best of our knowledge, no governmental authority is contemplating any proceeding to which we are a party or to which any of our properties is subject, which would reasonably be likely to have a material adverse effect on the Company.

Item 1A.   Risk Factors

Smaller reporting companies are not required to provide the information required by this item.

Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds 

During the three (3) month period ending September 30, 2016, and through the filing of this Form 10-Q report, we offered and sold securities below. None of the issuances involved underwriters, underwriting discounts or commissions. We relied upon Sections 4(2) of the Securities Act, and Rule 506 of the Securities Act of 1933, as amended for the offer and sale of the securities. We believed these exemptions from registration were available because:

·We are not a blank check company;

·Sales were not made by general solicitation or advertising;

·All certificates had restrictive legends; and

·Sales were made to persons with a pre-existing relationship to Mark T. Lucero, our President, Chief Executive Officer and Director.

On July 11, 2016, we sold 10,000 shares of our common stock to Ghridhar Raghavan at a price of $0.30 per share or an aggregate of $3,000. 

On August 8, 2016, we sold 16,667 shares of our common stock to Derrick Hemby at a price of $0.30 per share or an aggregate of $5,000. 

On August 15, 2016, we sold 6,700 shares of our common stock to Erica Jean Lewis at a price of $0.30 per share or an aggregate of $2,010. 

On August 15, 2016, we sold 16,600 shares of our common stock to Chelsy Elaine Hogue at a price of $0.30 per share or an aggregate of $4,980. 

On September 16, 2016, we sold 3,333 shares of our common stock to Elijah Thompson at a price of $0.30 per share or an aggregate of $1,000. 

On September 20, 2016, we sold 30,000 shares of our common stock to Leonard Oddo at a price of $0.30 per share or an aggregate of $9,000. 

On October 6, 2016, we sold 17,000 shares of our common stock to Chad Edward Gobersk and Amy Lynn Warzinski at a price of $0.30 per share or an aggregate of $5,100. 

Item 3.     Defaults Upon Senior Securities

None.

Item 4.     Mine Safety Disclosures

Not applicable.

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Item 5.    Other Information

Not Applicable.

Item 6.    Exhibits

Exhibit No.

Description

31.1 Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of Sarbanes Oxley Act of 2002*

32.1Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of Sarbanes Oxley Act of 2002*

* Filed herewith.

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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.

Vodka Brands, Corp

/s/ Mark T. Lucero

Name: Mark T. Lucero

Position: President, Chief Executive Officer,

Director, Acting Chief Financial Officer

November 25, 2016

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