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Update On The Drinks Americas' ($DKAM-$0.69) Turnaround Story

Recently I wrote about how the company has risen Phoenix-like from the ashes of its past to become a lean, focused national importer and distributor of a line of unique premium alcoholic and non-alcoholic beverages that includes KAH Tequila, the market's fastest growing premium tequila. KAH Tequila is sold in an iconic skull-shaped bottle decorated as the famous God of the Dead and recently has won platinum and gold industry awards. The word KAH means "life" in the ancient Mayan language. Every bottle is an individual, hand-crafted work of art; no two bottles are the same.

Growth will be driven by the success of the KAH brand in the tequila market. Worldwide sales of tequila were up about 2% in 2011, similar to the performance in 2010. In the U.S., however, total volume grew by double that rate (4%) fueled by increased promotional activity and popularity among Hispanics, the country's fastest growing ethnic group. High End and Super premium brands outperformed, increasing 9.5% and 11.3%, respectively, last year. Drinks Americas' $2 million marketing drive now underway (paid for by the distillery) backs KAH Tequila's national launch in the United States. Distribution of its Tequila and Beer brands is expanding into the Asia Pacific markets. Entry into the larger Latin America markets likely will follow in the next year or two.

The company has cleaned up its balance sheet; is reducing debt and payables and is starting to see a ramp up in sales. Since September, all of the company's distributors have re-ordered at least three times, some as many as six. Quarterly sales should reach $6 million late this year, up from the $1.27 million reported for the quarter ended October 31, 2011.

In view of these recent sales trends and ordering patterns, I now estimate that Drinks Americas can earn more than $0.20 a share (untaxed) on its upward revised $20+ million sales run rate.

DKAM has a $44 million tax loss carry forward (over $2/sh). There are about 21 million shares outstanding, of which management owns 35%.

Harris L. Berenholz, CFA

Disclosure: I am long OTCPK:DKAM.