Forward-Looking Statements
This Quarterly Report on Form 10-Q (this "Quarterly Report") contains
forward-looking statements. The Securities and Exchange Commission (the "SEC")
encourages companies to disclose forward-looking information so that investors
can better understand a company's future prospects and make informed investment
decisions. This Quarterly Report and other written and oral statements that we
make from time to time contain such forward-looking statements that set out
anticipated results based on management's plans and assumptions regarding future
events or performance. We have tried, wherever possible, to identify such
statements by using words such as
"anticipate,""estimate,""expect,""project,""intend,""plan,""believe,""will" and
similar expressions in connection with any discussion of future operating or
financial performance. In particular, these include statements relating to
future actions, future performance or results of current and anticipated sales
efforts, expenses, the outcome of contingencies, such as legal proceedings, and
financial results.
We caution that the factors described herein, and other factors could cause our
actual results of operations and financial condition to differ materially from
those expressed in any forward-looking statements we make and that investors
should not place undue reliance on any such forward-looking statements. Further,
any forward-looking statement speaks only as of the date on which such statement
is made, and we undertake no obligation to update any forward-looking statement
to reflect events or circumstances after the date on which such statement is
made or to reflect the occurrence of anticipated or unanticipated events or
circumstances. New factors emerge from time to time, and it is not possible for
us to predict all of such factors. Further, we cannot assess the impact of each
such factor on our results of operations or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from those
contained in any forward-looking statements.
General
The Company was incorporated under the laws of the State of Delaware on October
3, 1986, under the name "AOA Corporation". On October 22, 2012, the Company
changed its name to "Pacific Ventures Group, Inc.". Prior to the Share Exchange
described below, the Company operated as an insurance holding company and
through its subsidiaries, marketed and underwrote specialized property and
casualty coverage in the general aviation insurance marketplace.
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The current structure of the Company resulted from a share exchange with Snöbar
Holdings, Inc. ("Snöbar"), which was treated as a reverse merger for accounting
purposes. On August 14, 2015, the Company entered into a share exchange
agreement (the "Share Exchange Agreement") with Snöbar Holdings, Inc. ("Snöbar
Holdings"), pursuant to which the Company acquired 100% of the issued and
outstanding shares of Snöbar Holdings' Class A and Class B common stock in
exchange for 22,500,000 restricted shares of the Company's common stock, as well
as issuing 2,500,000 restricted shares of the Company's common stock to certain
other persons (the "Share Exchange"). As the result of the Share Exchange,
Snöbar Holdings. became the Company's wholly owned operating subsidiary and the
business of Snöbar Holdings became the Company's sole business operations. In
addition, Snöbar Holdings' majority owned subsidiary, MAS Global Distributors,
Inc., a California corporation ("MGD"), became an indirect subsidiary of the
Company.
International Production Impex Corporation, a California corporation ("IPIC"),
which was formed on August 2, 2001. IPIC is in the business of selling
alcohol-infused ice cream and ice-pops and holds all of the rights to the liquor
licenses to sell such products and trade names "SnöBar". Accordingly, the Trust
holds all ownership interest of IPIC and its liquor licenses, permitting IPIC to
sell its product to distributors, with all income, expense, gains and losses
rolling up to the Trust, of which Snöbar Holdings is the sole beneficiary.
Snöbar Holdings also owns 99.9% of the shares of MAS Global Distributors, Inc.,
a California corporation ("MGD"). As a result of the foregoing structure, Snöbar
Holdings is the primary beneficiary of all assets, liabilities and any income
received from the business of the Trust and IPIC through the Trust and is the
parent company of MGD.
Statements in this Quarterly Report on Form 10-Q (this "Quarterly Report") which
are not historical in nature are "forward-looking statements" within the meaning
of the federal securities laws. These statements often include words such as
"believe," "expect," "project," "anticipate," "intend," "plan," "outlook,"
"estimate," "target," "seek," "will," "may," "would," "should," "could,"
"forecast," "mission," "strive," "more," "goal," or similar expressions and are
based upon various assumptions and our experience in the industry, as well as
historical trends, current conditions, and expected future developments.
However, you should understand that these statements are not guarantees of
performance or results, and there are a number of risks, uncertainties and other
important factors that could cause our actual results to differ materially from
those expressed in the forward-looking statements, including, among others:
? any declines in the consumption of food prepared away from home;
? the extent and duration of the negative impact of the COVID-19 pandemic on us;
? cost inflation/deflation and commodity volatility;
? competition;
? reliance on third-party suppliers and interruption of product supply or
increases in product costs;
? changes in our relationships with customers and group purchasing
organizations;
? our ability to increase or maintain the highest margin portions of our
business;
? effective integration of acquired businesses;
? achievement of expected benefits from cost savings initiatives;
? increases in fuel costs;
? economic factors affecting consumer confidence and discretionary spending;
? changes in consumer eating habits;
? reputation in the industry;
? labor relations and costs and continued access to qualified and diverse labor;
? cost and pricing structures;
? changes in tax laws and regulations and resolution of tax disputes;
? environmental, health and safety and other government regulation, including
actions taken by national, state and local governments to contain the COVID-19
pandemic, such as travel restrictions or bans, social distancing requirements,
and required closures of non-essential businesses;
? product recalls and product liability claims;
? adverse judgments or settlements resulting from litigation;
? disruption of existing technologies and implementation of new technologies;
? cybersecurity incidents and other technology disruptions;
? management of retirement benefits and pension obligations;
? extreme weather conditions, natural disasters and other catastrophic events,
including pandemics and the rapid spread of contagious illnesses;
? risks associated with intellectual property, including potential infringement;
indebtedness and restrictions under agreements governing indebtedness; and
? interest rate increases.
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Description of the Business Operations of Snöbar Holdings
Snöbar Holdings is the trustor and sole beneficiary of the Trust. The Trust owns
100% of the shares of IPIC. IPIC is the owner of liquor licenses and the trade
name "SnöBar" and is in the business of selling and distributing alcohol-infused
ice creams and ice-pops through its distributors. As a result of the foregoing,
IPIC is a food, beverage and alcohol distribution company that is in the
business of selling alcohol-infused ice cream and ice-pops and holds all of the
rights to the liquor licenses to sell such products and trade names "SnöBar".
IPIC is initially marketing two products: SnöBar alcohol infused ice pops, and
SnöBar alcohol infused ice cream and sorbet. SnöBar ice pops are original frozen
alcohol beverage bars, similar to popsicles on a stick, but made with premium
liquor such as premium tequila and vodka and are currently manufactured in three
flavors, Margarita, Cosmopolitan and Mojito. The alcohol freezing technology
used to produce these beverage bars can be applied to almost any alcohol type
and mixture, presenting significant market potential and an almost unlimited
variety of flavors and employment of premium brands. Each ice pop is the
equivalent of a full cocktail.
SnöBar ice cream is an additional innovative product that the Company is
marketing using proprietary formulas and technology. These products are premium
ice cream and sorbets that are distilled spirit cocktails containing up to 15%
quality liqueurs and liquors. Currently, there are four flavors available:
Brandy Alexander; Brandy Alexander with chocolate chips; Grasshopper; and Pink
Squirrel. There are also numerous different liquor ice cream flavors in
development in classic ice cream drink styles such as Coffee Liqueur Ice Cream,
Piña Colada Sorbet, Sherry Ice Cream, and Strawberry Margarita Sorbet. The
product contains ultra-premium dairy and the highest quality of ingredients.
The SnöBar brand is fully trademarked within the USA and is currently seeking
worldwide trademark rights.
As of September 30, 2020, Snöbar products are currently being sold in the east
coast by our distributor. The Company's management has been actively
constructing an online platform that will allow Snöbar distribution on a
national level. Please see "Plan of Operations" below for further detail.
On May 1, 2018, Royalty Foods Partners, LLC - a Florida Limited Liability
Corporation and a subsidiary of Pacific Ventures Group, Inc. - completed an
asset acquisition of San Diego Farmers Outlet, Inc. (SDFO), a California
Corporation. San Diego Farmers Outlet was started over thirty-five years ago to
provide primarily restaurant customers in southern California's three largest
counties with quality food and produce and does business under the name of
Farmers Outlet and San Diego Farmers Outlet.
On December 17, 2019, the Company completed an asset acquisition of Seaport Meat
Company, (Seaport Meat), a California Corporation with over thirty (30) years in
business servicing restaurant and retail, and institutional customers in
Southern California and Arizona. Seaport Meat is a USDA meat processing plant
that supplies quality meats, seafood, dry goods, dairy and produce. Seaport Meat
Company built a state-of-the-art food distribution and manufacturing facility in
Spring Valley, California. Seaport operates out of a 17,000 square foot facility
is HACCP-compliant and is a USDA Licensed processing facility with on-site daily
inspections. HACCP is a management system in which food safety is addressed
through the analysis and control of biological, chemical, and physical hazards
from raw material production, procurement and handling, to manufacturing,
distribution and consumption of the finished product. Having a USDA certified
facility allows consumers to be confident that the Food Safety and Inspection
Service (FSIS), the public health agency in the USDA, ensured that meat and
poultry products are safe, wholesome, and correctly labeled and packaged
Plan of Operations
Snobar
As of the date of this Quarterly Report, Snöbar products are currently being
sold in the east coast of United States by the Company's distributor. The
Company's management has been actively constructing an online platform that will
allow Snöbar distribution on a national level. The Company's platform is
complete and ready to "go live" and, with the aim of purchasing inventory as
well as increasing sales and marketing efforts.
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The Company has recently signed an agreement with a new co-packer to produce and
manufacture the Snobar Product Line. The new factory will produce the Snobar
Product Line for a reduced price which will allow for greater profitability for
the company. The new factory has all of the necessary licensing in place
required to manufacture the Snobar Product Line. The company expects to place
its first order with the new copacker in early 2020. The company will launch the
state of California and be looking to expand sales across the nation.
In addition, the Company is planning to offer distribution rights throughout the
country which will allow the Snöbar Product Line to expand its footprint very
rapidly. The distribution rights will also bring in additional revenue to the
Company.
The Company will need to access the capital markets or in order to sustain its
operations for the next 12 months. The Company's plan of action in the next 12
months is to continue development of the Snöbar Product Line and fulfill the
current orders that the brand has in hand from the Company's distributor in
South Carolina as well as from other accounts. The Snöbar Product Line will have
two fulfillment centers to ship the online orders, one in California to service
west of the Mississippi and another fulfillment center in South Carolina to
service east of the Mississippi. These fulfillment centers are established and
ready to proceed as soon as inventory is purchased.
The Company's anticipated general and administrative costs can be expected to
increase due to additional marketing costs associated with online sales.
Specifically, the Company expects to utilize marketing and promotions through
social media, radio and other avenues to create more brand awareness. The
Company expects to continue to utilize independent contractors and not increase
the number of employees.
Seaport Meat Company
Seaport Meat Company, (Seaport Meat), a California Corporation with over thirty
(30) years in business servicing restaurant and retail, and institutional
customers in Southern California and Arizona. Seaport Meat is a USDA meat
processing plant that supplies quality meats, seafood, dry goods, dairy and
produce. Seaport Meat Company built a state-of-the-art food distribution and
manufacturing facility in Spring Valley, California. Seaport operates out of a
17,000 square foot facility is HACCP-compliant and is a USDA Licensed processing
facility with on-site daily inspections. HACCP is a management system in which
food safety is addressed through the analysis and control of biological,
chemical, and physical hazards from raw material production, procurement and
handling, to manufacturing, distribution and consumption of the finished
product. Having a USDA certified facility allows consumers to be confident that
the Food Safety and Inspection Service (FSIS), the public health agency in the
USDA, ensured that meat and poultry products are safe, wholesome, and correctly
labeled and packaged
The Company's customers range from a wide variety of restaurants, including many
well known in Southern CA, to institutions, schools (UCSD, SDSU, etc.) and
re-distributors such as US Foods and Sysco as well as to local distributors.
They supply wholesale food and restaurant supplies to San Diego, Los Angeles,
Orange and Riverside and offer same day service. In addition, they have clients
in Arizona and Colorado that come to their facility to pick up their orders.
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Because Seaport Meat Company of America can efficiently add new product lines,
it is expected that this will expand the distribution of Pacific Ventures' San
Diego Farmers Outlet and SnoBar product line, thereby accelerating Pacific
Ventures' revenue growth. We believe the combination of a distribution and
product company is unique in the San Diego area and will position the company
for rapid growth.
Seaport Meat Company manufactures and wholesales custom processed beef, pork,
chicken, lamb, veal and seafood. In addition, they are redistributors of a wide
variety of dry goods, frozen foods, disposables and janitorial products. Their
sales, distribution and finance processes are very efficient and can be expanded
to add new product lines, including fresh produce and dairy
Although the Company has been able to extend the maturity dates as well as
repayment terms of a substantial amount of its existing debt, there is no
assurance that the Company will be able to further extend such repayments or
maturity dates to avoid a default, as such further extension depends on the
consent of the holders of such debt. If the Company is unable to make such
payments and repayments and unable to extend and delay required payments or
maturities of such debt, the holders of such debt will have the right to take
legal action seeking enforcement of the debt. If any legal action is taken
against it, the Company would face the risk of having to deplete our limited
cash resources to defend against such suit or face the entry of a default
judgment. In either event, such action would have grave impact on the Company's
operations. The Company's ability to continue operations will be dependent upon
the successful completion of additional long-term or permanent equity financing,
the support of creditors and shareholders, and, ultimately, the achievement of
profitable operations. There can be no assurances that the Company will be
successful, which would in turn significantly affect our ability to be
successful in its new business plan. If not, the Company will likely be required
to reduce operations or liquidate assets. The Company will continue to evaluate
its projected expenditures relative to its available cash and to seek additional
means of financing in order to satisfy the Company's working capital and other
cash requirements.
San Diego Farmers Outlet
SDFO covers a large market area servicing Los Angeles, Orange County and San
Diego, which we have estimated to be a $2.5 billion addressable market.
Unlike some larger distributors who make their customers receive products on a
day and time convenient to the distributor, SDFO delivers daily and pays
attention to what the customer wants. Farmers Outlet added products to meet the
needs of restaurants, Hotels, Clubs and bars, Resorts, food trucks and caterers.
Free delivery was added to demonstrate that Farmers Outlet had customers
interest first in mind.
Farmers Outlet provides a wide array of products to serve customers of all
types. However, they do have a niche in providing fresh produce and food
products. Farmers Outlet provides specialty produce that the larger distributors
do not carry on a daily basis.
Farmers Outlet covers a large market area servicing Los Angeles, Orange County
and San Diego, which we have estimated to be a $2.5 billion addressable market.
Farmers Outlet currently services the San Diego territory and has over 125
active customers, and no customer represents more than five percent of Farmers
Outlet gross revenues.
The company services customers in high, middle and low-income communities with a
specialty in providing food and fresh produce to customers serving small to
medium size restaurants of all nationalities, including Chinese, Korean,
Mexican, American, Japanese and Thai.
Pacific Ventures intends to expand its business through the acquisition of other
food manufacturing and distribution companies that serve the Los Angeles, Orange
County and San Diego area, thereby combining and expanding upon a combined
customer base with an expanding range of products and services.
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Results of Operations
Nine Months ended September 30, 2020, as Compared to Nine Months Ended September
30, 2019
Revenues - The Company recorded $22,929,026 sales revenue for the nine months
ended September 30, 2020 as compared to $3,600,317 for the same period of
September 30, 2019. The Company had $1,703,162 inventory of saleable merchandise
as of September 30, 2020 as compared to $830,504 for the period ending December
31, 2019.
Operating Expenses - Total operating expenses for the nine months ended
September 30, 2020 was $5,147,716 as compared to $1,544,119 in the same period
in, 2019, due to increased operating activities during the period ended
September 30, 2020, and an increase in selling, general and administrative
expenses.
Selling, General and Administrative Expenses - Selling, general and
administrative expenses for the nine months ended September 30, 2020 increased
by $2,854,285 to $3,636,326 from $782,041 in the same period in 2019, which was
due to an increase in various expenses and business expansion.
Marketing and Advertising Expenses - Marketing and advertising expenses for the
nine (9) months ended September 30, 2020 was $27,698 compared to $98,885 in
Septmeber 30, 2019.
Professional fees - Professional fees expense for the nine (9) months ended
September 30, 2020 was $752,723, which includes accounting, legal fees and
consulting services compared to $419,961 during the same period in 2019.
Depreciation and Amortization Expenses - Depreciation and Amortization expenses
for the nine (9) months ended September 30, 2020 and 2019 were $505,969 and
$18,231, respectively.
Salaries and Wages - Salaries and wages expense, in the form of payroll
expenses, which is included under selling & general expenses for the nine (9)
months ended September 30, 2020 was $1,919,238, as compared to $365,050 for the
prior same period.
Other Non-Operating Income and Expenses - For the nine (9) months period ended
September 30, 2020, the Company recorded interest and penalty expenses in the
amount of $1,261,273 for a non-operating loss in the same amount. In the nine
(9) months ended September 30, 2019 the Company recorded other non-operating
expenses of $537,673 in interest expense for a non-operating loss in the same
amount.
Net Loss - Net loss for nine (9) months ended September 30, 2020 was $3,896,531,
as compared to net loss of $1,088,193 for the nine (9) months ended September
30, 2019.
Financial Condition, Liquidity and Capital Resources
As of September 30, 2020, the Company had a working capital deficit of
$2,640,489, consisting of, $1,399,236 in accounts receivable, $1,703,162 in
inventory, $231,897 in other assets and $16,845 in deposits, offset by an
overdraft cash balance of $34,861, by accounts payable of $2,556,896, accrued
expenses of $1,202,372, equipment of $94,527 and $2,102,971 in the current
portion of notes payable.
For the nine (9) months period ended September 30, 2020, the Company used
$2,651,613 of cash in operating activities, used cash of $177,590 for investing
activities and obtained $2,478,385 cash from financing activities, resulting in
a decrease in total cash of $350,819 and an overdraft cash balance of $34,861
for the period. For the nine (9) months period ended September 30, 2019, the
Company used cash of 579,908 in operating activities, used cash of $75,525 for
investing activities and obtained cash of $517,952 from financing activities,
resulting in a decrease in cash of $137,481 and a cash balance of $13,577 at the
end of such period.
Total current assets as of September 30, 2020 was $3,316,279, while current
liabilities were $5,956,767. The Company has incurred an operating loss of
$3,896,531 for the nine (9) months period ended September 30, 2020, largely due
the increase in operating expenses, business expansion and increase in interest
and penalty fees. During the nine (9) months period ended September 30, 2020,
the Company had an accumulated deficit of $13,936,898. These factors raise
substantial doubt about our ability to continue as a going concern.
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Changes in the composition of our Notes Payable and Notes Payable-Related
Parties are presented in the table below:
As of September 30, 2020 As of December 31, 2019
$ Current $ Long-Term $ Current $ Long Term
Notes Payable 1,474,122 10,546,942 1,022,364 8,627,129
Notes Payable - Related 433,849 42,000 340,241 42,000
$ 1,907,971 $ 10,588,942 $ 1,362,605 $ 8,669,129Total Notes Payable for related and unrelated parties increased by $2,465,179
from the fiscal year ended December 31, 2019 from $10,031,734 to $12,496,913 in
the nine (9) months period ended September 30, 2020.
As of September 30, 2020, total stockholders' equity deficit increased to
$8,386,037 from $4,617,321 as of December 31, 2019. Accumulated deficit
increased from $10,040,367 in the fiscal year ended December 31, 2019 to
$13,936,898 for the nine (9) months period ended September 30, 2020.
As of September 30, 2020, the Company had an overdraft cash balance of $34,861
(i.e. cash is used to fund operations). The Company does not believe our current
cash balances will be sufficient to allow us to fund our operating plan for the
next twelve months. Our ability to continue as a going concern is dependent on
us obtaining adequate capital to fund operating losses until we become
profitable. If we are unable to obtain adequate capital, we could be forced to
cease operations or substantially curtail its drug development activities. These
conditions raise substantial doubt as to our ability to continue as a going
concern. The accompanying financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset amounts and
classification of liabilities should we be unable to continue as a going
concern.
Our principal sources of liquidity in the past has been cash generated by
issuing new shares of the Company's common stock and cash generated from loans
to us. In order to be able to achieve our strategic goals, we need to further
expand our business and financing activities. Expanding market awareness of the
SnöBar products and our international distribution networks, together with
further improvement of the SnöBar products will require future capital and
liquidity expansion. Since our inception in January 2013, our shareholders have
contributed a significant amount of capital making it possible for us to develop
and market the SnöBar products. To continue to develop our product offerings and
generate sales, significant capital has been and will continue to be required.
Management intends to fund future operations through additional private or
public equity and/or debt offerings. We continue to engage in preliminary
discussions with potential investors and broker-dealers, but no terms have been
agreed upon. There can be no assurances, however, that additional funding will
be available on terms acceptable to us, or at all. Any equity financing may be
dilutive to existing shareholders. We do not currently have any contractual
restrictions on our ability to incur debt and, accordingly we could incur
significant amounts of indebtedness to finance operations. Any such indebtedness
could contain covenants which would restrict our operations.
Off-Balance Sheet Arrangements
There are no off-balance sheet arrangements that have or are reasonably likely
to have a current or future effect on our financial condition, changes in
financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources that is material to investors.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America ("U.S. GAAP") requires
estimates and assumptions that affect the reported amounts of assets and
liabilities, revenues and expenses, and related disclosures of contingent assets
and liabilities in the consolidated financial statements and accompanying notes.
The SEC has defined a company's critical accounting policies as the ones that
are most important to the portrayal of the company's financial condition and
results of operations, and which require the company to make its most difficult
and subjective judgments, often as a result of the need to make estimates of
matters that are inherently uncertain.
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Based on this definition, we have identified the critical accounting policies
and judgments addressed which are described in Note 2 to our condensed
consolidated financial statements included elsewhere in this Quarterly Report.
Although we believe that our estimates, assumptions and judgments are
reasonable, they are based upon information presently available. Actual results
may differ significantly from these estimates under different assumptions,
judgments or conditions.
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PACIFIC VENTURES GROUP, INC. 
